UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
OR
ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number 001-38024
BeyondSpring Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
BeyondSpring Inc.
100 Campus Drive, West Side, 4th Floor, Suite 410
Florham Park, New Jersey 07932
(Address of principal executive offices)
Dr. Lan Huang, Chairperson of the Board and Chief Executive Officer
Telephone: +1 (646) 305-6387
Facsimile: +1 (646) 882-4228
BeyondSpring Inc.
100 Campus Drive, West Side, 4th Floor, Suite 410
Florham Park, New Jersey 07932
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Ordinary Shares, par value $0.0001 per
share
Trading Symbol
Name of each exchange on which
registered
BYSI
The NASDAQ Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the
close of the period covered by the annual report: 39,029,163 Ordinary Shares as of December 31, 2023
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated
filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Emerging growth company
☐
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP,
indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange
Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial
Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s
assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial
statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery
analysis of incentive-based compensation received by any of the registrant’s executive officers during the
relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate by checkmark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
Identity of Directors, Senior Management and Advisors
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Information
Offer and Listing
Additional Information
Qualitative and Quantitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
INTRODUCTION
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART II
Item 13.
Item 14.
Item 15.
Item 16.
Item 16A.
Item 16B. Code of Ethics
Item 16C.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E.
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 16I.
Item 16J.
Item 16K. Cybersecurity
PART III
Item 17.
Item 18.
Item 19.
Financial Statements
Financial Statements
Exhibits
Principal Accountant Fees and Services
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Insider Trading Policies
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
[Reserved]
Audit Committee Financial Expert
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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INTRODUCTION
BeyondSpring Inc. was incorporated as an exempted company under the laws of the Cayman Islands in
2014. Except as the context otherwise may require, all references to “us,” “our,” “BeyondSpring,” “we,” the
“Company” and similar designations refer to Dalian Wanchun Biotechnology Co., Ltd., or Wanchun Biotech,
the former holding company of our U.S. subsidiary, and its consolidated subsidiaries, as a whole, prior to the
completion of our internal corporate reorganization, and BeyondSpring Inc. and its consolidated subsidiaries,
after the completion of our internal corporate reorganization on July 20, 2015. All references in this annual
report on Form 20-F to “$,” “U.S. dollars” and “dollars” mean U.S. dollars, all references to “RMB” mean
Renminbi, the legal currency of China, unless otherwise noted. All references to “PRC” or “China” in this
annual report on Form 20-F refer to the People’s Republic of China.
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that are based on our
management’s belief and assumptions and on information currently available to our management. Although
we believe that the expectations reflected in these forward-looking statements are reasonable, these
statements relate to future events or our future financial performance, and involve known and unknown
risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements stated in or implied by these forward-looking statements.
All statements other than statements of historical facts are forward-looking statements. These forward-
looking statements are made under the “safe harbor” provision under Section 27A of the Securities Act of
1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. In
some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,”
“expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the
negative of these terms or other comparable terminology. These statements are only predictions. You should
not place undue reliance on forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which are, in some cases, beyond our control and which could materially
affect results. You should refer to “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual
report on Form 20-F for specific risks that could cause actual results to be significantly different from those
stated in or implied by these forward-looking statements. If one or more of these risks or uncertainties occur,
or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from
those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee
of future performance. You should read this annual report on Form 20-F and the documents that we
reference in this annual report on Form 20-F completely and with the understanding that our actual future
results may be materially different from any future results stated in or implied by these forward-looking
statements.
Forward-looking statements in this annual report on Form 20-F include, but are not limited to,
statements about:
● the initiation, timing, progress and results of our studies in animals and clinical trials, and our
research and development programs;
● our ability to advance our product candidates into, and successfully complete, clinical trials;
● our reliance on the success of our clinical-stage product candidates;
● the timing or likelihood of regulatory filings and approvals;
● our ability to address the concerns identified in the Complete Response Letter issued by the Food
and Drug Administration, or FDA, in November 2021 regarding the New Drug Application, or
NDA, seeking approval of Plinabulin in combination with granulocyte colony-stimulating factor, or
G-CSF, for the prevention of chemotherapy-induced neutropenia, or CIN;
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● our ability to re-file the NDA submission for the CIN indication with the National Medical
Products Administration, or NMPA, in China;
● the commercialization of our product candidates, if approved;
● our ability to develop sales and marketing capabilities;
● the pricing and reimbursement of our product candidates, if approved;
● the implementation of our business model, strategic plans for our business and technology;
● the scope of protection we are able to establish and maintain for intellectual property rights
covering our product candidates and technology;
● our ability to operate our business without infringing the intellectual property rights and
proprietary technology of third parties;
● costs associated with defending intellectual property infringement, product liability and other
claims;
● regulatory development in the United States, China and other jurisdictions;
● estimates of our expenses, future revenues, capital requirements and our needs for additional
financing;
● the potential benefits of strategic collaboration agreements and our ability to enter into strategic
arrangements;
● our ability to maintain and establish collaborations or obtain additional grant funding;
● the rate and degree of market acceptance of our product candidates;
● developments relating to our competitors and our industry, including competing therapies;
● our ability to effectively manage our anticipated growth;
● our ability to attract and retain qualified employees and key personnel;
● our future revenue, hiring plans, expenses, capital expenditures, capital requirements and share
performance;
● the future trading price of our ordinary shares and impact of securities analysts’ reports on these
prices;
● our ability to meet Nasdaq’s continued listing requirements;
● the impact of widespread health developments, and the responses thereto, which could materially
and adversely affect, among other things, enrollment of patients in our clinical trials, timing and
completion of regulatory or other required inspections, our expected timeline for data readouts of
our clinical trials and certain regulatory filings for our product candidates, and the review and
approval timeline of regulatory authorities;
● our ability to continue as a going concern; and
● other risks and uncertainties, including those listed under “Item 3. Key Information—D. Risk
Factors.”
The items in “Item 3. Key Information—D. Risk Factors” of this annual report on Form 20-F reference
the principal contingencies and uncertainties to which we believe we are subject, which should be
considered in evaluating any forward-looking statements contained in this annual report on Form 20-F.
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The forward-looking statements in this annual report on Form 20-F speak only to our views as of the
date of this annual report on Form 20-F and we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise. We
anticipate that subsequent events and developments will cause our views to change. However, while we may
elect to update these forward-looking statements at some point in the future, we have no current intention of
doing so except to the extent required by applicable law. You should therefore not rely on these forward-
looking statements as representing our views as of any date subsequent to the date of this annual report on
Form 20-F.
This annual report on Form 20-F contains market data and industry forecasts that were obtained from
industry publications. These data involve a number of assumptions and limitations, and you are cautioned not
to give undue weight to such estimates. While we believe the market position, market opportunity and
market size information included in this annual report on Form 20-F is generally reliable, such information is
inherently imprecise.
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A.
[Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risk Factors Summary
Risks Related to Our Financial Position and Need for Additional Capital
● We have a limited operating history, which may make it difficult to evaluate our current business
and predict our future performance.
● 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.
● We will depend on our ability to obtain necessary financing to fund our working capital
requirement to continue as a going concern.
● We will need to obtain additional financing to fund our future operations. If we are unable to
obtain such financing, we may be unable to complete the development and commercialization of
our current or future product candidates.
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Risks Related to Clinical Development of Our Product Candidates
● We depend substantially on the success of Plinabulin, which is being developed for multiple
indications. Clinical trials of Plinabulin or any other product candidates we develop may not be
successful. If we are unable to commercialize Plinabulin or any of our other product candidates,
or experience significant delays in doing so, our business will be materially harmed.
● If the FDA does not approve our NDA for Plinabulin in combination with G-CSF for the prevention of CIN, or the FDA’s review or
approval of our NDA for Plinabulin in such indication is significantly delayed or prolonged, or the continued development of
Plinabulin in such indication is significantly delayed or terminated, our business and results of operations could be significantly
adversely affected.
● All of our current clinical trials involve Plinabulin for multiple indications and we may not be
successful in our efforts to identify or discover additional product candidates. Due to our limited
resources and access to capital, we must, and have in the past decided to, prioritize the
development of Plinabulin for multiple indications. If our current Plinabulin-based product
candidates fail to become viable products, our business will be adversely affected.
● If we encounter difficulties enrolling patients in our clinical trials, our clinical development
activities could be delayed or otherwise adversely affected.
Risks Related to Obtaining Regulatory Approval for Our Product Candidates
● The regulatory approval processes of the FDA, the NMPA, which is the successor to the China
Food and Drug Administration, or CFDA, the European Medicines Agency, or 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 current product candidates or
any future product candidates we may develop, our business will be substantially harmed.
● Regulatory approval may be substantially delayed or may not be obtained for one or all of our
product candidates or target indications if regulatory authorities require additional time or
studies to assess the safety or efficacy of our product candidates.
● The results from our Phase 2/3 trials in CIN (PROTECTIVE-1 and PROTECTIVE-2) and our Phase 3
trial in advanced non-small cell lung cancer, or NSCLC (DUBLIN-3) may not be sufficiently robust
to support the submission or approval of marketing applications for our product candidates. The
FDA, NMPA, EMA or other regulatory authorities may require us to enroll additional subjects or
conduct additional clinical trials.
Risks Related to Commercialization of Our Product Candidates
● If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we
will not be able to commercialize our product candidates, and our ability to generate revenue will
be materially impaired.
● Even if any of our product 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.
● Any commercialization efforts by us will require us to develop sales, marketing and distribution
capabilities through arrangements with third parties or internally. If we are unable to enter into
agreements with third parties to market and sell our product candidates or to establish marketing
and sales capabilities, we may not be able to generate product sales revenue.
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Risks Related to Our Intellectual Property
● A 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.
● We may not be able to protect our intellectual property rights throughout the world.
● We may become involved in lawsuits to protect or enforce our intellectual property rights, which
could be expensive, time consuming and unsuccessful. Our patent rights relating to our product
candidates could be found invalid or unenforceable if challenged in court or before the U.S. Patent
and Trademark Office, or USPTO, or comparable non-U.S. authority.
Risks Related to Our Reliance on Third Parties
● We rely on third parties to conduct our studies in animals 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 product candidates and our business
could be substantially harmed.
● We expect to rely on third parties to manufacture our product candidate supplies, and we intend
to rely on third parties for the manufacturing process of our product candidates, if approved. Our
business could be harmed if those third parties fail to provide us with sufficient quantities of
product or fail to do so at acceptable quality levels or prices.
● We have formed, and may form or seek collaborations, strategic alliances or acquisitions or enter
into licensing arrangements in the future, and we may not realize the benefits of these
arrangements.
Risks Related to Our Industry, Business and Operation
● We may be limited in the promotional claims we can make and may not be able to use information
about competing therapies to promote or market Plinabulin, if approved, without incurring
significant regulatory or enforcement risks.
● We have limited intellectual property rights to Plinabulin inside China. We have also granted to
Hengrui exclusive rights to commercialize and co-develop Plinabulin in the Greater China
markets, including mainland China, Hong Kong, Macau and Taiwan.
● Our future success depends on our ability to retain our Chief Executive Officer and other key
executives and to attract, retain and motivate qualified personnel.
Risks Related to Our Doing Business in China
● The current tensions in international economic relations may negatively affect the process of our
clinical trials, the cost of our operations and the growth of our business.
● It may be difficult for overseas regulators to conduct investigation or collect evidence within
China.
● The pharmaceutical industry in China is highly regulated and such regulations are subject to
change which may affect approval and commercialization of our drugs.
● Changes in the political and economic policies of the Chinese government or in relations between
China and the United States may materially and adversely affect our business, financial condition,
results of operations and the market price of our ordinary shares.
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● Changes in U.S. and Chinese regulations may adversely impact our business, our operating
results, our ability to raise capital and the market price of our ordinary shares.
Risks Related to Our Ordinary Shares
● The trading prices of our ordinary shares are likely to be volatile, which could result in substantial losses to you.
● Sales or the availability for sales of substantial amounts of our ordinary shares in the public
market could cause the price of our ordinary shares to decline significantly.
● Because we do not expect to pay dividends in the foreseeable future, you must rely on price
appreciation of the ordinary shares for return on your investment.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history, which may make it difficult to evaluate our current business
and predict our future performance.
Wanchun Biotech, the former holding company of our U.S. subsidiary, was formed in 2010. Our
operations to date have focused on organizing and staffing our company, business planning, raising capital,
establishing our intellectual property portfolio, including protecting the rights to Plinabulin, and conducting
studies in animals and clinical trials of Plinabulin. Our current pipeline consists of Plinabulin for multiple
indications, including as a direct anticancer agent in NSCLC when combined with docetaxel, a pipeline of
clinical and preclinical immuno-oncology product candidates, and the prevention of CIN. We have not yet
demonstrated the ability to 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 product candidates. We have
no products approved for commercial sale and have not generated any revenue from product sales.
Consequently, it is difficult to evaluate our business and prospects for future performance.
We are focused on developing innovative cancer therapies to improve clinical outcomes for patients
who have high unmet medical needs. Our limited operating history, particularly in light of the rapidly
evolving cancer treatment field, may make it difficult to evaluate our current business and prospects for
future performance. Our short history makes any assessment of our future performance 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. In addition, as a new business, we may be more likely to encounter unforeseen expenses,
difficulties, complications and delays due to limited experience. 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.
Pharmaceutical product development is highly speculative because it entails substantial upfront capital
expenditures and significant risk that a product candidate will fail to gain regulatory approval or achieve
commercial viability and acceptance by patients, doctors and payors. We have devoted most of our financial
resources to research and development, including our studies in animals 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. For the years ended December 31, 2021, 2022 and 2023, we
reported a net loss of $68.2 million, $36.3 million and $21.9 million, respectively, and had an accumulated
deficit of $375.3 million and $396.3 million as of December 31, 2022 and 2023, respectively. Substantially 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 as we continue our development of, and seek regulatory approvals
for, our product 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
increase our expenses and adversely affect our ability to generate revenue. The size of our future net losses
will depend, in part, on our ability to manage these aspects of our business. If any of our product candidates
fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we
may never become profitable. For example, in November 2021, we received a Complete Response Letter
from the FDA for the NDA seeking approval of Plinabulin in combination with G-CSF for the prevention of
CIN. Although we expect to work closely with the FDA to consider the possible future clinical and regulatory
pathway for the CIN prevention indication, we may not be successful in obtaining approval from the FDA and
as a result may incur substantial losses. 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.
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We expect our research and development expenses to continue to be significant in connection with our
continued investment in our ongoing and planned clinical trials for our current product candidates and any
future product candidates we may develop. 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’ equity, financial position, cash flows and
working capital.
We will depend on our ability to obtain necessary financing to fund our working capital
requirement to continue as a going concern.
We are a clinical stage global biopharmaceutical company focused on developing innovative therapies
to improve clinical outcomes for patients with high unmet medical needs. We have incurred operating losses
and negative cash flows from operations since our inception. We have devoted most of our financial
resources to research and development, including our clinical and preclinical development activities. To
date, we have financed our operations primarily through equity financings. We have not generated, and do
not expect to generate, any significant revenue for the foreseeable future. We expect to continue to incur
significant operating losses for the foreseeable future due to the cost of research and development, clinical
trials, preclinical studies and the regulatory approval process for product candidates. The amount of our
future net losses is uncertain and will depend, in part, on the rate of our future expenditures. The opinion of
our independent registered accountants on our audited financial statements included in this annual report on
Form 20-F contains an explanatory paragraph regarding substantial doubt about our ability to continue as a
going concern. Our ability to continue operations as a going concern will depend on, among other things,
additional capital resources. There can be no assurance that capital will be available as necessary to meet
the Company’s working capital requirements or, if the capital is available, that it will be on terms acceptable
to the Company. The issuances of additional equity securities by the Company may result in dilution in the
equity interests of its current shareholders. Obtaining commercial loans, assuming those loans will be
available, will increase the Company’s liabilities and future cash commitments. Our financial statements do
not contain any adjustments to the amounts or classification of recorded assets or liabilities that might be
necessary if we do not continue as a going concern. The financial statements take no account of unsuccessful
product development or commercialization.
We will need to obtain additional financing to fund our future operations. If we are unable to
obtain such financing, we may be unable to complete the development and commercialization of
our current or future product candidates.
We have financed our operations with a combination of equity offerings, shareholder and third-party
loans, including bank loans, and collaboration arrangements. We have financed the operations of our
subsidiary, SEED Therapeutics Inc., or SEED, through the issuance of ordinary and preferred shares and
through collaboration payments from Eli Lilly and Company, or Eli Lilly. Through December 31, 2023, we
have raised approximately $296.0 million in equity financing, $10.2 million of issuance of noncontrolling
interests, $10.0 million of issuance of preferred shares of SEED, $2.1 million from bank loans, of which $0.6
million has been forgiven in July 2021 and $1.5 million has been repaid in March 2022, $2.5 million in third
party loans, of which $1.0 million has since been converted into an equity investment and $1.5 million has
been repaid, and $14.4 million in shareholder loans, of which $6.0 million has been repaid and $8.4 million
was assumed by Wanchun Biotech, the former holding company of our U.S. subsidiary, on July 20, 2015
pursuant to our internal restructuring, $10.0 million upfront payment to SEED from Eli Lilly, and
approximately $31.0 million upfront payment to our partially owned subsidiary, Dalian Wanchunbulin
Pharmaceuticals Ltd., or Wanchunbulin, from Jiangsu Hengrui Pharmaceuticals Co., Ltd., or Hengrui. Our
product candidates will require the completion of regulatory review, significant marketing efforts and
substantial investment before they can provide us with any product sales revenue.
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Our operations have consumed substantial amounts of cash since inception. The net cash used for our
operating activities was $47.2 million, $28.2 million and $16.5 million for the years ended December 31,
2021, 2022 and 2023, respectively. We expect to continue to spend substantial amounts on discovering new
product candidates and advancing the clinical development of our product candidates. We have partnered
with Hengrui for the commercialization of Plinabulin in Greater China. In the U.S. and for the rest of the
world, we currently plan to prioritize seeking a commercialization partner to maximize Plinabulin’s potential
in multiple cancer indications.
We will need to obtain additional financing to fund our future operations. We will need to raise
additional financing to conduct additional clinical trials that may be required by the FDA to meet any
regulatory requirements for additional clinical trials to support a potential NDA filing for NSCLC and to
support the NDA approval for prevention of CIN. We will also need to obtain additional financing to complete
the development and commercialization of our future product candidates. Moreover, our operating expenses
and other contractual commitments are substantial and are expected to increase in the future.
Our future funding requirements will depend on many factors, including, but not limited to:
● the costs of our current, planned and potential future clinical trials;
● the outcome, timing and cost of regulatory approvals by the FDA, NMPA, EMA, and comparable
regulatory authorities, including any additional studies we may be required to perform;
● the cost of commercialization of our product candidates;
● the cost and timing of completion of commercial-scale outsourced manufacturing activities;
● the amount of profit we earn from product candidates that we succeed in commercializing, if any;
● the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights;
● the expenses associated with any potential future collaborations, licensing or other arrangements
that we may establish;
● cash requirements of any future acquisitions;
● the costs of operating as a public company;
● the time and cost necessary to respond to technological and market developments; and
● the number and characteristics of product candidates that we may develop and expenses
associated with that development.
We may finance future cash needs through equity and debt financing, potential licensing and
partnership arrangements, and sale of products after obtaining regulatory approvals. The issuances of
additional equity securities by us may result in dilution in the equity interests of our current shareholders.
Obtaining commercial loans, assuming those loans will be available, will increase our liabilities and future
cash commitments. General market conditions and the Complete Response Letter received from the FDA
may make it very difficult for us to seek financing from the capital markets. We may not be able to complete
financing on reasonable terms or at all. If we are unable to obtain financing in the amounts and on terms
deemed acceptable, the business and future success will be materially and adversely affected. 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.
8
Raising additional capital may cause dilution to our shareholders, restrict our operations or
require us to relinquish rights to our technologies or product candidates.
We may seek additional funding through a combination of equity and debt financing, potential licensing
and partnership arrangements, and sale of products after obtaining regulatory approvals. Any issuance of
equity or equity-linked securities could result in significant dilution to our shareholders. The incurrence of
additional indebtedness or the issuance of certain equity securities could result in increased fixed payment
obligations and could also result in certain additional restrictive covenants, such as limitations on our ability
to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual
property rights and other operating restrictions that could adversely impact our ability to conduct our
business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause
the market price of our ordinary shares to decline. In the event that we enter into collaborations or licensing
arrangements 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 product 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.
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 product candidates and
any future product candidates we may develop, 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
commercialization of our product candidates and any future product candidates. None of our product
candidates has been approved for marketing in China, the U.S., the European Union or any other jurisdiction
and our product candidates may never receive such approval. Our ability to generate revenue and achieve
profitability is dependent on our ability to complete the development of our product candidates and any
future product candidates we develop, obtain necessary regulatory approvals, and have our drugs
manufactured and successfully marketed.
Even if we receive regulatory approval and marketing authorization for one or more of our product
candidates or one or more of any future product candidates for commercial sale, a potential product may not
generate revenue at all unless we are successful in:
● developing a sustainable and scalable manufacturing process for our product candidates and any
approved products, including establishing and maintaining commercially viable supply
relationships with third parties;
● launching and commercializing product candidates for which we obtain regulatory approvals and
marketing authorizations, either directly or with a collaborator or distributor;
● obtaining market acceptance of our product candidates as viable treatment options; and
● addressing any competing technological and market developments.
In addition, our ability to achieve and maintain profitability depends on timing and amount of expenses
we incur. Our expenses could increase materially if we are required by the FDA, the NMPA, the EMA or
other comparable regulatory authorities to perform studies in addition to those that we currently anticipate.
Even if our product candidates are approved for commercial sale, we anticipate incurring significant costs
associated with the commercial launch of these drugs.
Even if we are able to generate revenues from the sale of any products we may develop, we may not
become profitable on a sustainable basis or at all. Our failure to become and remain profitable would
decrease the value of our company and adversely affect the market price of our ordinary shares which could
impair our ability to raise capital, expand our business or continue our operations and cause you to lose all or
part of your investment.
9
Risks Related to Clinical Development of Our Product Candidates
We depend substantially on the success of Plinabulin, which is being developed for multiple
indications. Clinical trials of Plinabulin or any other product candidates we develop may not be
successful. If we are unable to commercialize Plinabulin or any of our other product 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 Plinabulin and any other product
candidates we may develop. We have invested a significant portion of our efforts and financial resources in
the development of our current product candidates and expect to invest in other product candidates. The
success of Plinabulin and any other potential product candidates will depend on many factors, including:
● successful enrollment in, and completion of, studies in animals and clinical trials;
● third parties’ ability in conducting our clinical trials safely, efficiently and according to the agreed
protocol;
● timely receipt of regulatory approvals from the FDA, NMPA, EMA and other comparable
regulatory authorities for our product candidates;
● our ability to obtain regulatory approvals for the target indications;
● establishing commercial manufacturing capabilities by making arrangements with third-party
manufacturers;
● launching commercial sales of our product candidates, if and when approved;
● ensuring we do not infringe, misappropriate or otherwise violate the patent, trade secret or other
intellectual property rights of third parties;
● obtaining acceptance of our product candidates by doctors and patients;
● obtaining reimbursement from third-party payors for our product candidates, if and when
approved;
● our ability to compete against other product candidates and drugs;
● maintaining an acceptable safety profile for our product candidates following regulatory approval,
if and when received; and
● obtaining and maintaining patent, trade secret and other intellectual property protection and
regulatory exclusivity.
We may not achieve regulatory approval and commercialization in a timely manner or at all. Significant
delays in our ability to obtain approval for and/or to successfully commercialize our product candidates
would materially harm our business and we may not be able to generate sufficient revenues and cash flows
to continue our operations.
If the FDA does not approve our NDA for Plinabulin in combination with G-CSF for the prevention
of CIN, or the FDA’s review or approval of our NDA for Plinabulin in such indication is significantly
delayed or prolonged, or the continued development of Plinabulin in such indication is
significantly delayed or terminated, our business and results of operations could be significantly
adversely affected.
In November 2021, we received a Complete Response Letter from the FDA for Plinabulin in
combination with G-CSF for the prevention of CIN. The FDA issues a complete response letter to indicate
that the review cycle for an application is complete but the application cannot be approved in its current
form. In the Complete Response Letter, the FDA indicated the results of the single registrational trial
(PROTECTIVE-2 Phase 3) were not sufficiently robust to demonstrate benefit and that a second well-
controlled trial would be required to satisfy the substantial evidence requirement to support the CIN
indication. We expect to work closely with the FDA to consider the possible future clinical and regulatory
pathway for the CIN prevention indication. If the FDA does not approve our NDA for Plinabulin in
combination with G-CSF for the prevention of CIN, or the FDA’s review or approval of our NDA for Plinabulin
in such indication is significantly delayed or prolonged, or the continued development of Plinabulin is
significantly delayed or terminated, it would have a material adverse effect on our business, financial
condition and results of operations.
10
All of our current clinical trials involve Plinabulin for multiple indications and we may not be
successful in our efforts to identify or discover additional product candidates. Due to our limited
resources and access to capital, we must, and have in the past decided to, prioritize the
development of Plinabulin for multiple indications. If our current Plinabulin-based product
candidates fail to become viable products, our business will be adversely affected.
Although in the future we intend to explore other therapeutic opportunities in addition to Plinabulin,
which we acquired from NPBSIPO Liquidating Trust, or Nereus, and did not develop on our own, currently
we have only identified three product candidates and one drug development platform (currently under
SEED) that do not include Plinabulin and clinical trials on those candidates have not begun. Development of
product candidates requires substantial technical, financial and human resources whether or not we
ultimately are successful. Our research programs and those of our collaborators may initially show promise
in identifying potential indications and/or product candidates, yet fail to yield results for clinical development
for a number of reasons, including:
● the research methodology used may not be successful in identifying potential indications and/or
product candidates;
● potential product 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
● it may take greater human and financial resources to identify additional therapeutic opportunities
for our product candidates or to develop suitable potential product 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
product candidates for specific indications. We may focus our efforts and resources on potential product
candidates or other potential programs that ultimately prove to be unsuccessful. We also may forego or delay
pursuit of opportunities with other product 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, we may never be able to identify additional therapeutic opportunities for our product
candidates or to develop suitable potential product candidates through either internal research programs,
which could materially adversely affect our future growth and prospects, or our collaborations.
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 meet the trial criteria and remain in the trial until
its conclusion. We may experience difficulties enrolling and retaining appropriate patients in our clinical
trials for a variety of reasons, including:
● emergence of a pandemic or other widespread health emergencies or concerns over the
possibility of such an emergency, including the COVID-19 pandemic, which, in particular, affected
our enrollment of patients in Ukraine and China, and enrollment was shifted to other clinical sites.
We experienced minor delays in enrollment of patients in our clinical trials in general, as well as
minor delays in processing the clinical trial data. The COVID-19 pandemic also affected required
regulatory clinical site inspections and regulatory review process, which have delayed and could
further delay or otherwise impede regulatory review and approvals;
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● the size, nature and geographical composition of the patient population;
● the patient eligibility criteria defined in the clinical protocol;
● the size of the study population required for statistical analysis of the trial’s primary endpoints;
● the proximity of patients to trial sites;
● the design of the trial and changes to the design of the trial;
● our ability to recruit clinical trial investigators with the appropriate competencies and experience;
● competing clinical trials for similar therapies or other new therapeutics exist and will reduce the
number and types of patients available to us;
● clinicians’ and patients’ perceptions as to the potential advantages and side effects of the product
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;
● our ability to obtain and maintain patient consents;
● patients enrolled in clinical trials may not complete a clinical trial; and
● the availability of approved therapies that are similar to our product candidates.
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 product candidates.
The ongoing hostilities between Russia and Ukraine and ancillary developments may have an
adverse effect on our business.
A portion of our CIN clinical trials (PROTECTIVE-1 and PROTECTIVE-2) were conducted in Russia and
Ukraine. Although we currently are not conducting and do not currently plan to conduct in the future any
clinical trials in Russia or Ukraine, the ongoing hostilities between these two countries may require us to
avoid conducting any future clinical trials in such jurisdictions due to difficulties in enrolling patients and
supply chain disruptions.
Clinical drug development involves a lengthy and expensive process and can fail at any stage of the
process. We have limited experience in conducting clinical trials and results of earlier studies and
trials may not be reproduced in future clinical trials.
Clinical testing is expensive and can take many years to complete, and failure can occur at any time
during the clinical trial process. The results of studies in animals and early clinical trials of our product
candidates may not predict the results of later-stage clinical trials. We have conducted Phase 2/3 clinical
trials in CIN prevention (PROTECTIVE-1 and PROTECTIVE-2) and a Phase 3 trial in advanced NSCLC
(DUBLIN-3), investigator-initiated Phase 1 and Phase 2 clinical trials with a triple combination therapy for
the treatment of extensive-stage small cell lung cancer, or ES-SCLC, NSCLC, and a basket Phase 1 study in a
number of cancer indications; however, we did not conduct the Phase 1/2 clinical trial pertaining to the
combination of Plinabulin and docetaxel, or Study 101. Study 101 was conducted by Nereus and we acquired
Plinabulin from Nereus after such Phase 1/2 clinical trial had been substantially completed. Product
candidates, including Plinabulin, evaluated in later stages of clinical trials may fail to show the desired safety
and efficacy traits despite having progressed through studies in animals and initial clinical trials. In some
instances, there can be significant variability in safety and/or efficacy results between different trials of the
same product candidate due to numerous factors, including changes in trial procedures set forth in
protocols, differences in the size and type of the patient populations (including genetic differences), patient
adherence to the dosing regimen and the patient dropout rate. Results in later trials may also differ from
earlier trials due to a larger number of clinical trial sites and additional countries and languages involved in
such trials. In addition, the design of a clinical trial can determine whether its results will support approval
of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well
advanced and significant expense has been incurred.
12
A number of companies in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials due to lack of demonstrated efficacy or adverse safety profiles,
notwithstanding promising results in earlier trials. Clinical trials of potential products often reveal that it is
not practical or feasible to continue development efforts. For example, the improvement in survival for all
patients enrolled in the Plinabulin plus docetaxel arm of the Phase 2 portion of Study 101 was not
statistically significant. We decided to proceed with a Phase 3 clinical trial of Plinabulin in combination with
docetaxel for advanced NSCLC (DUBLIN-3 (previously referred to as Study 103)) based on a post hoc
analysis of a certain subset of patients as amended based upon our discussions with the FDA. Based on this
previous subset analysis, in DUBLIN-3, we enrolled advanced or metastatic NSCLC patients into this trial
who failed at least one previous platinum-based chemotherapy and had measurable lesions. Designing the
Phase 3 trial in this manner may increase the risk that the results of the trial may not be what we expect.
While the results of DUBLIN-3 of Plinabulin in combination with docetaxel for advanced NSCLC
demonstrated statistically significant efficacy, there is no assurance that we will be able to obtain approval of
Plinabulin for such indication due to a variety of potential reasons, such as the applicability of the study for
the U.S. patient population. In addition, our Phase 3 or any additional trial for the prevention of CIN caused
by high-risk chemotherapy (PROTECTIVE-2 (previously referred to as Study 106)) or other trials we conduct
might not support NMPA or FDA approval of Plinabulin in one or either of these indications. If this occurs,
we would need to replace any of the failed trials with a new trial or trials, which would require significant
additional expense, cause substantial delays in commercialization and materially adversely affect our
business, financial condition, cash flows and results of operations.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the
satisfaction of the FDA, NMPA, 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
product candidates.
Before applying for and obtaining regulatory approval for the sale of any of our product candidates, we
must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in
humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete
and may fail. A failure of one or more of our clinical trials can occur at any stage of testing and successful
interim results of a clinical trial do not necessarily predict successful final results. In the past, patients
developed certain undesirable adverse events caused by Plinabulin, including nausea, vomiting, fatigue,
fever, tumor pain and transient blood pressure elevation, and in the future patients may develop similar or
different undesirable adverse events, that could delay or prevent regulatory approval. We and our Contract
Research Organizations, or CROs, are required to comply with Good Clinical Practice requirements, or GCPs,
which are regulations and guidelines enforced by the FDA, NMPA, EMA and other comparable regulatory
authorities for all drugs in clinical development. Regulatory authorities enforce these GCPs through periodic
inspections of trial sponsors, principal investigators and trial sites, among other measures. Compliance with
GCPs can be costly and if we or any of our CROs fail to comply with applicable GCPs, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA, NMPA, EMA or comparable
regulatory authorities may require us to perform additional clinical trials before approving our marketing
applications.
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 product candidates,
including:
● regulators, institutional review boards, or IRBs, or ethics committees may not authorize us or our
investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
● clinical trials of our product 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;
● the number of patients required for clinical trials of our product 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;
13
● our third-party contractors and investigators may fail to comply with regulatory requirements or
meet their contractual obligations to us in a timely manner, or at all;
● we might have to suspend or terminate clinical trials of our product candidates for various
reasons, including a lack of clinical response or a determination that participants are being
exposed to unacceptable health risks;
● regulators, IRBs or ethics committees may require that we or our investigators suspend or terminate
clinical research for various reasons, including noncompliance with regulatory requirements;
● the cost of clinical trials of our product candidates may be greater than we anticipate;
● the supply or quality of our product candidates or other materials necessary to conduct clinical
trials of our product candidates may be insufficient or inadequate; and
● our product candidates may cause adverse events or have undesirable side effects or other
unexpected characteristics, causing us, our investigators, or regulators to suspend or terminate
the trials.
If we are required to conduct additional clinical trials or other testing of our product candidates
beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our
product 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:
● be delayed in obtaining regulatory approval for our product candidates;
● not obtain regulatory approval at all;
● obtain approval for indications that are not as broad as intended;
● have a drug removed from the market after obtaining regulatory approval;
● be subject to additional post-marketing testing requirements;
● be subject to restrictions on how a drug is distributed or used; or
● be unable to obtain reimbursement for use of a 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. Clinical trials may produce negative or inconclusive results. Moreover, these trials may be
delayed or proceed less quickly than intended. Delays in completing our clinical trials will increase our costs,
slow down our product candidate development and approval process, and jeopardize our ability to commence
product sales and generate revenues and we may not have sufficient funding to complete the testing and
approval process. Any of these events may significantly harm our business, financial condition and prospects,
lead to the denial of regulatory approval of our product candidates or allow our competitors to bring drugs to
market before we do, impairing our ability to commercialize our drugs if and when approved.
Risks Related to Obtaining Regulatory Approval for Our Product Candidates
The regulatory approval processes of the FDA, NMPA, 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 current product candidates or any future product
candidates we may develop, our business will be substantially harmed.
We cannot commercialize product candidates without first obtaining regulatory approval to market
each drug from the FDA, NMPA, EMA or comparable regulatory authorities in the applicable jurisdictions.
Before obtaining regulatory approvals for the commercial sale of any product candidate for a target
indication in a particular jurisdiction, we must demonstrate in studies in animals and well-controlled clinical
trials, and, to the satisfaction of the FDA with respect to approval in the U.S., that the product candidate is
safe and effective for use for that target indication and that the manufacturing facilities, processes and
controls are adequate.
14
The time required to obtain approval by the FDA, NMPA, EMA and other comparable regulatory
authorities is unpredictable but typically takes many years following the commencement of studies in
animals 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 can differ among regulatory authorities and may change during the course of a
product candidate’s clinical development. We have not obtained regulatory approval for any product
candidate. In November 2021, we received a Complete Response Letter from the FDA for the NDA seeking
approval of Plinabulin in combination with G-CSF for the prevention of CIN. In March 2023, we withdrew the
NDA submission for the indication of Plinabulin in combination of pegfilgrastim agents to treat CIN in adult
non-myeloid cancer from the NMPA. We continue to communicate with the NMPA regarding the re-filing of
the NDA for the CIN indication and plan to use our best efforts to re-file the NDA as soon as possible. It is
possible that neither our existing product candidates nor any product candidates we may discover or acquire
for development in the future will ever obtain regulatory approval. Even if we obtain regulatory approval in
one jurisdiction, we may not obtain it in other jurisdictions or we may not obtain it for the same indications
or under the same conditions.
Our product candidates could fail to receive regulatory approval from any of the FDA, NMPA, EMA or a
comparable regulatory authority for many reasons, including:
● disagreement with regulators regarding the design or implementation of our clinical trials;
● failure to demonstrate that a product candidate is safe and effective or safe, pure and potent for
its proposed indication;
● failure of clinical trial results to meet the level of statistical significance required for approval. For
example, the results of Study 101 were not statistically significant;
● failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety
risks;
● disagreement with regulators regarding our interpretation of data from studies in animals or
clinical trials;
● insufficiency of data collected from clinical trials of our product candidates to support the
submission and filing of an NDA, or other submission or to obtain regulatory approval;
● the FDA, NMPA, EMA or a 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
● changes in approval policies or regulations that render our preclinical studies and clinical data
insufficient for approval.
In addition, our late stage clinical trials for the treatment of NSCLC and prevention of CIN for
Plinabulin include a majority of patients in China, which may create regulatory risks for our NDA filings in
the U.S. Our NSCLC clinical trial (DUBLIN-3) was conducted in 559 patients with approximately 87% of the
patients in China and 13% of the patients in the U.S. and Australia. Our CIN clinical trials (PROTECTIVE-1
and PROTECTIVE-2) were conducted in approximately 500 patients with approximately 50% of the patients
in China and 50% of the patients in the U.S., Russia and Ukraine. If no benefit is shown in the U.S.
population, if the results of our studies do not support the assessment that the Phase 3 study data may be
pooled, or if the patient population enrolled does not reflect the U.S. standard of care, among other potential
objections, the findings of the trials might not be considered to be applicable to U.S. patients and the FDA
might not approve our NDA.
The FDA has expressed disapproval about the use of single country foreign data to support a U.S.
marketing application. The FDA has declined to approve a marketing application for an immunotherapy
product that had been studied through a clinical trial conducted exclusively in China. A briefing document
for the FDA advisory committee meeting convened to assess the product’s marketing application noted that
the current trend of marketing applications submitted to the FDA based on foreign data from single country
trials was a departure from the preferred method of multiregional clinical trials, and it stated that the data
from the single country clinical trial in question was not applicable to the U.S. population and U.S. medical
practice. If the FDA determines that our clinical trials are affected by similar concerns, it could require
additional clinical trials, which would be costly and lead to delays in receiving FDA marketing approval for
Plinabulin, or it could decline to approve our NDA for Plinabulin, which would have a material adverse effect
on our business, financial condition and results of operations.
15
Any of the FDA, NMPA, EMA or a comparable regulatory authority may require more information,
including additional preclinical studies or clinical data, to support approval for a target indication, which
may delay or prevent approval and our commercialization plans, or we may decide to abandon the
development program. For example, in the Complete Response Letter we received in November 2021, the
FDA indicated that the results of the single registrational trial (PROTECTIVE-2 Phase 3) were not sufficiently
robust to demonstrate benefit and that a second well-controlled trial would be required to satisfy the
substantial evidence requirement to support the CIN indication.
In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may
change and additional government regulations may be enacted. If we are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies governing clinical trials, our
development plans may be impacted. For example, in December 2022 with the passage of the Food and Drug
Omnibus Reform Act, or FDORA, Congress required sponsors to develop and submit a diversity action plan
for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans
are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of
FDA-regulated products. Specifically, action plans must include the sponsor’s goals for enrollment, the
underlying rationale for those goals, and an explanation of how the sponsor intends to meet them. In addition
to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans. If the
FDA determines that the patient populations of any of our clinical trials are not sufficiently diverse, such as
our advanced NSCLC study (DUBLIN-3), it could require additional clinical trials which would be costly and
could lead to delays in receiving FDA marketing approval, or it could decline to provide marketing approval,
for affected product candidates or indications, which would have a material adverse effect on our business,
financial condition and results of operations.
If we were to obtain approval, regulatory authorities may approve any of our product candidates for
fewer or more limited indications than we request. For example, because the FDA views squamous and non-
squamous NSCLC as distinct diseases, we may only be able to obtain approval in one of those diseases.
Regulatory authorities also may grant approval contingent on the performance of costly post-marketing
clinical trials or other post-marketing requirements, or may approve a product candidate with a label that
presents obstacles to the successful commercialization of that product candidate. In addition, if our product
candidate produces undesirable side effects or involves safety issues, the FDA may require the establishment
of a Risk Evaluation Mitigation Strategy, or REMS, or the NMPA, EMA or a comparable regulatory authority
may require the establishment of a similar strategy. Such a strategy may, for instance, restrict distribution of
our product candidate, require patient or physician education or impose other burdensome implementation
requirements on us.
Any of the foregoing or similar scenarios could materially harm the commercial prospects of our
product candidates.
Regulatory approval may be substantially delayed or may not be obtained for one or all of our
product candidates or target indications if regulatory authorities require additional time or
studies to assess the safety or efficacy of our product candidates.
We may be unable to complete development of our product candidates, or initiate or complete
development of any future product candidates we may develop, on schedule, if at all. We will need to raise
additional financing to conduct any additional clinical trials required by the FDA to support the NDA
approval for prevention of CIN and to meet any regulatory requirements for additional clinical trials to
support a potential NDA filing for NSCLC. We may not have or in the future be able to obtain adequate
funding to complete the necessary steps for approval for our product candidates or any future product
candidate.
16
Studies in animals and clinical trials required to demonstrate the safety and efficacy of our product
candidates are time consuming and expensive and take several years or more to complete. Delays in clinical
trials, regulatory approvals or rejections of applications for regulatory approval in the U.S., China, Europe or
other markets may result from many factors, including:
● our inability to obtain sufficient funds required to conduct or continue a clinical trial, including
lack of funding due to unforeseen costs or business decisions;
● failure to reach agreement with, or inability to comply with conditions imposed by, the FDA,
NMPA, EMA or other regulators regarding the scope or design of our clinical trials or other
aspects of the regulatory approval process;
● clinical holds, other regulatory objections or conditions 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;
● our inability to reach agreements on acceptable terms with prospective CROs with the requisite
experience and expertise, and trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
● our inability to obtain approval from IRBs or ethics committees to conduct clinical trials at their
respective sites;
● our inability to enroll in a clinical trial a sufficient number of patients who meet the applicable
inclusion and exclusion criteria of the clinical trial;
● our inability to retain a sufficient number of patients in a clinical trial;
● our inability to conduct a clinical trial in accordance with regulatory requirements or our clinical
protocols;
● clinical sites and investigators deviating from trial protocol, failing to conduct the trial in
accordance with regulatory requirements, withdrawing from or dropping out of a trial, or
becoming ineligible to participate in a trial;
● 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;
● delay or failure in adding new clinical trial sites;
● failure of our CROs or third-party clinical trial managers to satisfy their contractual duties or meet
expected deadlines;
● manufacturing issues, including delays or other problems with manufacturing, quality issues or
timely obtaining from third parties sufficient quantities of a product candidate for use in a clinical
trial;
● difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
● ambiguous or negative interim or final results, or results that are inconsistent with earlier results;
● unfavorable or inconclusive results of clinical trials or supportive studies in animals;
● regulatory requests for additional analyses, reports, data, or studies in animals or clinical trials, or
regulatory questions regarding the interpretation of data, or regulatory requests for re-filing of
NDAs;
● feedback from the FDA, NMPA, EMA, an IRB, data safety monitoring boards, or comparable
entities, or results from earlier stage or concurrent studies in animals or clinical trials, regarding
our product candidates or other drug products, including which might require modification of a
trial protocol or suspension or termination of a clinical trial;
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● unacceptable benefit-risk profile or unforeseen safety issues or adverse side effects in our product
candidates or other drug products;
● a decision by the FDA, NMPA, 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; and
● failure to demonstrate a benefit from using a drug.
Changes in regulatory requirements and guidance may also occur at any time, including after
commencement of a clinical trial or subsequent to submitting an application for regulatory approval, and we
may need to amend clinical trial protocols or other materials 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 increase the costs or time required to complete a clinical trial.
The results from our Phase 2/3 trials in CIN (PROTECTIVE-1 and PROTECTIVE-2) and our Phase 3
trial in advanced NSCLC (DUBLIN-3) may not be sufficiently robust to support the submission or
approval of marketing applications for our product candidates. The FDA, NMPA, EMA or other
regulatory authorities may require us to enroll additional subjects or conduct additional clinical
trials.
In November 2021, we received a Complete Response Letter from the FDA for Plinabulin in
combination with G-CSF for the prevention of CIN. In the Complete Response Letter, the FDA indicated the
results of the single registrational trial (PROTECTIVE-2 Phase 3) were not sufficiently robust to demonstrate
benefit and that a second well-controlled trial would be required to satisfy the substantial evidence
requirement to support the CIN indication. In March 2023, we withdrew the NDA submission for the
indication of Plinabulin in combination of pegfilgrastim agents to treat CIN in adult non-myeloid cancer from
the NMPA. We continue to communicate with the NMPA regarding the re-filing of NDA for the CIN
indication and plan to use our best efforts to re-file the NDA as soon as possible. It is possible that the
NMPA, EMA or other regulatory authorities may not consider the results of our two Phase 2/3 trials in CIN to
be sufficient for approval of such indication, similar to the FDA. It is also possible that the FDA, NMPA, EMA
or other regulatory authorities may not consider the results of our one Phase 3 trial for NSCLC to be
sufficient for approval of such indication. In particular, the FDA generally requires two pivotal clinical trials
to approve a drug. In the area of oncology, however, the FDA has in some instances only required one Phase
3 clinical trial for approval of a drug in cases of severe unmet medical need. The FDA typically does not
consider a single clinical trial to be adequate to serve as a pivotal trial unless, among other things, it is well-
controlled and demonstrates a clinically meaningful effect on mortality, irreversible morbidity, or prevention
of a disease with potentially serious outcome, and a confirmatory study would be practically or ethically
impossible. While we have been informed by the FDA that one Phase 2/3 trial with (i) results that are highly
statistically significant, (ii) a clinically meaningful effect on survival that is consistent among relevant
subgroups and (iii) an acceptable benefit-risk profile may be sufficient for approval of Plinabulin as an
anticancer agent in advanced metastatic NSCLC, because the FDA generally requires two pivotal clinical
trials, it may require that we conduct larger or additional clinical trials for NSCLC prior to the NDA
submission or as a requirement for approval for such indication. It is also possible that, even if we achieve
favorable results in the Phase 3 NSCLC trial, the FDA may require us to enroll additional subjects or conduct
additional clinical trials, possibly involving a larger sample size or a different clinical study design,
particularly if the FDA does not find the results from the Phase 3 NSCLC trial to be sufficiently persuasive to
support the NDA submission.
If the FDA, NMPA, EMA, or other regulatory authorities require additional studies, we would incur
increased costs and delays in the marketing approval process, which may require us to expend more
resources than we have available. In addition, it is possible that the FDA, NMPA, EMA, or other regulatory
authorities may have divergent opinions on the elements necessary for a successful NDA or similar
marketing application, which may cause us to alter our development, regulatory or commercialization
strategies.
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In October 2017, the General Office of the Central Committee of the Communist Party of China and the
Chinese State Council, or the State Council, issued the Opinions on Deepening the Reform of the Review and
Approval System and Inspiring Innovation of Drugs and Medical Devices. This opinion provides, among other
things, that the review and approval process should be accelerated for drugs or medical devices that are
urgently in need for clinical practice. For drugs or medical devices that are (i) for treatment of severe and
life-threatening diseases that cannot be cured in an effective manner, or (ii) urgently in need for public
health, if early and mid-term indicators in clinical trials for these drugs or medical devices show efficacy and
potential clinical value, the marketing of these drugs and medical devices may be approved conditionally,
and companies who desire to market such drugs or medical devices shall develop risk control plans and
conduct research according to applicable requirements. On November 19, 2020, the Announcement on the
Technical Guidance Principles for Conditional Approval of Drugs (Trial) was issued by the Center for Drug
Evaluation, or CDE, and came into effect on the same day. This announcement stipulates the definition of
severe and life-threatening diseases and drugs in need in public health and requires applicants to discuss
and reach consensus with the CDE on the research and other contents promised to be completed after the
marketing, including without limitation, submitting post-marketing clinical research plans, the anticipated
completion date thereof, the submission date of the clinical research report and the post-marketing risk
control plans, etc. Furthermore, on December 1, 2019, the newly revised Drug Administration Law of the
People’s Republic of China, or the PRC Drug Administration Law, came into effect. The PRC Drug
Administration Law reiterates that drugs (i) for treatment of severe and life-threatening diseases that cannot
be cured in an effective manner or (ii) urgently in need for public health, may be approved conditionally,
provided that indicators in clinical trials for these drugs show efficacy and potential clinical value. With
regard to a drug that has been approved conditionally, the market authorization holder of the drug shall take
corresponding risk management measures and complete the relevant research as required within the
prescribed time limit. If the research fails to be completed as required within the prescribed time limit or
fails to prove that the benefits outweigh the risks, then, at the worst, the drug marketing license may be
revoked. The aforementioned conditional approval mechanism was further adopted by the newly revised
Provisions for Drug Registration, which were issued by the State Administration for Market Regulation on
January 22, 2020 and came into effect on July 1, 2020. The newly revised Provisions for Drug Registration
reiterate the duties owed by the market authorization holder as stipulated in the PRC Drug Administration
Law and further provide that the drug approved conditionally shall be declared in the form of a
supplementary application after the relevant post-marketing clinical research is accomplished. On August 24,
2023, the NMPA issued the revised draft Protocol for Review and Approval of Conditional Approval of Drugs
Marketing Applications (Trial) and the policy interpretations for such protocol for public comments. The
draft protocol and its policy interpretations provide for strengthened post-marketing supervisions for
conditionally approved drugs, and state that if a drug has been conditionally approved, clinical trial
applications targeting at conditional approval of similar drugs with the same mechanism, target, or
indications in principle will not be approved. The NMPA solicited comments until September 25, 2023, and
as of the date of this annual report, there is no timeline for its enactment. Based on positive results in our
two clinical trials, PROTECTIVE-1 and PROTECTIVE-2, we submitted an NDA for approval in China for the
use of Plinabulin in combination with G-CSF for the prevention of CIN in March 2021. In March 2023, we
withdrew this NDA submission from the NMPA. We continue to communicate with the NMPA regarding the
re-filing of NDA for the CIN indication and plan to use our best efforts to re-file the NDA as soon as possible.
Our product candidates may cause 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.
Adverse events caused by our product candidates or any future product candidates we may develop
could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more
limited indication, restrictive label or the delay or denial of regulatory approval by the FDA, NMPA, EMA or
other comparable regulatory authority. Undesirable adverse events caused by Plinabulin may include, but
are not limited to, nausea, vomiting, fatigue, fever, tumor pain and transient blood pressure elevation.
Results of our trials at any stage of development could reveal a high and unacceptable severity or prevalence
of adverse events. If that occurs, our trials could be suspended or terminated and the FDA, NMPA, EMA or
other comparable regulatory authorities could order us to cease further development of, or deny approval of,
our product candidates for any or all targeted indications. Plinabulin is the active ingredient in all three of
our current clinical product candidates and impacts all of our current clinical trials. As a result, any severe
effect produced by Plinabulin will result in negative consequences for each of our current product
candidates. Drug-related adverse events could also affect patient recruitment or the ability of enrolled
subjects to complete the trial, could result in potential product liability claims and may harm our reputation,
business, financial condition and business prospects significantly.
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Additionally, if one or more of our current or future product candidates receives regulatory approval,
and we or others later identify undesirable side effects caused by such drugs, a number of potentially
significant negative consequences could result, including:
● we may limit or suspend marketing of the drug;
● regulatory authorities may withdraw approvals of the drug;
● regulatory authorities may require additional warnings on the label;
● we may be required to develop a REMS for the drug or, if a REMS is already in place, to
incorporate additional requirements under the REMS, or to develop a similar strategy as required
by a comparable regulatory authority;
● we may be required to conduct post-market studies;
● we could be sued and held liable for harm caused to subjects or patients; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the
particular product candidate, if approved, and could significantly harm our business, results of operations
and prospects.
Further, combination therapy, such as our clinical trials of Plinabulin in combination with docetaxel
and other chemotherapeutic agents, involves unique adverse events that could be exacerbated compared to
adverse events from monotherapies. These types of adverse events could be caused by our product
candidates and could also cause us or regulatory authorities to interrupt, delay or halt clinical trials and
could result in a more limited indication or restrictive label or the delay or denial of regulatory approval by
the FDA, NMPA, EMA or other comparable regulatory authority. Results of our trials could reveal a high and
unacceptable severity or prevalence of adverse events.
Even if we receive regulatory approval for our product 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 product candidates.
If our product candidates or any future product candidates we develop are approved, they will be
subject to ongoing regulatory requirements, including 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 U.S.
and requirements of comparable regulatory authorities in other jurisdictions.
Drug manufacturers and manufacturers’ facilities are required to comply with extensive FDA, NMPA,
EMA and comparable regulatory authority requirements, including, in the U.S., ensuring that quality control
and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations. As
such, our contract manufacturers will be subject to continual review and inspections to assess compliance
with cGMP and adherence to commitments including those made in any NDA, other marketing applications,
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 product 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 or other post-marketing requirements, including
Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. The FDA
may also require a REMS program as a condition of approval of our product candidates or if new safety
information emerges following approval of our product candidates, which could entail requirements for long-
term patient follow-up, a medication guide, physician communication plans or additional elements to ensure
safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In
addition, if the FDA, NMPA, EMA or a comparable regulatory authority approves our product 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 GCPs and cGMPs, for
any clinical trials that we conduct post-approval.
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The FDA may impose consent decrees or withdraw approval if compliance with regulatory
requirements and standards is not maintained or if problems occur after a drug reaches the market. Post-
approval discovery of previously unknown problems with our product candidates, including adverse events of
unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or
failure to comply with regulatory requirements, may result in consequences such as 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:
● restrictions on the marketing or manufacturing of our drugs, withdrawal of the product from the
market, or voluntary or mandatory product recalls;
● fines, untitled or warning letters, or holds on clinical trials;
● refusal by the FDA to approve pending applications or supplements to approved applications filed
by us or suspension or revocation of license approvals;
● product seizure or detention, or refusal to permit the import or export of our product candidates;
and
● injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed
on the market in the U.S. Drugs may be promoted only for the approved indications and in accordance with
the provisions of the approved label. The FDA, NMPA, 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, NMPA, EMA and of other regulatory authorities may change and we cannot
predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action, either in the U.S. or abroad. If we are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any regulatory approval that we may have obtained, and we may not achieve or
sustain profitability.
Risks Related to Commercialization of Our Product Candidates
If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we
will not be able to commercialize our product candidates, and our ability to generate revenue will
be materially impaired.
We currently do not have any product candidates that have gained regulatory approval for sale in
China, the U.S., the European Union or any other country, and we may never have marketable drugs. Our
business is substantially dependent on our ability to complete the development of, obtain regulatory approval
for and successfully commercialize product candidates in a timely manner. We cannot commercialize product
candidates without first obtaining regulatory approval to market each drug from the FDA, NMPA, EMA and
comparable regulatory authorities. Plinabulin is currently being studied in two clinical developmental
programs. One is as an anti-cancer therapy, with top-line final data reported in August 2021 and presented
at the European Society for Medical Oncology, or ESMO, in September 2021 from a Phase 3 trial in NSCLC
(DUBLIN-3). We plan to use our best efforts to file an NDA with the NMPA as soon as possible. The other is
for the prevention of CIN, for which we submitted an NDA filing in the U.S. and China in March 2021. We
received a Complete Response Letter for the prevention of CIN from the FDA in November 2021, and
withdrew the NDA submission of the indication of Plinabulin in combination of pegfilgrastim agents to treat
CIN in adult non-myeloid cancer from the NMPA in March 2023. We plan to use our best efforts to re-file the
NDA for the CIN indication with the NMPA as soon as possible. In addition, Plinabulin has been studied in
preclinical models and in a number of investigator-initiated studies (Phase 1/2 trials) to investigate its
therapeutic potential in combination with immuno-oncology agents in various cancer indications. These trials
and future trials may not be successful, and regulators may not agree with our conclusions regarding the
studies in animals and clinical trials we have conducted to date.
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Before obtaining regulatory approvals for the commercial sale of any product candidate for a target
indication, we must demonstrate in studies in animals and well-controlled clinical trials, and to the
satisfaction of the FDA with respect to approval in the U.S., that the product candidate is safe and effective
for use for that target indication and that the manufacturing facilities, processes and controls are adequate.
For U.S. approval, an NDA must include extensive preclinical studies and clinical data and supporting
information to establish the product candidate’s safety and effectiveness for each target indication. The NDA
must also include significant information regarding the chemistry, manufacturing and controls for the drug.
Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be
obtained. The FDA also may decide not to accept our submission for filing.
Regulatory authorities outside of the U.S., such as the EMA or regulatory authorities in emerging
markets, such as in China, also have requirements for approval of drugs for commercial sale with which we
must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to
country and could delay or prevent the introduction of our product 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
studies in animals or clinical trials, which could be costly and time consuming. Non-U.S. regulatory approval
processes may include risks similar to those associated with obtaining FDA approval as well as risks specific
to the applicable jurisdiction. For all of these reasons, we may not obtain non-U.S. regulatory approvals on a
timely basis or for each target indication, if at all.
Specifically, in China, the NMPA categorizes applications for innovative chemical drugs that have not
been marketed in China or abroad as Category 1 and drug applications for drugs that have marketed abroad
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 overseas. Most multinational pharmaceutical
companies’ drug registration applications are filed in what is now Category 5 according to the Reform Plan
for Registration Category of Chemical Medicine, or the Reform Plan, issued by CFDA in March 2016. NMPA
issued the Circular on Chemical Drug Registration Classification and Requirements on Application Materials
in June 2020 (effective in July 2020), which reaffirmed the principles of the classification of chemical drugs
set forth by the Reform Plan, and made minor adjustments to the subclassifications of Category 5. These two
categories have distinct approval pathways. 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 fast-tracked review and approval mechanisms if the product candidate meets certain criteria. Imported
drug registration pathway, Category 5, is usually 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
Certificate of Pharmaceutical Product, or CPP, granted by a major drug regulatory authority, such as the
FDA or EMA. We believe our lead asset Plinabulin will be considered a Category 1 drug in China according
to the Reform Plan, the Provisions for Drug Registration amended in 2020 and the Circular on Chemical
Drug Registration Classification and Requirements on Application Materials, because Plinabulin has never
been marketed in China or abroad. However, a Category 1 designation by the NMPA may not be granted for
all of our product candidates, may be revoked, or may not lead to faster development or regulatory review or
approval process. A Category 1 designation also does not increase the likelihood that our product candidates
will receive regulatory approval.
In August 2015, the State Council issued the Opinions on Reforming the Review and Approval Process
for Drugs and Medical Devices, that contained several potential policy changes that could benefit the
pharmaceutical industry:
● A plan to accelerate innovative drug approval with a special review and approval process, with a
focus on areas of high unmet medical needs, including innovative drugs for HIV, malignant
tumors, serious infectious diseases and orphan diseases; drugs sponsored by national science and
technology major projects and national major research and development plans; innovative drugs
to be manufactured locally in China; children’s drugs; drugs using advanced formulation
technology, using innovative treatment methods, or having distinctive clinical benefits.
22
● A plan to adopt a policy which would allow companies to act as the marketing authorization
holder and to hire contract manufacturing organizations to produce drug products.
● A plan to improve the review and approval of clinical trials, and to allow companies to conduct
clinical trials at the same time as they are being conducted in other countries and encourage
domestic clinical trial institutions to participate in international multi-center clinical trials.
In November 2015, the Standing Committee of the National People’s Congress issued the Decision on
Authorizing the State Council to Conduct the Pilot Program of the System of the Marketing Authorization
Holder in Several Regions and the Relevant Issues, which authorized the State Council to conduct the pilot
program of the system of the marketing authorization holder in Beijing, Tianjin, Hebei, Shanghai, Jiangsu,
Zhejiang, Fujian, Shandong, Guangdong and Sichuan, and authorized the State Council to conduct reforms of
registration category for drugs. In October 2018, the Standing Committee of the National People’s Congress
issued the Decisions on Extending the Term of the Pilot Program for the Drug Marketing Authorization
Holder System in Several Regions, which postponed the expiration date of the pilot program from November
4, 2018 to November 4, 2019.
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:
● 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.
● A fast track drug registration or clinical trial approval pathway will be available for the following
applications: (1) registration of innovative new drugs treating and preventing HIV, malignant
tumors, serious infectious diseases and orphan diseases, etc.; (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 major projects and national
major research and development plans; (5) registration for drugs with urgent clinical need 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 U.S. or European Union
or concurrent drug registration applications for drugs which have applied for marketing
authorization and passed onsite inspections in the U.S. or European Union and are manufactured
with 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 December 2017, the CFDA released the Opinions on Encouraging Drug Innovations and Implying
the Prioritized Review and Approval System, which further clarified the following policies potentially
accelerating the approval process of certain clinical trials or drug registrations which may benefit us:
● A fast-track drug registration or clinical trial approval pathway is 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 clinical 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 U.S. or European Union, or concurrent drug registration
applications for drugs which have applied for marketing authorization and passed onsite inspections in the
U.S. 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 science and technology major projects, national major
research and development plans and registration for drugs with clinical trials conducted by national clinical
medical research centers and recognized by the administration department of the such centers.
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● A fast-track drug registration approval pathway is available for the drug registration applications
with distinctive clinical benefits for the prevention and treatment of the following diseases: HIV,
pulmonary tuberculosis, viral hepatitis, orphan diseases, malignant tumors, pediatric diseases,
and geriatric diseases.
In March 2016, the CFDA released the Reform Plan, as mentioned above, outlining the re-
classifications of chemical medicine applications. Under the new categorization, innovative drugs that have
not been approved either in or outside China and are to be manufactured in China remain Category 1, while
drugs approved outside China seeking marketing approval in China are now Category 5. NMPA issued the
Circular on Chemical Drug Registration Classification and Requirements on Application Materials in June
2020 (effective in July 2020), which reaffirmed the principles of the classification of chemical drugs set forth
by the Reform Plan, and made minor adjustments to the subclassifications of Category 5. According to such
rule, Category 5.1 are innovative chemical drugs and improved new chemical drugs while Category 5.2 are
generic chemical drugs, all of which shall have been already marketed abroad but not yet approved in China.
In May 2016, the General Office of the State Council issued Circular on the Pilot Program for the Drug
Marketing Authorization Holder System, or Circular 41, which signals that the drug marketing authorization
holder system is finally put into implementation. Circular 41 allows institutions of drugs research and
development and research specialist staff in Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian,
Shandong, Guangdong and Sichuan, to act as the applicant of drugs registration and to submit applications
for drug clinical trials and drug marketing. For those drugs newly registered after the effective date of
Circular 41, applicants are allowed to submit applications for becoming a drug marketing authorization
holder at the same time as they submit applications for drug clinical trials or drug marketing. In July 2016,
the CFDA issued Circular on Conducting Works Regarding the Pilot Program for the Drug Marketing
Authorization Holder System, which provides further details on the application procedures stipulated in
Circular 41. In August 2017, the CFDA issued the Circular on the Matters Relating to Promotion of the Pilot
Program for the Drug Marketing Authorization Holder System. This circular is issued, among other things, to
advance implementation of a system pilot program for holders of drug marketing authorization, to delineate
the rights and obligations of such holders, to enhance the quality control system for the drug manufacturing
process and to improve the responsibility system over drug manufacturing and marketing supply chains. In
October 2018, the Standing Committee of the National People’s Congress issued the Decisions on Extending
the Term of the Pilot Program for the Drug Marketing Authorization Holder System in Several Regions,
which extended the expiration date of the pilot program from November 4, 2018 to November 4, 2019.
On December 1, 2019, the newly revised PRC Drug Administration Law came into effect, which
formally adopts and signals the nationwide implementation of the drug marketing authorization holder
system. In accordance with the PRC Drug Administration Law, an enterprise or a drug research and
development institution is permitted to act as the marketing authorization holder and to engage
pharmaceutical manufacturers to produce drug products. Moreover, it provides that the drug marketing
authorization holder shall establish a drug quality assurance system and shall be responsible for the non-
clinical research, the clinical trials, the drug production and operation, the post-marketing research and the
adverse reaction monitoring, reporting and handling of the drugs, etc.
Furthermore, the PRC Drug Administration Law provides that priority in the drug registration approval
process shall be given to urgently needed clinical drugs and new drugs developed for the prevention and
treatment of major infectious diseases, orphan diseases and other diseases.
On January 22, 2020, the revised Provisions for Drug Registration were issued by the State
Administration for Market Regulation, which came into effect on July 1, 2020. Pursuant to the newly revised
Provisions for Drug Registration, the following drugs with significant clinical value may enjoy a priority
procedure for drug marketing authorization: (1) urgently needed clinical drugs and innovative drugs and
improved new drugs developed for prevention and treatment of major infectious and orphan diseases; (2)
new varieties, dosage forms and specifications of children’s medicines that conform to the physiological
characteristics of children; (3) urgently needed vaccines and innovative vaccines for disease prevention and
control; (4) pharmaceuticals under breakthrough therapeutic drug procedures; (5) drugs meeting the
requirements of conditional approvals; and (6) other circumstances as further specified by the NMPA. The
drug registration applicant may submit an application for priority review and approval for their drug
applications simultaneously with filing the drug marketing application upon confirmation with the CDE
beforehand. The drug marketing review time limit is stipulated as 130 working days for the drug
applications, which enjoy a priority procedure for drug marketing authorization. On July 7, 2020, the NMPA
issued Protocol for Prioritized Review and Approval of Drugs Marketing Certificates (Trial), which stipulated
procedures and detailed conditions of the priority review and approval, while replacing the Opinions on
Encouraging Drug Innovations and Implying the Prioritized Review and Approval System by the CFDA.
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The NMPA may further issue detailed policies regarding fast-track clinical trial approval and drug
registration pathway to facilitate the implementation of the PRC Drug Administration Law and the Provisions
for Drug Registration, and we expect that the NMPA review and approval process will improve over time.
Moreover, how this approval process will be implemented is still subject to further practice of the NMPA and
is currently uncertain. It is not clear, therefore, whether Plinabulin will qualify for these programs and, if it
does, what benefits they could ultimately offer.
The process to develop, obtain regulatory approval for and commercialize product candidates is long,
complex and costly both inside and outside the U.S. and China, and approval may not be granted. Even if our
product 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, surveillance or other measures as conditions of approval. Following any approval for
commercial sale of our product candidates, certain changes to the drug, such as changes in manufacturing
processes, labeling or product claims, may be subject to additional review and approval by the FDA, NMPA
and EMA and comparable regulatory authorities. Also, regulatory approval for any of our product candidates
may be withdrawn. If we are unable to obtain regulatory approval for our product candidates in one or more
jurisdictions, or if any approval contains significant limitations or conditions, our target market will be
reduced and our ability to realize the full market potential of our product 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 our product candidates or any future product candidates we may develop.
Even if any of our product 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 product candidates or any future product candidate we develop 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 and current neutropenia treatments are well established in the medical community, and
doctors may continue to rely on these treatments to the exclusion of our product candidates. In addition,
physicians, patients and third-party payors may prefer other novel products to ours. If our product
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 product candidates, if
approved for commercial sale, will depend on a number of factors, including:
● the clinical indications for which our product candidates are approved;
● physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
● the potential and perceived advantages of our product candidates over alternative treatments;
● the prevalence and severity of any side effects;
● product labeling or product insert requirements of the FDA, NMPA, EMA or other comparable
regulatory authorities;
● limitations or warnings contained in the labeling approved by the FDA, NMPA, EMA or other
comparable regulatory authorities;
25
● the timing of market introduction of our product candidates as well as competitive drugs;
● the cost of treatment, including in relation to alternative treatments and their relative benefits;
● the amount of upfront costs or training required for physicians to administer our product
candidates;
● the availability of adequate coverage, reimbursement and pricing by third-party payors and
government authorities;
● the willingness of patients to pay out-of-pocket in the absence of coverage and reimbursement by
third-party payors and government authorities;
● relative convenience and ease of administration, including as compared to alternative treatments
and competitive therapies; and
● the effectiveness of our sales and marketing efforts.
If our product 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, receive more favorable reimbursement, are more cost effective or render our drugs
obsolete.
Any commercialization efforts by us will require us to develop sales, marketing and distribution
capabilities through arrangements with third parties or internally. If we are unable to enter into
agreements with third parties to market and sell our product candidates or to establish marketing
and sales capabilities, we may not be able to generate product sales revenue.
We currently do not have internal sales, marketing and distribution capabilities.
In China, we have entered into an exclusive commercialization and co-development agreement in
Greater China with Hengrui to commercialize Plinabulin for the treatment of NSCLC and the prevention of
CIN and any additional indications, if approved for sale. See “Item 4. Information on the Company—B.
Business Overview—Commercialization.” Plinabulin has been granted Breakthrough Therapy Designation by
the NMPA. Additionally, Plinabulin has achieved status as a 2017 National Science and Technology Major
Project in China, or the 2017 Grant. As a result of the 2017 Grant, Plinabulin has been included in the
National Drug Priority Review List in China. According to the Outline of the Thirteenth Five-Year Plan of the
National Economy and Social Development of the People’s Republic of China, or the Thirteenth Five-Year
Plan, the government encourages the research, development and production of new drugs, the new drugs
with approval to be marketed shall enjoy priority to be included in the National Insurance System. Pending
drug approval and successful pricing negotiations with the Chinese government, we believe that this status
could help position Plinabulin for inclusion in the National Insurance System, which would allow for faster
access to patients and reimbursement. According to the Outline of the Fourteenth Five-Year Plan of the
National Economy and Social Development of the People’s Republic of China, or the Fourteenth Five-Year
Plan, the government will improve the accelerated review and approval mechanism for innovative drugs,
vaccines and medical devices, enhance the review and approval of drugs and medical devices for the
treatment of orphan diseases and diseases with urgent clinical needs, and promote the domestic marketing
of new drugs and medical devices marketed abroad with urgent clinical needs. However, even if Plinabulin is
approved for sale in China, we may not be successful in transitioning to full commercialization or obtaining
reimbursement under the National Insurance System. We have no experience negotiating pricing
arrangements and may be unable to reach agreement on pricing.
In the U.S. and for the rest of the world, we currently plan to prioritize seeking a commercialization
partner to maximize Plinabulin’s potential in multiple cancer indications.
We may not be able to establish or maintain collaborative arrangements with other pharmaceutical
companies, and even if we are able to do so, such pharmaceutical companies may not have effective
marketing capabilities or other capabilities which our business may require. Any revenue we receive will
depend upon the efforts of such third parties, which may not be successful. In addition, depending on the
nature of arrangements we are able to obtain with other pharmaceutical companies, we may have little or no
control over their marketing and sales efforts, and our revenue from product sales may be lower than if we
had commercialized our product candidates ourselves. We also face competition in our search for third
parties to assist us with the sales and marketing efforts of our product candidates.
26
Building our own commercial organization for marketing Plinabulin 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 not able to establish or maintain relationships with a third-party pharmaceutical company to
successfully commercialize any product, or to develop in-house sales and commercial distribution
capabilities, our ability to maximize product adoption and to meet forecasted revenue would be seriously
impacted.
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 product candidates, and will face competition with respect to any product candidates
that we may seek to develop or commercialize in the future, from major pharmaceutical companies and
specialty pharmaceutical 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 product candidates. See
“Item 4. Information on the Company—B. Business Overview—Competition.” 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. In addition, while we are investigating an alternative approach to cancer treatment by
using molecular glue technology to tag oncogene proteins with ubiquitin ligase and destroy such proteins,
there are a number of companies who are also working on using such technology to target and destroy
oncogene proteins. See “Item 4. Information on the Company—B. Business Overview—Other Programs.”
Our commercial opportunity could be reduced or eliminated if our competitors develop and
commercialize drugs that are, or are perceived to be, safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any drugs that we may develop. Our competitors also
may obtain approval from the FDA, NMPA, 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 or slow our regulatory approval.
Many of the companies against which we are competing or against which we may compete in the
future have significantly greater financial resources and expertise in research and development,
manufacturing, animal 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
recruiting patients for clinical trials, as well as in acquiring technologies complementary to, or necessary for,
our programs.
Our product candidates for which we intend to seek approval as drug products may face
competition sooner than expected.
Drug products approved under an NDA (including those in China), such as our product candidates, if
they were to be approved, could face generic competition earlier than expected. The enactment of the
Generic Drug User Fee Amendments of 2012 and the Food and Drug Administration Safety and Innovation
Act of 2012 established a user fee program that has generated 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, have contributed to decrease timeframes for FDA
review and approval of generic drug applications.
27
In addition, legislative and regulatory proposals emerge from time to time in various jurisdiction to
further encourage the early and rapid approval of generic drugs. For example, in 2017 the FDA announced
the Drug Competition Action Plan, which consists of a series of proposals intended to increase completion in
the prescription drug market and facilitate the entry of lower-cost generic alternatives. Any such proposal
that is enacted into law or implemented through government regulations or other regulatory actions could
increase competition for our product candidates in the event any of them gains approval. For example, the
FDA has issued a series of guidance documents in connection with the Drug Competition Action Plan.
We must receive adequate reimbursement coverage for our product to successfully commercialize
our product candidates or any future product candidate we may develop.
Should we receive the approvals necessary to market our product candidates or any future product
candidate we may develop, we will still need to apply to government and other third-party payors for them to
reimburse physicians and patients to administer and use our product. Newly-approved healthcare drugs face
significant uncertainty regarding both whether they will be covered and their levels of reimbursement.
Government and other healthcare payors, including Medicare, are increasingly attempting to contain
healthcare costs by limiting both coverage and reimbursement levels. Even if our product candidates or
future product candidates we may develop are approved by regulators, government or other third-party
payors may decline to cover them or may offer reimbursement rates that are insufficient to cover our cost to
supply the drugs or that otherwise fail to provide the revenue we expect to receive for the drugs. They may
also set reimbursement rates for physicians who administer the drug that are insufficient to cover the
physicians’ costs or otherwise provide them with a disincentive to prescribe them. A decision by one third-
party payor to provide reimbursement does not guarantee that other third-party payors will also provide
reimbursement or provide reimbursement at the same levels. Further, once coverage and reimbursement
rates are established, they may be changed or withdrawn in the future. The failure of government and other
healthcare payors to cover or provide adequate reimbursement levels for our product candidates or any
future product candidate we may develop, could reduce their market acceptance, limit our growth and cause
our revenue and results of operations to suffer. Further, delays in establishing coverage and reimbursement
would delay the commercialization of our product candidates, which would adversely affect our growth,
operating results and financial position.
Prices in many countries, including China and many in Europe, are subject to local regulation. In these
jurisdictions, pricing negotiations with governmental authorities can take considerable time after the receipt
of marketing approval for a product. As a result, we might obtain regulatory approval for a drug in a
particular country, but be subject to price regulations that delay or prevent our commercial launch of the
drug and negatively impact the revenue, if any, we are able to generate from the sale of the drug in that
country. The existence of direct and indirect price controls and pressures over our product candidates could
materially adversely affect our financial prospects and performance.
Recently enacted and future legislation and regulatory measures may increase the difficulty and
cost for us to obtain regulatory approval of and commercialize our product candidates and affect
the prices we may obtain.
In China, the U.S., the European Union and some other jurisdictions, there have been a number of
legislative and regulatory changes and proposed changes, as well as judicial challenges, regarding the
healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or
regulate post-approval activities and affect our ability to commercialize or profitably sell any product
candidates for which we obtain regulatory approval. The pharmaceutical industry has been a particular focus
of these efforts and has been significantly affected by initiatives regarding pricing, transparency and other
topics of reform.
Legislative and regulatory measures have been enacted or proposed 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, whether President Biden will propose other
initiatives, or whether FDA regulations, guidance or interpretations will be changed, and if so, what the
impact of such changes on the regulatory approvals or commercialization of our product candidates, if any,
may be. In addition, increased scrutiny of the FDA’s approval process by the U.S. Congress or in connection
with current or future litigation may significantly delay or prevent regulatory approval, as well as subject us
to more stringent product labeling and post-marketing testing and other requirements.
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In March 2010, former President Obama signed into law the Patient Protection and Affordable Care
Act, and the Health Care and Education Reconciliation Act of 2010, or the Affordable Care Act, 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.
Among the provisions of the Affordable Care Act of importance to our potential product candidates are
the following:
● an annual, nondeductible fee on any entity that manufactures or imports specified branded
prescription drugs;
● an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug
Rebate Program;
● expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-
Kickback Statute, new government investigative powers, and enhanced penalties for
noncompliance;
● a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer
50% point-of-sale discounts off negotiated prices;
● extension of manufacturers’ Medicaid rebate liability;
● expansion of eligibility criteria for Medicaid programs;
● expansion of the entities eligible for discounts under the Public Health Service Act pharmaceutical
pricing program;
● requirements to report financial arrangements with physicians and teaching hospitals;
● a requirement to annually report drug samples that manufacturers and distributors provide to
physicians; and
● a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain
provisions have been subject to judicial and Congressional challenges. For example, the U.S. Congress has
made numerous efforts to repeal or amend the Affordable Care Act in whole or in part. The Tax Cuts and
Jobs Act, which former President Trump signed into law in December 2017, effectively eliminated the penalty
for noncompliance with the Affordable Care Act’s individual health insurance mandate, which is considered a
key component of the Affordable Care Act. Further legislative and regulatory changes under the Affordable
Care Act remain possible, although it is unknown what form such changes or any law would take, and how or
whether it may affect the pharmaceutical industry as a whole or our business in the future.
In addition, other legislative changes and efforts to reform the healthcare market and delivery system
that have been proposed and adopted in the U.S. since the Affordable Care Act was enacted could have an
adverse effect on anticipated revenue from product candidates that we may successfully develop and for
which we may obtain marketing approval and may affect our overall financial condition and ability to develop
or commercialize product candidates. For example, the Bipartisan Budget Act of 2018, among other things,
amended the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare
drug plans, and also increase beginning in 2019 the percentage that a drug manufacturer must discount the
cost of the prescription drugs from 50% under current law to 70%. We expect that the Affordable Care Act
and other laws, 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. 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. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors. As such, these and similar laws may result in additional reductions in Medicare and
other third-party rates and otherwise affect the prices we may obtain for any of our product candidates for
which we may obtain regulatory approval or the frequency with which any of our product candidates could
be prescribed or used. It is unclear how these or other healthcare reform measures will impact healthcare
laws and regulations or our business.
29
In the U.S., there also has been particular and increased public and governmental scrutiny of the cost
of drugs and drug pricing strategies, including by the U.S. Congress and federal and state prosecutors. To
date, there have been several U.S. congressional inquiries, federal and state lawsuits, as well as proposed
and enacted federal and state legislation and regulatory measures that may impact the prices that drug
manufacturers are permitted to charge for their products or require increased transparency around drug
pricing practices. Most recently, the Inflation Reduction Act of 2022, enacted on August 16, 2022, seeks to
reduce prescription drug costs by, among other provisions, allowing Medicare to negotiate prices for certain
high-cost prescription drugs in Medicare Parts B and D, imposing an excise tax on pharmaceutical
manufacturers that refuse to negotiate pricing with Medicare, requiring inflation rebates to limit annual
drug price increases in Medicare, and redesigning the Medicare Part D formula. These provisions began
taking effect progressively starting in fiscal year 2023, including an initial group of drugs that HHS selected
for the first cycle of Medicare drug price negotiations in 2024. At the state level, individual states are
becoming increasingly aggressive in passing legislation and implementing regulations designed to control
pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access, and marketing cost disclosure and transparency measures, as well as, in some
cases, measures designed to encourage importation from other countries and bulk purchasing. In addition,
regional health care authorities and individual hospitals are increasingly using bidding procedures to
determine what pharmaceutical products and which suppliers will be included in their prescription drug and
other health care programs. These and other drug pricing measures could cause significant operational and
reimbursement changes for the pharmaceutical industry. We cannot know whether additional changes will
be enacted and, if so, whether they would affect demand or impact the prices we would be able to charge for
our product candidates, if they gain approval in the U.S.
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 will 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 product candidates and begin commercializing those drugs in the U.S., 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 and other disclosure laws and
regulations. These laws may impact, among other things, our potential sales, marketing, patient assistance
and education programs. In addition, we may be subject to data privacy and security regulation by both the
federal government and the states in which we conduct our business. The laws that may affect our ability to
operate include:
● the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or
rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,
either the referral of an individual, or the purchase, lease, order or recommendation of any good,
facility, item or service for which payment may be made, in whole or in part, under a federal
healthcare program, such as the Medicare and Medicaid programs;
● federal civil and criminal false claims laws and civil monetary penalty laws, including the False
Claims Act, which may be pursued through civil whistleblower or qui tam actions, impose criminal
and civil penalties against individuals or entities for knowingly presenting, or causing to be
presented, to the federal government, false or fraudulent claims for payment or approval from
Medicare, Medicaid or other third-party payors or making a false statement to avoid, decrease or
conceal an obligation to pay money to the federal government;
30
● federal criminal statutes created through the Health Insurance Portability and Accountability Act
of 1996, or HIPAA, which 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;
● 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;
● federal transparency requirements, including the Affordable Care Act provision commonly
referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs,
biologics, devices 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 and other transfers of value made to
physicians and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members; and
● federal consumer protection and unfair competition laws, which broadly regulate marketplace
activities and activities that potentially harm consumers.
These and similar laws may be subject to amendment or reinterpretation, and implementing
regulations may be revised or reinterpreted, in ways that may significantly affect our business. For example,
the former Trump administration issued final rules in late 2020 that, among other things, made changes to
certain Anti-Kickback Statute safe harbors; however, implementation of these rules has been and may
continue to be affected by subsequent legislative and regulatory action or litigation delaying or challenging
these rules. Additionally, we may be subject to state and non-U.S. equivalents of each of the healthcare laws
described above, among others, some of which may be broader or different 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, and
some states have passed their own data privacy and security measures. 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 or other consequences.
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 future 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 Affordable Care Act, among other things, amends the intent requirement of the federal Anti-
Kickback Statute 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 Affordable Care Act provides 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 or civil sanctions, including
penalties, fines 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.
31
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 do 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 product candidates outside the U.S. will also likely subject us to non-U.S. equivalents of the healthcare
laws mentioned above, among other non-U.S. laws.
If any of the physicians or other providers or entities with whom we expect to do business with are
found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative
sanctions, including exclusions from government funded healthcare programs. This could adversely affect
our ability to operate our business and our results of operations.
Risks Related to Our Intellectual Property
A 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 U.S.,
China and other countries with respect to our proprietary technology and product candidates. As of April 10,
2024, we owned 17 issued U.S. patents directed to Plinabulin synthesis, Plinabulin use in the treatment of
various disorders including lung cancer, polymorphic forms of Plinabulin, Plinabulin compositions, and
Plinabulin analogs. In addition, we had counterpart granted patents in 31 foreign jurisdictions, including
Japan, South Korea, China, Europe and other countries. The U.S. patents are scheduled to expire between
2025 and 2039, excluding any patent term restorations. We had 17 families of pending patent applications
directed to use of Plinabulin in neutropenia reduction, use of Plinabulin for treating RAS mutant tumors and
brain tumors, polymorphic forms of Plinabulin, use of Plinabulin in combination with checkpoint inhibitors,
use of Plinabulin in reduction of immunotherapy related adverse events, the therapeutic use of tubulin
binding compounds, use of Plinabulin in the treatment of thrombocytopenia, use of Plinabulin in combination
with G-CSF therapy, use of Plinabulin for treating epidermal growth factor receptor, or EGFR, mutant
tumors, use of Plinabulin in combination with an immune checkpoint inhibitor and a farnesyl pyrophosphate
synthase, or FPPS, inhibitor for treating cancer, selecting responsive patients using biomarkers, use of
Plinabulin in treating immune checkpoint inhibitor-resistant patients, Plinabulin impurities, and use of
Plinabulin as a monotherapy in treating certain cancers. If these applications were to issue, they would
nominally expire between 2033 and 2042. We had three pending Patent Cooperation Treaty, or PCT, patent
applications directed to kits and methods for providing and administering plinabulin, use of Plinabulin in
combination with a PARP inhibitor, and Plinabulin micelle compositions. If applications claiming priority to
these PCT applications were to issue, they would nominally expire between 2043 and 2044.
With respect to issued patents in certain jurisdictions, for example, the U.S. 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 U.S. and through the PCT related to novel
technologies and product candidates that we consider to be important to our business. This process is time-
consuming, and we may not be able to file and prosecute all necessary or desirable patent applications 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.
32
Our pending patent applications may not result in issued patents in the U.S. or non-U.S. jurisdictions in
which such applications are pending. Even if patents do issue on any of these applications, a third party
nevertheless may challenge their validity. Moreover, we may not obtain sufficient claim scope in those
patents to prevent a third party from competing successfully with our product 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 product candidates in a non-infringing manner. The issuance of a patent is not conclusive as
to its scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in
the U.S. 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 product candidates, or limit the duration of the patent
protection of our technology and product candidates. Given the amount of time required for the
development, testing and regulatory review of new product 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 product 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 product 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 U.S. In addition, the laws of
certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal and
state laws do. Consequently, we may not be able to prevent third parties from practicing our inventions in all
countries outside the U.S., or from selling or importing drugs made using our inventions in and into the U.S.
or non-U.S. jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained
patent protection to develop their own drugs and further, may export otherwise infringing drugs to non-U.S.
jurisdictions where we have patent protection, but where enforcement rights are not as strong as those in
the U.S. These drugs may compete with our product candidates and our patent rights or other intellectual
property rights may not be effective or adequate to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual
property rights in certain jurisdictions. The legal systems of some countries do not favor the enforcement of
patents, trade secrets and other intellectual property, which could make it difficult in those jurisdictions for
us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the
marketing of competing drugs in violation of our proprietary rights. Proceedings to enforce our patent and
other intellectual property rights in non-U.S. jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business.
Furthermore, such proceedings could put our patents at risk of being invalidated, held unenforceable,
or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third
parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits
that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to
obtain a significant commercial advantage from the intellectual property that we develop.
We may become involved in lawsuits to protect or enforce our intellectual property rights, which
could be expensive, time consuming and unsuccessful. Our patent rights relating to our product
candidates could be found invalid or unenforceable if challenged in court or before USPTO 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, some of our confidential information
could be compromised by disclosure during this type of litigation.
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If we initiate legal proceedings against a third party to enforce our patents, or any patents that may
issue in the future from our patent applications, that relate to one of our product candidates, the defendant
could counterclaim that such patent rights are invalid or unenforceable. In patent litigation in the U.S.,
defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous
grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also
raise similar claims before administrative bodies in the U.S. or abroad, even outside the context of litigation.
Such mechanisms include ex parte re-examination, inter partes review, post-grant review, derivation and
equivalent proceedings in non-U.S. jurisdictions, such as opposition proceedings. Such proceedings could
result in revocation or amendment to our patents in such a way that they no longer cover and protect our
product candidates. With respect to the validity of our patents, for example, there may be 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 product 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 U.S. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation,
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 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 product 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
product 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. Numerous issued
patents and pending patent applications, which are owned by third parties, exist in the fields in which we are
developing product candidates. As the biotechnology and pharmaceutical industries expand and more
patents are issued, the risk increases that our product 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 product
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 product 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 product candidates, any molecules formed during the manufacturing process or any
final drug itself, the holders of any such patents may be able to prevent us from commercializing such
product 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 product 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 any of these cases, such a license may not be available on commercially reasonable terms
or at all.
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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 product 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 product 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 product candidates. Any required license
may not be available at all or may not be available on commercially reasonable terms. 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 product candidates, which could harm our business significantly. We may also elect to enter into license
agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any
such license agreements may require us to pay royalties and other fees that could significantly harm our
business.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property
claims may cause us to incur significant expenses, and could distract our technical personnel, management
personnel, or both from their normal responsibilities. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments and if securities analysts or
investors perceive these results to be negative, it could have a substantial adverse effect on the market price
of our ordinary shares. 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.
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The terms of our patents may not be sufficient to effectively protect our product candidates and
business.
In most countries in which we file, including the U.S., 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 product 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. The granted U.S.
patents directed to Plinabulin synthesis, use, compositions, and polymorphic forms are scheduled to expire
between 2025 and 2039, excluding any potential patent term restoration. Upon the expiration of our issued
patents 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 product
candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA regulatory approval for our product
candidates, one or more of our U.S. patents, if issued, may be eligible for limited patent term restoration
under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-
Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years
as compensation for patent term lost during drug development and the FDA regulatory review process.
Patent term extensions, however, cannot extend the remaining term of a patent beyond a total of 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 product candidates.
Our success is heavily dependent on intellectual property, particularly patent rights. Obtaining and
enforcing patents involves both technological and legal complexity, and is therefore costly, time-consuming
and inherently uncertain. 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, these rulings have 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 the 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. In the case, Mayo Collaborative Servs. v. Prometheus Labs, Inc., the U.S. Supreme Court
held that certain claims to methods of optimizing therapeutic efficacy constitute unpatentable laws of nature.
Although we do not believe that our currently-issued patents directed to our product candidates and any
patents that may issue from our pending patent applications if issued in their currently pending forms will be
found invalid based on these decisions, 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.
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive
position would be harmed.
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 product 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 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.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
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 subsequently include additional product candidates that require the use of
proprietary rights held by third parties, the growth of our business may depend in part on our ability to
acquire and maintain licenses or other rights to use these proprietary rights. We may be unable to acquire or
in-license any compositions, methods of use, or other third-party intellectual property rights from third
parties that we identify. The licensing and acquisition of third-party intellectual property rights is a
competitive area, and more established companies may pursue 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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Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct our studies in animals 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 product 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 studies and clinical programs. We rely on these parties for execution of our
studies in animals 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 third parties, such as our CROs, 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 waste.
The manufacturing of Plinabulin drug substance or drug products involve the use of hazardous
materials. We and our contract manufacturing partners contract with third parties for the disposal of these
materials and waste. 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 insurance coverage. 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 that we may incur due to injuries to our employees resulting
from the use of or exposure to hazardous materials, this insurance may not provide adequate coverage
against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that
may be asserted against us in connection with our storage, use or disposal of biological or hazardous
materials.
Furthermore, we and third parties are subject to numerous international, national, municipal and local
environmental, health and safety laws and regulations relating to, among other matters, safe working
conditions, product stewardship and environmental protection. However, environmental and social laws and
regulations have tended to become increasingly stringent. There has been increased global focus on
environmental and social issues and it is possible that China may potentially adopt more stringent standards
or new regulations in these areas. The extent regulatory changes occur in the future, they could result in,
among other things, increased costs to us. In addition, we may incur substantial costs in order 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. Our failure to comply with
these laws and regulations may result in substantial fines, penalties or other sanctions and also may
materially adversely affect our business, financial condition, results of operations and future growth
prospects.
We, our clinical investigators and our CROs are required to comply with GCPs, which are regulations
and guidelines enforced by the FDA, NMPA, 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, our clinical investigators or any of our CROs fail
to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable
and the FDA, NMPA, EMA or comparable regulatory authorities may require us to perform additional clinical
trials before approving our marketing applications. Upon inspection by a given regulatory authority, such
regulatory authority may determine that one or more of our clinical trials do not comply with GCP
regulations. In addition, our clinical trials must be conducted with drugs 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 certain circumstances. 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 we are limited to remedies available to us under our agreements with such CROs, if they fail
to devote sufficient time and resources to our ongoing clinical and preclinical studies. If CROs or clinical
investigators 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 product candidates. As a result, our results of operations and the commercial
prospects for our product candidates would be harmed, our costs could increase and our ability to generate
revenues could be delayed.
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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, we may nevertheless encounter similar challenges or
delays in the future and these delays or challenges may have a material adverse effect on our business,
financial condition and prospects.
We expect to rely on third parties to manufacture our product candidate supplies, and we intend to
rely on third parties for the manufacturing process of our product 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.
The manufacture of drug products is complex and requires significant expertise and capital
investment, including the development of advanced manufacturing techniques and process controls. We
intend to rely on outside vendors to manufacture supplies and process our product candidates. We have not
yet caused our product candidates to be manufactured or processed on a commercial scale and may not be
able to do so for any of our product candidates.
Our anticipated reliance on third-party manufacturers exposes us to the following risks:
● we may be unable to identify manufacturers on acceptable terms or at all because the number of
potential manufacturers is limited and the FDA, NMPA, EMA or other comparable regulatory
authorities must evaluate any manufacturers. This assessment requires new testing and cGMP-
compliance inspections by the FDA, NMPA, EMA or other comparable regulatory authorities,
which may be delayed or otherwise impeded by the COVID-19 pandemic or other factors. In
addition, a new manufacturer would have to be educated in, or develop substantially equivalent
processes for, production of our drugs;
● our manufacturers may have little or no experience with manufacturing our product candidates,
and therefore may require a significant amount of support from us to implement and maintain the
infrastructure and processes required to manufacture our product candidates;
● our third-party manufacturers might be unable to timely manufacture our product candidates or
produce the quantity and quality required to meet our clinical and commercial needs, if any;
● our contract manufacturers may not be able to execute our manufacturing procedures and other
logistical support requirements appropriately;
● our contract manufacturers may not perform as agreed, may not devote sufficient resources to
our product candidates, 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;
● any potential third-party manufacturer may be unable to initially pass federal, state or
international regulatory inspections in a timely or cost-effective manner;
● manufacturers are subject to ongoing periodic unannounced inspection by the FDA and
corresponding state agencies in the U.S. and other regulatory authorities to ensure strict
compliance with cGMPs and other government regulations and corresponding non-U.S.
requirements and our third-party manufacturers may fail to comply with these regulations and
requirements;
● 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 product candidates;
● our third-party manufacturers could breach or terminate their agreements with us;
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● our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as
well as natural or man-made disasters;
● our contract manufacturers may have unacceptable or inconsistent product quality success rates
and yields; and
● we may not be able to obtain raw materials and components used in the manufacturing process
that are suitable or acceptable for use, particularly where we have no other source or supplier for
the raw materials or components.
Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of
our product candidates by the FDA, NMPA, EMA or other comparable regulatory authorities, result in higher
costs or adversely impact commercialization of our product candidates.
In addition to relying on third-party manufacturers and vendors to manufacture our product
candidates, we will rely on third parties to perform certain specification tests on our product 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, NMPA, EMA or other comparable regulatory authorities
could place significant restrictions on our company until deficiencies are remedied.
Currently, 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, if supplies are interrupted, it would materially harm our business.
We rely on BASF SE as the sole supplier of the stabilizing agent, Kolliphor HS15, used in Plinabulin’s
current formulation. If BASF SE becomes unable or unwilling to supply Kolliphor HS15, we will not be able
to replace BASF SE and we would be required to reformulate Plinabulin. We will seek to find another
formulation while continuing to use Kolliphor HS15, in accordance with our discussions with the FDA.
Reformulation of our product candidates will cause delays for a number of reasons including, but not limited
to, the fact that the supplier of any replacement agent would have to be evaluated by or qualified with the
relevant regulatory authorities, which is an expensive and time-consuming process during which we may
experience a supply interruption. Such reformulation would result in significant delays and is expected to
reduce the overall activity of one or more of our product candidates. We may also be unsuccessful in
negotiating favorable terms with such a supplier. As a result, our financial position and results of operations
may be adversely affected.
Manufacturers of drug 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 product 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. It is possible that stability failures or other issues relating to
the manufacture of our product candidates may 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 product candidate to patients in clinical
trials would be jeopardized. For example, BASF SE may not be able to produce sufficient quantities of
stabilizing agent in a timely manner. Any delay or interruption in the supply of clinical trial supplies could
delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs
and, depending upon the period of delay, require us to begin new clinical trials at additional expense or
terminate clinical trials completely.
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We have formed, and may form or seek collaborations, strategic alliances or acquisitions or enter
into licensing arrangements in the future, and we may not realize the benefits of these
arrangements.
We have formed, and may form or seek strategic alliances, create joint ventures or collaborations in
the future. We may also acquire complimentary products, intellectual property rights, technologies or
businesses 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 product
candidates and any future product 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 shareholders, or disrupt our management and business. 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 product candidates because they may be deemed to be at too early a stage
of development for collaborative effort and third parties may not view our product 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 product candidate, we can expect to relinquish some or all of the
control over the future success of that product candidate to the third party.
Further, collaborations involving our product candidates are subject to numerous risks, which may
include the following:
● collaborators have significant discretion in determining the efforts and resources that they will
apply to a collaboration;
● collaborators may not pursue development and commercialization of our product candidates or
may elect not to continue or renew development or commercialization programs based on clinical
trial results, changes in their strategic focus due to the acquisition of competitive drugs,
availability of funding, or other external factors, such as a business combination that diverts
resources or creates competing priorities;
● collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a
clinical trial, abandon a product candidate, repeat or conduct new clinical trials, or require a new
formulation of a product candidate for clinical testing;
● collaborators could independently develop, or develop with third parties, drugs that compete
directly or indirectly with our drugs or product candidates;
● a collaborator with marketing and distribution rights to one or more drugs may not commit
sufficient resources to their marketing and distribution;
● collaborators may not properly maintain or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that gives rise to actual or threatened
litigation that could jeopardize or invalidate our intellectual property or proprietary information
or expose us to potential liability;
● disputes may arise between us and a collaborator that cause the delay or termination of the
research, development or commercialization of our product candidates, or that result in costly
litigation or arbitration that diverts management attention and resources;
● collaborations may be terminated and, if terminated, may result in a need for additional capital to
pursue further development or commercialization of the applicable product candidates;
● 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;
● the collaboration may result in increased operating expenses or the assumption of indebtedness
or contingent liabilities; and
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● the collaboration arrangement may result in the loss of key personnel and uncertainties in our
ability to maintain key business relationships.
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. Following a strategic transaction or license, we may not achieve the revenue or specific
net income that justifies such transaction. If we are unable to reach agreements with suitable collaborators
on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product
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 product candidates
or bring them to market and generate product sales revenue, which would harm our business prospects,
financial condition and results of operations.
We have entered into an investigator-initiated clinical trial agreement with the University of California
San Diego, or UCSD, and Dr. Lyudmila Bazhenova, an employee of UCSD and the principal investigator, and
a clinical study agreement with the University of Washington, in connection with the investigator-initiated
Phase 1/2 studies of Plinabulin in combination with Bristol-Myers Squibb’s PD-1 antibody, nivolumab in
patients with metastatic NSCLC. The UCSD study has completed the enrollment of 18 patients, and achieved
its Phase 1 endpoint of safety evaluation and dose selection. The University of Washington study achieved
the dose regimen endpoint and therefore the study site has been closed. We have also entered into an
investigator-initiated research agreement with Hoosier Cancer Research Network, Inc. and the Rutgers
University, in connection with the investigator-initiated Phase 1 and Phase 2 clinical trials with a triple
combination therapy, consisting of Plinabulin, nivolumab, and CTLA-4 antibody, ipilimumab, for the
treatment of ES-SCLC. In addition, we have entered into a sponsored research agreement with The
University of Texas MD Anderson Cancer Center, or MD Anderson, in connection with research to evaluate
the benefits of adding Plinabulin to radiation therapy plus immune checkpoint antibodies. We have entered
into a sponsored clinical study agreement with MD Anderson in connection with the investigator-initiated
Phase 1/2 study of Plinabulin in combination with radiation/immunotherapy in patients with select advanced
malignancies after progression on PD-1 or PD-L1 targeted antibodies. We have also entered into an
investigator sponsored research agreement with Memorial Sloan Kettering Cancer Center in connection with
the investigator-initiated Phase 1 study of Plinabulin in combination with pegfilgrastim for the reduction of
neutropenia burden in multiple myeloma patients who have undergone autologous hematopoietic cell
transplantation, or AHCT. In 2023, we entered into a sponsored research agreement with Peking Union
Medical College Hospital in connection with the investigator-initiated Phase 2 study of Plinabulin in
combination with Keytruda® (pembrolizumab), a PD-1 antibody, and docetaxel for the treatment of NSCLC
patients who progressed from PD-1/PD-L1 antibodies. We have also entered into a sponsored research
agreement with Wuhan Union Hospital in connection with the investigator-initiated Phase 2 study of
Plinabulin in combination with pembrolizumab, a PD-1 antibody, and etoposide and platinum for the first-line
treatment of ES-SCLC patients. See “Item 4. Information on the Company—B. Business
Overview—Plinabulin, Our Lead Drug Candidate—Plinabulin in Combination with Immuno-oncology Agents
in Anti-cancer Indications—Investigator-initiated studies in Plinabulin in immune-oncology” and “—Plinabulin
in Prevention of CIN—Investigator-initiated Study in Multiple Myeloma (Plinabulin + Pegfilgrastim
combination).” Each of these agreements provides that we will provide the financial support and access to
Plinabulin for use in the studies, and they do not require that any intellectual property rights will be
developed in connection with these studies. Our subsidiary SEED has also entered into a research
collaboration and license agreement with Eli Lilly, to discover and develop new chemical entities that could
produce therapeutic benefit through targeted protein degradation, or TPD. Additionally, our subsidiary
Wanchunbulin has entered into an exclusive commercialization and co-development agreement with Hengrui
to develop additional indications for Plinabulin.
42
Risks Related to Our Industry, Business and Operation
We may be limited in the promotional claims we can make and may not be able to use information
about competing therapies to promote or market Plinabulin, if approved, without incurring
significant regulatory or enforcement risks.
Various U.S. governmental agencies, including the FDA and the Federal Trade Commission, or the
FTC, regulate the promotion and advertising of FDA approved medical products. Promotional materials and
statements must not be false or misleading. Among other things, the FDA requires that promotional claims
be supported by “substantial evidence,” which requires adequate, well-controlled clinical trials. Promotional
claims must also reflect “fair balance” between the risks and benefits of a medical product. The FDA has
found comparative claims to be “false and misleading” when they are not supported by adequate, well-
controlled, head-to-head comparison trials.
Disclaimers that the comparative claims are not based on head-to-head trials may not be sufficient to
insulate the responsible party from an FDA or FTC enforcement action. False and misleading advertising and
promotion is a violation of the Federal Food, Drug, and Cosmetic Act, or the FDCA, and subjects the
responsible party to sanctions including, but not limited to, warning letters, injunctions, civil penalties and
criminal prosecution. Additionally, a product is misbranded under the regulations if, in an effort to promote
the product, a responsible party makes a false or misleading representation with respect to a competing
drug, device or biologic.
We have limited intellectual property rights to Plinabulin inside China. We have also granted to
Hengrui exclusive rights to commercialize and co-develop Plinabulin in the Greater China
markets, including mainland China, Hong Kong, Macau and Taiwan.
Wanchunbulin, a partially owned subsidiary, holds the intellectual property rights to Plinabulin in
China. We currently indirectly own 57.97% of the equity interest of Wanchunbulin. 42.03% of the equity
interest of Wanchunbulin is held by certain other investors. As a result, any distributions resulting from
Wanchunbulin on account of its equity ownership will not be fully received by us as the parent company, and
any payment from us to Wanchunbulin will indirectly benefit said investors. In addition, under Chinese 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. Registered share capital and capital
reserve accounts are also restricted from withdrawal in China. As of December 31, 2023, these restricted net
assets were nil.
In August 2021, Wanchunbulin entered into an exclusive commercialization and co-development
agreement with Hengrui to further develop and commercialize Plinabulin in Greater China. Under the terms
of the agreement, Wanchunbulin granted Hengrui exclusive rights to commercialize and co-develop
Plinabulin in the Greater China markets, including mainland China, Hong Kong, Macau and Taiwan.
Wanchunbulin retains the manufacturing rights of Plinabulin in the Greater China markets and will receive
all Plinabulin net sales proceeds in such markets. Hengrui will receive a pre-determined percentage of the
net sales in each quarter. See “Item 4. Information on the Company—B. Business
Overview—Commercialization” and “Risk Factors—Risks Related to our Industry, Business and
Operation—We and our major shareholders have been, and may in the future become, subject to claims,
litigation, arbitration and investigations, any of which may require significant management attention, could
result in significant legal expenses and may result in unfavorable outcomes, all or any of which could have a
material adverse impact on our financial condition and results of operations, harm our reputation or
otherwise negatively impact our business.”
Our future success depends on our ability to retain our Chief Executive Officer and other key
executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Lan Huang, Ph.D., our Founder, Chairperson of our Board of Directors and
Chief Executive Officer and the other principal members of our management and scientific teams. Although
we have formal employment agreements with most of our executive officers, 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
provide share incentive grants that vest over time and based on achieving certain performance objectives.
The value to employees of these equity grants that vest over time may be significantly affected by
movements in our ordinary share 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 at any time, with or without notice.
43
Recruiting and retaining qualified scientific, clinical, 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 studies 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
product candidates. 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.
In January 2022, we announced an organizational streamlining initiative to re-focus certain of our
resources on extending our cash runway and preserving long-term sustainability in light of the recent
Complete Response Letter from the FDA for the NDA seeking approval of Plinabulin in combination with G-
CSF for the prevention of CIN. This streamlining initiative included a reduction in force program impacting a
number of employees.
To meet our long-term growth strategy, we will need to increase the size and capabilities of our
organization, and we may experience difficulties in managing our growth.
As of April 1, 2024, we had 35 full-time employees. Of these, 19 were engaged in full-time research and
development and laboratory operations and 16 were engaged in full-time general and administrative
functions. As of April 1, 2024, 12 of our employees were located in China and 23 were located in the U.S. We
have also engaged and may continue to engage independent contractors who are not full-time employees, to
assist us with our operations. As our development and commercialization plans and strategies develop, we
will need to establish and maintain effective disclosure and financial controls and make changes in our
corporate governance practices. Future growth will impose significant added responsibilities on members of
management, including:
● identifying, recruiting, integrating, maintaining and motivating additional employees;
● managing our internal development efforts effectively, including the clinical and FDA or other
comparable regulatory authority review process for our product candidates, while complying with
our contractual obligations to contractors and other third parties; and
● improving our operational, financial and management controls, reporting systems and procedures.
Our future financial performance and our ability to commercialize our product candidates will depend,
in part, on our ability to effectively manage our 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. These independent
organizations, advisors and consultants may not continue to be available to us on a timely basis when
needed, and in such case, we may not have the ability to 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 product candidates or otherwise advance our
business. Furthermore, we may not be able to manage our existing consultants or find other competent
outside contractors and consultants on economically reasonable terms, if at all.
44
If we are not able to effectively maintain our organization by retaining certain current employees,
attracting potential new employees in the future and utilizing our groups of consultants and contractors, we
may not be able to successfully implement the tasks necessary to further develop and commercialize our
product 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 U.S. and similar non-U.S. fraudulent misconduct laws; or report
financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA
approval of any of our product candidates and begin commercializing those drugs in the U.S., our potential
exposure under U.S. laws will increase significantly and our costs associated with compliance with such laws
are also likely to increase. These laws may impact, among other things, our current activities with principal
investigators and research patients and our use of information obtained in the course of patient recruitment
for clinical trials, as well as proposed and future sales, marketing and education programs. In particular, the
promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in
the healthcare industry, are subject to extensive laws designed to prevent 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.
It is not always possible to identify and deter misconduct by employees and other parties, and the
precautions we take to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to comply with these laws or regulations. If any such actions are instituted against
us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant fines or other sanctions.
We have identified two material weaknesses in our internal control over financial reporting. If our
remediation of these material weaknesses is not effective, or if we experience additional material
weaknesses in the future or otherwise fail to maintain an effective system of internal controls in
the future, we may not be able to accurately or timely report our financial condition or results of
operations, which may adversely affect investor confidence in us and, as a result, the value of our
ordinary shares.
We have identified two material weaknesses in our internal control over financial reporting. A material
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of our financial statements will not be
prevented or detected on a timely basis. The material weaknesses related to lack of adequate and timely
review of reconciliations and consolidations, resulting in material adjustments, and significant post-closing
adjustments; and lack of adequate review of journal entries, resulting in material post-closing adjustments.
We have implemented and will continue to implement measures designed to improve our internal
control over financial reporting to remediate these material weaknesses, including the following:
● we are establishing effective monitoring and oversight controls for non-recurring and
complex transactions to ensure the accuracy and completeness of our consolidated
financial statements and related disclosures
● we will continue to conduct accounting and financial reporting training for our employees.
45
We cannot assure you that the measures we have taken to date, and are continuing to implement, will
be sufficient to remediate the material weaknesses we have identified or to avoid potential future material
weaknesses. If the steps we take do not correct the material weaknesses in a timely manner, we will be
unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there
could continue to be a reasonable possibility that a material misstatement of our financial statements would
not be prevented or detected on a timely basis.
As a public company, we are required to maintain internal control over financial reporting and to
report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or
the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal control
over financial reporting and provide a management report on internal control over financial reporting. The
Sarbanes-Oxley Act also requires that our management report on internal control over financial reporting be
attested to by our independent registered public accounting firm to the extent we are deemed to be a large
accelerated filer or an accelerated filer. We do not expect our independent registered public accounting firm
to attest to our management report on internal control over financial reporting for so long as we are a non-
accelerated filer.
Our management evaluated, with the participation of our Chief Executive Officer, who performs the
functions of Principal Executive and Financial Officer under Rule 13a-15 under the Exchange Act, the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive
and Financial Officer concluded that, as a result of the material weaknesses in our internal control over
financial reporting described above, the design and operation of our disclosure controls and procedures were
not effective as of December 31, 2023. We have identified two material weaknesses in our internal control
over financial reporting and may identify additional material weaknesses or significant deficiencies in our
internal control over financial reporting in the future. More generally, if we are unable to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act, if we are unable to assert that our internal control
over financial reporting is effective, or when required in the future, if our independent registered public
accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial
reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the
market price of our ordinary shares could be adversely affected, and we could become subject to
investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory
authorities, which could require additional financial and management resources.
We are subject to the risk of doing business internationally.
We operate and expect to operate in various countries, and we may not be able to market our products
in, or develop new products successfully for, these markets. We may also encounter other risks of doing
business internationally including:
● unexpected changes in, or impositions of, legislative or regulatory requirements;
● the occurrence of economic weakness, including inflation or political instability;
● the effects of applicable non-U.S. tax structures and potentially adverse tax consequences;
● differences in protection of our intellectual property rights including third party patent rights;
● the burden of complying with a variety of foreign laws including difficulties in effective
enforcement of contractual provisions;
● delays resulting from difficulty in obtaining export licenses, tariffs and other barriers and
restrictions, potentially longer payment cycles, greater difficulty in accounts receivable collection
and potentially adverse tax treatment; and
● production shortages resulting from any events affecting raw material supply or manufacturing
capabilities abroad.
46
In addition, we are subject to general geopolitical risks in foreign countries where we operate, such as
political and economic instability, international hostilities and changes in diplomatic and trade relationships,
which could affect, among other things, customers’ inventory levels and consumer purchasing, which could
cause our results to fluctuate and our net sales to decline. The occurrence of any one or more of these risks
of doing business internationally, individually or in the aggregate, could materially affect our business and
results of operations adversely.
If we fail to comply with the U.S. Foreign Corrupt Practices Act, or FCPA, 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.
We are subject to the FCPA, which 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 expands, the applicability of the FCPA and other anti-
bribery laws to our operations will increase. 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.
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, damage from computer viruses, material computer system failures, water shortages, floods,
hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, international hostilities 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 product 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 rely on third-party manufacturers to
produce and process our product candidates. Our ability to obtain clinical supplies of our product 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 contract manufacturer’s operations is located in a single
facility. Damage or extended periods of interruption to our corporate or our contract manufacturer’s
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
product candidates.
We face risks related to health epidemics, pandemics and other outbreaks, which could
significantly disrupt our operations.
The outbreak of COVID-19 resulted in the implementation of significant governmental measures
globally, including closures of businesses and offices, quarantines of individuals, and travel bans. Our
business had been negatively impacted by the effects of COVID-19. For example, enrollment of patients in
our clinical trials in Ukraine was severely affected by the COVID-19 outbreak in 2020, and enrollment was
shifted to other clinical sites. We also experienced minor delays in enrollment of patients in our clinical trials
in general, which did not affect our ability to finish enrollment of patients in PROTECTIVE-2 and DUBLIN-3
studies globally. In addition, we rely on third-party CROs to monitor and manage data for our ongoing
preclinical and clinical programs, and the pandemic has affected their ability to devote sufficient time and
resources to our programs. Moreover, as a result of COVID-19, there was a general unease of conducting
unnecessary activities in medical centers. As a result, the expected timeline for data readouts of our clinical
trials and certain regulatory filings and regulatory review process had been negatively impacted. For
example, we experienced minor delays in processing the clinical trials data due to COVID-19. In addition,
restrictions or other circumstances related to COVID-19 caused delays in pre-approval inspections of our
clinical or manufacturing facilities and delays in regulatory review process, thereby delaying the regulatory
review and approval timeline of our product candidates. The outbreak of a similar health epidemic or
pandemic in the future could have a material adverse effect on our business.
47
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
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 product
candidates and on other third parties for the manufacture of our product 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 confidential or proprietary information, we could incur
liability and the further development and commercialization of our product candidates could be delayed.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be
required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates
and will face an even greater risk if we commercialize any drugs. For example, we may be sued if our
product 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 product candidates. Even successful defense would
require significant financial and management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
● decreased demand for our drugs;
● injury to our reputation;
● withdrawal of clinical trial participants and inability to continue clinical trials;
● initiation of investigations by regulators;
● costs to defend the related litigation;
● a diversion of management’s time and our resources;
● substantial monetary awards to trial participants or patients;
● product recalls, withdrawals or labeling, marketing or promotional restrictions;
● loss of revenue;
● exhaustion of any available insurance and our capital resources;
● the inability to commercialize any product candidate; and
● a decline in our ordinary share 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 carry an aggregate maximum coverage amount of approximately
$5.5 million of product liability insurance, the amount of such insurance coverage may not be adequate, we
may be unable to maintain such insurance, or we may not be able to obtain additional or replacement
insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may
be subject to a product liability claim for which we have no coverage. We may have to pay any amounts
awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not
covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Even if our agreements with any future corporate collaborators entitle us to indemnification against losses,
such indemnification may not be available or adequate should any claim arise.
48
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 also hold public liability insurance
covering certain incidents involving third parties that occur on or in our premises, and directors and officers’
liability insurance covering losses or advancement of defense costs resulting from certain legal actions
brought against our directors and officers. We do not maintain “key-person” 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 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.
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. dollars, in particular, the RMB. As a result, we are exposed to foreign currency exchange risk as our
results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. For
example, a significant portion of our clinical trial activities were conducted outside of the U.S., and
associated costs were incurred in the local currency of the country in which the trial was being conducted,
which costs were subject to fluctuations in currency exchange rates. We currently do not engage in hedging
transactions to protect against uncertainty in future exchange rates between particular foreign currencies
and the U.S. dollar. A decline in the value of the U.S. dollar against currencies in countries in which we
conduct clinical trials could have a negative impact on our research and development costs. Foreign
currency fluctuations are unpredictable and 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 Chinese and other non-U.S. governments. China, U.S. or other government policies may impact the
exchange rate between the RMB, U.S. dollar and other currencies in the future in ways that adversely affect
our business. There remains significant international pressure on the Chinese government to adopt a more
flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. Our
costs are denominated in U.S. dollars, RMB, Australian dollars and Euros, and a large portion of our financial
assets are in U.S. dollars. To the extent that we need to convert U.S. dollars into RMB for our operations,
appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would
receive. Conversely, if we decide to convert our RMB into U.S. dollars for our operations or 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, cash equivalents and restricted cash of $17.8 million and $34.4 million at December 31,
2023 and 2022, respectively. We may invest our cash in a variety of financial instruments, principally short-
term investment grade, interest-bearing instruments. We had short-term investments of $0.2 million and
$2.9 million at December 31, 2023 and 2022, respectively. 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 exposure to interest rate risk arises through movements in regard to interest
income we earn on our deposits. To manage the risk, our cash is held at financial institutions that we believe
to be of high credit quality. While we believe our cash position does not expose us to excessive risk, future
investments may be subject to adverse changes in market value.
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Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are currently subject to the 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.
We and our major shareholders have been, and may in the future become, subject to claims,
litigation, arbitration and investigations, any of which may require significant management
attention, could result in significant legal expenses and may result in unfavorable outcomes, all or
any of which could have a material adverse impact on our financial condition and results of
operations, harm our reputation or otherwise negatively impact our business.
We and our major shareholders have been, and may in the future become, subject to claims, litigation,
arbitration or investigations arising in or outside the ordinary course of business that could negatively affect
our business operations and financial condition. Such claims, litigation, arbitration and investigation
proceedings may be brought by third parties, including our partners or collaborators, investors, service
providers, competitors, advisors, employees, customers, and governmental or regulatory bodies. For
example, as previously disclosed, the Company was party to an arbitration proceeding initiated by Hengrui
with respect to a commercialization and co-development agreement with Hengrui. As an interim and
conservatory measure for the arbitration, approximately RMB 70 million (est. $9.6 million) of
Wanchunbulin’s assets were seized and frozen on a temporary basis, pending a decision on the merits by the
arbitral tribunal. On January 10, 2024, the arbitral tribunal at China International Economic and Trade
Arbitration Committee, or CIETAC, issued a final award, denying all claims made by Hengrui. As a result, all
of Wanchunbulin’s assets that have been seized and frozen pending a decision by the arbitral tribunal were
returned to Wanchunbulin in February 2024
The outcome of any claim, litigation, arbitration or investigation, regardless of its merits, is inherently
uncertain and may differ substantially from our expectations. Any claim, litigation, arbitration or
investigation against the Company, and the disposition of such claims and lawsuits, could be time-consuming
and expensive to resolve, divert management attention and resources, and lead to attempts on the part of
other parties to pursue similar claims. In addition, any claim, litigation, arbitration or investigation against
our major shareholders, and the disposition of such claims and lawsuits, may divert management attention
and resources, limit their ability to influence corporate matters or cause them to make decisions that may
not be aligned with the interests of holders of our ordinary shares. We may not be able to determine the
amount of any potential losses and other costs we may incur due to the inherent uncertainties of litigation,
arbitration and settlement negotiations. In the event we are required or decide to pay amounts in connection
with any such proceedings, such amounts could be significant and could have a material adverse impact on
our liquidity, business, financial condition and results of operations.
Risks Related to Our Doing Business in China
The current tensions in international economic relations may negatively affect the process of our
clinical trials, the cost of our operations and the growth of our business.
In recent years, there have been heightened tensions in international economic relations, such as
between the U.S. and China. Since July 2018, the U.S. government has imposed new or higher tariffs on
certain products imported from China, including certain medical equipment, to penalize China for what it
characterizes as unfair trade practices. China has responded by imposing new or higher tariffs on certain
products, including certain medical equipment, imported from the U.S. In January 2020, the U.S.
government signed a “Phase 1” agreement with China. It is not clear what impact these tariff negotiations
may have or what further actions the governments may take.
50
In light of existing and future measures, our clinical trials may be affected or delayed. The cost for
conducting the clinical trials may also be increased. Similarly, our supply chain for supporting the clinical
trials and other research may be negatively affected as well. Moreover, we may face much more uncertainty
in receiving regulatory approval or commercializing our product candidates due to the political tensions
between the United States and China. Rising political tensions could reduce levels of trades, investments,
technological exchanges and other economic activities between the two major economies, which would have
a material adverse effect on global economic conditions and the stability of global financial markets.
Therefore, our business, financial condition and results of operations, might also be negatively affected, and
Sino-U.S. economic and political relations may continue to deteriorate.
It may be difficult for overseas regulators to conduct investigation or collect evidence within
China.
Shareholder claims or regulatory investigations that are common in the United States are generally
difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant
legal and other obstacles to providing information needed for regulatory investigations or litigation initiated
outside of China. Although the authorities in China may establish a regulatory cooperation mechanism with
the securities regulatory authorities of another country or region to implement cross-border supervision and
administration, such cooperation with the securities regulatory authorities in the Unities States may not be
efficient in the absence of a mutual and practical cooperation mechanism. Furthermore, according to Article
177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities
regulator is allowed to directly conduct investigation or evidence collection activities within the territory of
the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be
promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence
collection activities within China may further increase difficulties faced by you in protecting your interests.
The pharmaceutical industry in China is highly regulated and such regulations are subject to
change which may affect approval and commercialization of our drugs.
The pharmaceutical industry in China is subject to comprehensive government regulation and
supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of
new drugs. See “Item 4. Information on the Company—B. Business Overview—Government
Regulation—Chinese Regulation” 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 product 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 Chinese government or in relations between
China and the United States may materially and adversely affect our business, financial condition,
results of operations and the market price of our ordinary shares.
Due to our extensive operations in China, our business, results of operations, financial condition and
prospects may be influenced to a significant degree by economic, political, legal and social conditions in
China or changes in government relations between China and the United States or other governments. There
is significant uncertainty about the future relationship between the United States and China with respect to
trade policies, treaties, government regulations and tariffs. China’s economy differs from the economies of
developed countries in many respects, including with respect to the amount of government involvement,
level of development, growth rate, control of foreign exchange and allocation of resources.
51
While China’s economy has experienced significant growth over the past four decades, growth has
been uneven across different regions and among various economic sectors. The Chinese government has
implemented various measures to encourage economic development and guide the allocation of resources.
Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For
example, our financial condition and results of operations may be adversely affected by government control
over capital investments or changes in tax regulations that are currently applicable to us. In addition, in the
past the Chinese government implemented certain measures, including interest rate increases, to control the
pace of economic growth. These measures may cause decreased economic activity in China, which may
adversely affect our business and results of operations.
Additionally, the Chinese government has published new policies that significantly affect certain
industries such as the education and internet industries, and we cannot rule out the possibility that it will in
the future release regulations or policies regarding our industry that could require us to obtain additional
permission from Chinese authorities to continue to operate our business in China, which may adversely
affect our business, financial condition and results of operations.
Furthermore, Chinese government have indicated an intent to increase the government’s oversight and
control over offerings of companies with significant operations in China that are to be conducted in foreign
markets. For example, in July 2021, the Chinese government provided new guidance on China-based
companies raising capital outside of China, including through arrangements called variable interest entities,
or VIEs. On February 17, 2023, the China Securities Regulatory Commissions, or CSRC, promulgated Trial
Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies, or the
Overseas Listing Trial Measures and relevant five guidelines, which became effective on March 31, 2023.
The Overseas Listing Trial Measures comprehensively improves and reforms the existing regulatory regime
for overseas offering and listing of PRC domestic companies’ securities and regulates both direct and
indirect overseas offering and listing of PRC domestic companies’ securities by adopting a filing-based
regulatory regime. The SEC also has imposed enhanced disclosure requirements on China-based companies
seeking to register securities with the SEC. Although we do not have a VIE structure, due to our extensive
operations in China, any future Chinese, U.S. or other rules and regulations that place restrictions on capital
raising or other activities by companies with extensive operations in China could adversely affect our
business and results of operations. If the business environment in China deteriorates from the perspective of
domestic or international investment, or if relations between China and the United States or other
governments deteriorate, the Chinese government may intervene with our operations and our business in
China and United States, as well as the market price of our ordinary shares, may also be adversely affected.
Changes in U.S. and Chinese regulations may adversely impact our business, our operating results,
our ability to raise capital and the market price of our ordinary shares.
The U.S. government, including the SEC, has made statements and taken certain actions that led to
changes to United States and international relations, and will impact companies with connections to the
United States or China, including imposing several rounds of tariffs affecting certain products manufactured
in China, imposing certain sanctions and restrictions in relation to China and issuing statements indicating
enhanced review of companies with significant China-based operations. It is unknown whether and to what
extent new legislation, executive orders, tariffs, laws or regulations will be adopted, or the effect that any
such actions would have on companies with significant connections to the United States or to China, our
industry or on us. We conduct clinical activities and have business operations both in the United States and
China. Any unfavorable government policies on cross-border relations and/or international trade, including
increased scrutiny on companies with significant China-based operations, capital controls or tariffs, may
affect the hiring of scientists and other research and development personnel, the import or export of raw
materials in relation to drug development, our ability to raise capital, or the market price of our ordinary
shares. Furthermore, the SEC has issued statements primarily focused on companies with significant China-
based operations. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC, issued a Statement on
Investor Protection Related to Recent Developments in China, pursuant to which Chairman Gensler stated
that he has asked the SEC staff to engage in targeted additional reviews of filings for companies with
significant China-based operations. The statement also addressed risks inherent in companies with VIE
structures. We do not have a VIE structure and are not in an industry that is subject to foreign ownership
limitations by China. However, it is possible that the Company’s periodic reports and other filings with the
SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to
effectively raise capital in the United States.
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In response to the SEC’s July 30, 2021 statement, the CSRC announced on August 1, 2021, that “it is
our belief that Chinese and U.S. regulators shall continue to enhance communication with the principle of
mutual respect and cooperation, and properly address the issues related to the supervision of China-based
companies listed in the U.S. so as to form stable policy expectations and create benign rules framework for
the market.” While the CSRC will continue to collaborate “closely with different stakeholders including
investors, companies, and relevant authorities to further promote transparency and certainty of policies and
implementing measures,” it emphasized that it “has always been open to companies’ choices to list their
securities on international or domestic markets in compliance with relevant laws and regulations.”
If any new legislation, executive orders, tariffs, laws and/or regulations are implemented, if existing
trade agreements are renegotiated, if the U.S. or Chinese governments take retaliatory actions due to the
recent U.S.-China tension or if the Chinese government exerts more oversight and control over securities
offerings that are conducted in the United States, such changes could have an adverse effect on our
business, financial condition and results of operations, our ability to raise capital and the market price of our
ordinary shares.
There are uncertainties regarding the interpretation and enforcement of Chinese laws, rules and
regulations.
A portion of our operations are conducted in China through our Chinese subsidiaries, and are governed
by Chinese laws, rules and regulations. Our Chinese subsidiaries are subject to laws, rules and regulations
applicable to foreign investment in China. The Chinese legal system is a civil law system based on written
statutes.
In 1979, the Chinese government began to promulgate a comprehensive system of laws, rules and
regulations governing economic matters in general. The overall effect of legislation over the past four
decades has significantly enhanced the protections afforded to various forms of foreign investment in China.
However, China has not developed a fully integrated legal system, and recently enacted laws, rules and
regulations may not sufficiently cover all aspects of economic activities in China or may be subject to
significant degrees of interpretation by Chinese regulatory agencies. In particular, because these laws, rules
and regulations are relatively new, and because of the limited number of published decisions and the
nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant
regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws,
rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the
Chinese legal system is based in part on government policies and internal rules, some of which are not
published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be
aware of our violation of these policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China may be protracted, resulting in substantial costs
and diversion of resources and management attention. Since Chinese administrative and court authorities
have significant discretion in interpreting and implementing statutory and contractual terms, it may be more
difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we
enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the
contracts we have entered into and could materially and adversely affect our business, financial condition
and results of operations.
Chinese regulations relating to investments in offshore companies by Chinese residents may
subject our future Chinese resident beneficial owners or our Chinese subsidiaries to liability or
penalties, limit our ability to inject capital into our Chinese subsidiaries or limit our Chinese
subsidiaries’ ability to increase their registered capital or distribute profits.
The State Administration of Foreign Exchange, or 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. SAFE Circular
37 requires Chinese 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 Chinese residents’ legally owned assets or equity interests in domestic enterprises or offshore
assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further
requires an amendment to the registration in the event of any significant changes with respect to the special
purpose vehicle, such as an increase or decrease of capital contributed by Chinese individuals, share transfer
or exchange, merger, division or other material event. In the event that a Chinese shareholder holding
interests in a special purpose vehicle fails to fulfill the required SAFE registration, the Chinese subsidiaries
of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and
from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may
be restricted in its ability to contribute additional capital into its Chinese subsidiary. Moreover, failure to
comply with the various SAFE registration requirements described above could result in liability under
Chinese law for evasion of foreign exchange controls.
53
We believe Dr. Lan Huang and Mr. Linqing Jia, each of whom are our shareholders, are Chinese
residents under SAFE Circular 37. Although Dr. Lan Huang and Mr. Linqing Jia have completed the foreign
exchange registration under SAFE Circular 37, we do not have control over these two shareholders and our
other beneficial owners, and our Chinese resident beneficial owners may not have complied with, and may
not in the future comply with, SAFE Circular 37 and subsequent implementation rules. The failure of Chinese
resident beneficial owners to register or amend their SAFE registrations in a timely manner pursuant to
SAFE Circular 37 and subsequent implementation rules, or the failure of future Chinese resident beneficial
owners of our company to comply with the registration procedures set forth in SAFE Circular 37 and
subsequent implementation rules, may subject such beneficial owners or our Chinese subsidiaries to fines
and legal sanctions. Furthermore, SAFE Circular 37 is unclear how this regulation, and any future regulation
concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the
relevant Chinese government authorities, and we cannot predict how these regulations will affect our
business operations or future strategy. Failure to register or comply with relevant requirements may also
limit our ability to contribute additional capital to our Chinese subsidiaries and limit our Chinese
subsidiaries’ ability to distribute dividends to us. These risks could in the future have a material adverse
effect on our business, financial condition and results of operations.
Any failure to comply with Chinese regulations regarding our employee equity incentive plans may
subject the PRC plan participants or us to fines and other legal sanctions.
We and our directors, executive officers and other employees who are Chinese citizens or who have
resided in China for a continuous period of not less than one year and who will be granted restricted shares
or options are subject to the Notices on Issues concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, 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 Chinese citizens or
who are non-Chinese 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. In addition, an
overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of
stock options and the purchase or sale of shares and interests. 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 foreign-invested enterprises in China and limit our foreign-invested enterprises’
ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to
adopt additional equity incentive plans for our directors and employees under Chinese law.
In addition, the State Administration of Taxation, or the SAT, has issued circulars concerning employee
share options or restricted shares. Under these circulars, employees working in China who exercise share
options, or whose restricted shares vest, will be subject to Chinese individual income tax. The Chinese
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 Chinese
subsidiaries fail to withhold applicable income taxes, the Chinese subsidiaries may face sanctions imposed by
the tax authorities or other Chinese 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 Chinese 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.
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Under Chinese laws, rules and regulations, each of our subsidiaries incorporated in China is required
to set aside 10% of its after-tax profits each year to fund certain statutory common reserve funds, until the
aggregate amount of such funds reaches 50% of its registered capital. If the statutory common reserve funds
are not sufficient to make up its losses in previous years (if any), such subsidiary shall use the profits of the
current year to make up the losses before accruing the statutory common reserve funds. At the discretion of
the shareholders, it may, after accruing the statutory common reserve funds, allocate a portion of its after-
tax profits, based on PRC accounting standards, to discretionary common reserve funds. These statutory
common reserve funds and discretionary common reserve funds, 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 China. As of December 31, 2023, these restricted net assets were nil.
The Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementation rules, both of
which became effective on January 1, 2008 and have been amended certain times thereafter, provide that
China-sourced income of foreign enterprises, such as dividends paid by a Chinese subsidiary to its equity
holders that are non-Chinese resident enterprises, will normally be subject to Chinese 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 Chinese
subsidiaries are expected to be subject to Chinese 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
Hong Kong Tax Treaty, BeyondSpring (HK) Limited, or BeyondSpring HK, the shareholder of our Chinese
subsidiaries, may be subject to a withholding tax at a rate of 5% on dividends received from our Chinese
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 Chinese entities
provided that the recipient can demonstrate it is a Hong Kong tax resident and it is the beneficial owner of
the dividends. BeyondSpring HK currently does not hold a Hong Kong tax resident certificate from the Inland
Revenue Department of Hong Kong and the reduced withholding tax rate may not 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 as the parent
company. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us as
the parent company in 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 Chinese tax purposes under the EIT Law and be
subject to Chinese 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 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 Chinese 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: senior
management personnel and departments that are responsible for daily production, operation and
management; financial and personnel decision-making bodies; key properties, accounting books, company
seal and minutes of board meetings and shareholders’ meetings; and 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, as amended on June 15, 2018, to provide further guidance on the
implementation of Circular 82. Bulletin 45 clarifies certain issues related to determining Chinese resident
enterprise status, including which competent tax authorities are responsible for determining offshore
incorporated Chinese 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 related to the administrative procedures for the recognition of resident
enterprise, while the standards used to classify resident enterprises in Circular 82 remain unchanged.
55
We are not aware of any offshore holding company with a corporate structure similar to ours that has
been deemed a Chinese “resident enterprise” by the Chinese tax authorities. Accordingly, we do not believe
our company or any of our overseas subsidiaries should be treated as a Chinese resident enterprise.
If the Chinese tax authorities determine that our Cayman Islands holding company is a resident
enterprise for EIT purposes, a number of unfavorable Chinese 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 EIT reporting obligations. In
that case, it is possible that dividends paid to us as the parent company by our Chinese subsidiaries will not
be subject to Chinese withholding tax.
Dividends payable to our foreign investors may be subject to Chinese withholding tax and gains on
the sale of our ordinary shares by our foreign investors may be subject to Chinese tax.
If we are deemed a Chinese resident enterprise as described under “—We may be treated as a resident
enterprise for Chinese tax purposes under the EIT Law and be subject to Chinese tax on our worldwide
taxable income at a rate of 25%,” dividends paid on our ordinary shares, and any gain realized from the
transfer of our ordinary shares, may be treated as income derived from sources within China. As a result,
dividends paid to non-Chinese resident enterprise ordinary shareholders may be subject to Chinese
withholding tax at a rate of 10% (or 20% in the case of non-Chinese individual ordinary shareholders) and
gains realized by non-Chinese resident enterprises ordinary shareholders from the transfer of our ordinary
shares may be subject to Chinese tax at a rate of 10% (or 20% in the case of non-Chinese individual ordinary
shareholders). It is unclear whether if we or any of our subsidiaries established outside China are considered
a Chinese resident enterprise, holders of our 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-Chinese investors, or gains from the transfer of our ordinary shares by such investors are subject to
Chinese tax, the value of your investment in the ordinary shares may decline significantly.
We and our shareholders face uncertainties with respect to indirect transfers of equity interests in
Chinese resident enterprises or other assets attributed to a Chinese establishment of a non-
Chinese company, or other assets attributable to a Chinese establishment of a non-Chinese
company.
On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax regarding
Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7. Pursuant to this Bulletin 7, an
“indirect transfer” of “PRC taxable assets,” including equity interests in a Chinese resident enterprise, by
non-Chinese 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 Chinese enterprise income tax. As a result, gains derived from such indirect
transfer may be subject to Chinese 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 interests of the relevant offshore enterprise derives from PRC taxable assets;
whether the assets of the relevant offshore enterprise mainly consist 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. On October 17, 2017, the SAT issued the
Announcement of the State Administration of Taxation on Issues concerning the Withholding of Non-resident
Enterprise Income Tax at Source, or Bulletin 37, which came into effect on December 1, 2017. Bulletin 37
further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.
56
Late payment of applicable tax will subject the transferor to default interest. Gains derived from the
sale of shares by investors are not subject to the Chinese enterprise income tax pursuant to Bulletin 7 where
such shares were acquired in a transaction through a public stock exchange. However, the sale of our
ordinary shares by a non-Chinese resident enterprise outside a public stock exchange may be subject to
Chinese 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 Chinese subsidiaries may be requested to assist in the filing.
Furthermore, we, our non-resident enterprises and Chinese 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 Chinese 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 Chinese tax authorities make adjustments to the taxable income of the transactions under
Bulletin 7 / Bulletin 37, 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 Chinese government imposes controls on the convertibility of RMB into foreign currencies and, in
certain cases, the remittance of currency out of China. A portion of our revenue may in the future be
denominated in RMB. Shortages in availability of foreign currency may then restrict the ability of our
Chinese subsidiaries to remit sufficient foreign currency to our offshore entities for our offshore entities to
pay dividends or make other payments or otherwise to satisfy our foreign currency denominated obligations.
The RMB is currently convertible under the “current account,” which includes trade and service-related
foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment
and loans, including loans we may secure from our onshore subsidiaries. Currently, our Chinese subsidiaries,
which are foreign-invested enterprises, may purchase foreign currency for settlement of “current account
transactions,” without the approval of SAFE, by complying with certain procedural requirements. However,
the relevant Chinese governmental authorities may limit or eliminate our ability to purchase foreign
currencies in the future for current account transactions. Since a portion of our future revenue may be
denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in RMB to fund our business activities outside of China or pay dividends in foreign
currencies to our shareholders, including holders of our ordinary shares. Foreign exchange transactions
under the capital account remain subject to limitations and require approvals from, or registration with,
SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign
currency through debt or equity financing for our subsidiaries.
Recent litigation and negative publicity surrounding China-based companies listed in the U.S. may
result in increased regulatory scrutiny of us and negatively impact the trading price of our
ordinary shares 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 U.S. have negatively impacted stock prices for such companies. Various equity-based
research organizations have published reports on China-based companies after examining, among other
things, their corporate governance practices, related party transactions, sales practices and financial
statements that have led to special investigations and stock suspensions on national exchanges. Any similar
scrutiny of us, regardless of its lack of merit, could result in a diversion of management resources and
energy, potential costs to defend ourselves against rumors, decreases and volatility in our ordinary share
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.
57
Our ordinary shares may be delisted or prohibited from being traded in the United States under
the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect or investigate
completely auditors located in China. The delisting or the cessation of trading in the United States
of our ordinary shares, or the threat of their being delisted or prohibited, may materially and
adversely affect the value and/or liquidity of your investment.
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020.
The HFCAA states that if the SEC determines that an issuer has filed audit reports issued by a registered
public accounting firm that has not been subject to inspection by the PCAOB for two consecutive years, the
SEC shall prohibit the securities of the issuer from being traded on a national securities exchange or in the
over the counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the
PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in
mainland China and Hong Kong, and our former auditor was subject to that determination. In May 2022, the
SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our
annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the
PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or
investigate completely registered public accounting firms. Our current auditor since January 5, 2024,
Marcum LLP, or Marcum, as an auditor of companies that are traded publicly in the United States and a firm
registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts
regular inspections to assess its compliance with the applicable professional standards. Marcum is
headquartered in Manhattan, New York. Marcum was not included in the list of PCAOB Identified Firms in
the PCAOB Determination Report issued in December 2021, and was inspected by the PCAOB on a regular
basis. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA
after we file this annual report on Form 20-F for the fiscal year ended December 31, 2023.
However, if the PCAOB determines in the future that it no longer has full access to inspect and
investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm
headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the
SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on
Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our ordinary shares would be
prohibited from being traded on a national securities exchange or in the over-the-countertrading market in
the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the
future. If our ordinary shares are prohibited from trading in the United States, there is no certainty that we
will be able to list on a non-U.S. exchange or that a market for our ordinary shares will develop outside of the
United States.
In addition, if the PCAOB were unable to conduct full inspections or investigations of our auditor in the
future, we and investors in our ordinary shares would be deprived of the benefits of such PCAOB inspections.
The inability of the PCAOB to conduct full inspections or investigations of auditors would make it more
difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit
procedures or quality control procedures as compared to auditors that are subject to the PCAOB inspections,
which could cause investors and potential investors to lose confidence in the audit procedures and reported
financial information and the quality of our financial statements.
If additional remedial measures are imposed on the “big four” PRC-based accounting firms in
administrative proceedings brought by the SEC alleging such firms’ failure to meet specific
criteria set by the SEC with respect to requests for the production of documents, the market price
of our ordinary shares may be materially and adversely affected.
In December 2012, the SEC brought administrative proceedings against five accounting firms in China,
which do not include our independent registered public accounting firm, alleging that they had refused to
produce audit work papers and other documents related to certain other China-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 China-based accounting firms appealed to the SEC against this decision.
In February 2015, each of the four China-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 CSRC. Under the terms of the settlement, the underlying proceeding against the four
China-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement.
The four-year mark occurred on February 6, 2019.
58
While we cannot predict if the SEC will further challenge the four China-based accounting firms’
compliance with U.S. law in connection with U.S. regulatory requests for audit work papers or if the results
of such a challenge would result in the SEC imposing penalties such as suspensions, if the SEC restarts the
administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major
Chinese operations may find it difficult or impossible to retain auditors with respect to their operations in
China, which could result in financial statements being determined not to 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 China-based, U.S.-listed
companies and the market price of our ordinary shares may be adversely affected.
In the past, we had engaged certain China affiliates of one of the “big four” accounting firms as our
independent registered public accounting firm. If, in the future, we engage a China affiliate of one of the “big
four” accounting firms as our independent registered public accounting firm, and such 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 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 delisting of our ordinary shares from the Nasdaq Capital Market or
deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading
of our ordinary shares in the U.S. All these would materially and adversely affect the market price of our
ordinary shares and substantially reduce or effectively terminate the trading of our ordinary shares in the
U.S.
Our failure to comply with data protection laws and regulations could lead to government
enforcement actions and significant penalties against us, and adversely impact our operating
results.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing
of personal information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable
future. Regulatory authorities in virtually every jurisdiction in which we operate in Greater China and other
Asian markets have implemented and are considering a number of legislative and regulatory proposals
concerning personal data protection.
Regulatory authorities in China have implemented and are considering a number of legislative and
regulatory proposals concerning data protection. For example, the Cyber Security Law of the PRC, or the
Cyber Security Law, which became effective in June 2017, created China’s first national-level data protection
regime for “network operators,” which may include all organizations in China that provide services over the
internet or another information network.
We do not maintain, nor do we intend to maintain in the future, personally identifiable health
information of patients in China. We do, however, collect and maintain de-identified or pseudonymized health
data for clinical trials in compliance with local regulations. These data could be deemed as personal data or
important data. With China’s growing emphasis of its sovereignty over data derived from China, the
outbound transmission of de-identified or pseudonymized health data for clinical trials may be subject to the
new national security legal regime, including the Cyber Security Law, the Data Security Law (as defined
below), the Personal Information Protection Law (as defined below), and various implementing regulations
and standards.
Under the Cyber Security Law and the Measures on Standard, Safety and Service of the National
Medical Care Big Data (Tentative), or the Measures on Health and Medical Big Data, the transmission of
certain personal information, important data and health and medical care big data outside of China is only
permitted upon the completion of a security assessment conducted by or as determined by the Chinese
government. On July 7, 2022, the Cyberspace Administration of China, or the CAC, promulgated the Security
Assessment Measures for Outbound Data Transfer, effective from September 1, 2022, or the Security
Assessment Measures, to regulate outbound data transfer activities, protect the information rights and
interests of individuals, safeguard national security and social public interests, and promote the safe and free
cross-border flow of data. On March 22, 2024, the CAC promulgated the Provisions on Facilitating and
Regulating Cross-border Data Flow, effective on the same date. The provisions intend to replace the rules set
forth in the Security Assessment Measures that are inconsistent with the new provisions, and provide for,
among others, circumstances that are exempted from and circumstances that require application for security
assessment for outbound data transfer, execution of a standard contract for personal information outbound
transfer and passing of the certification for personal information protection.
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In addition, the Standing Committee of the National People’s Congress of the PRC, or the SCNPC,
promulgated the Data Security Law of the People’s Republic of China, or the Data Security Law, on June 10,
2021, which became effective on September 1, 2021. The Data Security Law imposes data security and
privacy obligations on entities and individuals carrying out data processing activities, and introduces a data
classification and hierarchical protection system. The classification of data is based on its importance in
economic and social development, as well as the degree of harm expected to be caused to national security,
public interests, or legitimate rights and interests of individuals or organizations if such data is tampered
with, destroyed, leaked, or illegally acquired or used. The security assessment mechanism was also included
in the Personal Information Protection Law, or the Personal Information Protection Law, which was
promulgated in August 2021 and became effective on November 1, 2021, for the Chinese government to
supervise certain cross-border transfers of personal information.
The Personal Information Protection Law provides a comprehensive set of data privacy and protection
requirements that apply to the processing of personal information and expands data protection compliance
obligations to cover the processing of personal information of persons by organizations and individuals in
China, and the processing of personal information of persons in China outside of China if such processing is
for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in
China. The Personal Information Protection Law also provides that critical information infrastructure
operators and personal information processing entities who process personal information meeting a volume
threshold to be set by Chinese cyberspace regulators are also required to store in China personal
information generated or collected in China, and to pass a security assessment administered by Chinese
cyberspace regulators for any export of such personal information. Lastly, the Personal Information
Protection Law contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of
annual revenues from the prior year and may also be ordered to suspend any related activity by competent
authorities. We do not maintain, nor do we intend to maintain in the future, personally identifiable health
information of patients in China. We do, however, collect and maintain de-identified or pseudonymized health
data for clinical trials in compliance with local regulations.
Under the Cyber Security Law and Data Security Law, we are required to establish and maintain a
comprehensive data and network security management system that will enable us to monitor and respond
appropriately to data security and network security risks. We will need to classify and take appropriate
measures to address risks created by our data processing activities and use of networks. We will be obligated
to notify affected individuals and appropriate Chinese regulators of and respond to any data security and
network security incidents. Establishing and maintaining such systems takes substantial time, effort and
cost, and we may not be able to establish and maintain such systems fully as needed to ensure compliance
with our legal obligations. Despite our investment, such systems may not fully guard us or enable us to
appropriately respond to or mitigate all data security and network security risks or incidents we face.
Furthermore, under the Data Security Law, data categorized as “important data,” which will be determined
by governmental authorities in the form of catalogs, is to be processed and handled with a higher level of
protection. The notion of important data is not clearly defined by the Cyber Security Law or the Data
Security Law. In order to comply with the statutory requirements, we will need to determine whether we
possess important data, monitor the important data catalogs that are expected to be published by local
governments and departments, perform risk assessments and ensure we are complying with reporting
obligations to applicable regulators. We may also be required to disclose to regulators business-sensitive or
network security-sensitive details regarding our processing of important data, and may need to pass the
government security review or obtain government approval in order to share important data with offshore
recipients, which can include foreign licensors, or share data stored in China with judicial and law
enforcement authorities outside of China. If judicial and law enforcement authorities outside China require
us to provide data stored in China, and we are not able to pass any required government security review or
obtain any required government approval to do so, we may not be able to meet the foreign authorities’
requirements. The potential conflicts in legal obligations could have adverse impact on our operations in and
outside of China.
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Recently, the CAC has taken action against several Chinese internet companies in connection with
their initial public offerings on U.S. securities exchanges, for alleged national security risks and improper
collection and use of the personal information of Chinese data subjects. According to the official
announcement, the action was initiated based on the National Security Law, the Cyber Security Law and the
Cybersecurity Review Measures, which are aimed at “preventing national data security risks, maintaining
national security and safeguarding public interests.” In addition, on December 28, 2021, the CAC and several
other PRC government authorities jointly issued the newly revised Cybersecurity Review Measures,
according to which, among others, if an internet platform operator has personal information of over one
million users and intends to be listed on a foreign stock exchange, it must be subject to the cybersecurity
review. The newly revised Cybersecurity Review Measures became effective on February 15, 2022. On
November 14, 2021, the CAC published the Administrative Regulations on the Internet Data Security (Draft
for Comments), or the Draft Data Security Measures for public comments, according to which, among others,
listing in a foreign country of data processors processing over one million users’ personal information and
listing in Hong Kong of data processors which affects or may affect national security must apply for
cybersecurity review. As the Draft Data Security Measures have not been adopted and it remains unclear
whether the formal version adopted in the future will have any further material changes, it is uncertain how
these draft measures will be enacted, interpreted or implemented and how they will affect us. It is unclear at
the present time how widespread the cybersecurity review requirement and the enforcement action will be
and what effect they will have on the life sciences sector generally and the Company in particular. China’s
regulators may impose penalties for non-compliance ranging from fines or suspension of operations, and this
could lead to us delisting from the U.S. stock market.
The national security legal regime imposes stricter data localization requirements on personal
information and human health-related data and requires us to undergo cybersecurity or other security
review, obtain government approval or certification, or put in place certain contractual protections before
transferring personal information and human health-related data out of China. As a result, personal
information, important data and health and medical data that we or our customers, vendors, clinical trial
sites, pharmaceutical partners and other third parties collect, generate or process in China may be subject to
such data localization requirements and heightened regulatory oversight and controls. To comply with these
requirements, maintaining local data centers in China, conducting security assessments or obtaining the
requisite approvals from the Chinese government for the transmission outside of China of such controlled
information and data could significantly increase our operating costs or cause delays or disruptions in our
business operations in and outside China. We expect that the evolving regulatory interpretation and
enforcement of the national security legal regime will lead to increased operational and compliance costs
and will require us to continually monitor and, where necessary, make changes to our operations, policies,
and procedures. If our operations, or the operations of our CROs, licensees or partners, are found to be in
violation of these requirements, we may suffer loss or use of data, suffer a delay in obtaining regulatory
approval for our products, be unable to transfer data out of Mainland China, be unable to comply with our
contractual requirements, suffer reputational harm or be subject to penalties, including administrative, civil
and criminal penalties, damages, fines and the curtailment or restructuring of our operations. If any of these
were to occur, it could adversely affect our ability to operate our business and our financial results.
The General Office of the State Council passed the Scientific Data Administrative Measures in March
2018, which provides a regulatory framework for the collection, submission, retention, exploitation,
confidentiality and security of scientific data. Scientific data is defined as data generated from basic
research, applied research, experiments and developments in the fields of natural sciences, engineering and
technology. It also includes the original and derived data by means of surveillance, monitoring, field studies,
examination and testing that are used in scientific research activities. All scientific data generated by
research entities, including research institutions, higher education institutions and enterprises that is
created or managed with government funds, or funded by any source that concerns state secrets, national
security, or social and public interests, must be submitted to data centers designated by the Chinese
government for consolidation. Disclosure of scientific data will be subject to regulatory scrutiny.
The definition of scientific data is quite broad, but the Chinese government has not issued further
guidance to clarify if clinical study data would fall within the definition of scientific data. To our
understanding, the Chinese government has not required life sciences companies to upload clinical study
data to any government-designated data centers, or prevented the cross-border transmission and sharing of
clinical study data. We plan to closely monitor legal and regulatory developments in this area to see how
scientific data is interpreted, and we may be required to comply with additional regulatory requirements for
sharing clinical study data with our licensors or foreign regulatory authorities, although the scope of such
requirements, if any, is currently unknown.
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On July 7, 2022, the CAC promulgated the Security Assessment Measures, to regulate outbound data
transfer activities, protect the information rights and interests of individuals, safeguard national security and
social public interests, and promote the safe and free cross-border flow of data. Furthermore, the Security
Assessment Measures provide that the security assessment for outbound data transfers shall follow
principles of the combination of pre-assessment and continuous supervision and the combination of risk self-
assessment and security assessment, so as to prevent the security risks arising from outbound data transfers
and ensure the orderly and free flow of data according to the law. For outbound data transfers activities that
have been carried out prior to the implementation of the Security Assessment Measures, and not in
compliance with the Security Assessment Measures, rectification shall be completed within 6 months from
the implementation of the Security Assessment Measures. The Security Assessment Measures further
provide that a data processor intending to implement outbound data transfer under the following
circumstances shall apply for security assessment to the CAC: (a) a data processor intending to provide
critical data abroad; (b) a critical information infrastructure operator or a data processor processing the
personal information of more than one million individuals intending to provide personal information abroad;
(c) a data processor, who has cumulatively provided personal information of 100,000 individuals or sensitive
personal information of 10,000 individuals abroad since January 1st of the previous year, intending to
provide personal information abroad; and (d) other circumstances prescribed by the CAC for which
application for security assessment for outbound data transfers is required. On March 22, 2024, the CAC
promulgated the Provisions on Facilitating and Regulating Cross-border Data Flow, effective on the same
date. The provisions intend to replace the rules set forth in the Security Assessment Measures that are
inconsistent with the new provisions. Pursuant to the Provisions on Facilitating and Regulating Cross-border
Data Flow, a data processor intending to implement outbound data transfer under the following
circumstances shall apply for security assessment to the CAC: (a) a critical information infrastructure
operator intending to provide personal information or important data abroad; or (b) a data processor, that is
not a critical information infrastructure operator, intending to provide important data abroad, or has since
January 1st of the current year cumulatively provided personal information (excluding sensitive personal
information) of over one million individuals, or sensitive personal information of over 10,000 individuals,
abroad. For any data processors other than critical information infrastructure operators who have since
January 1st of the current year cumulatively provided personal information (excluding sensitive personal
information) of over 100,000 and less than one million individuals, or sensitive personal information of less
than 10,000 individuals abroad, should execute a standard contract for outbound transfer of personal
information with the recipient abroad or pass the certification for personal information protection.
In addition, certain industry-specific laws and regulations affect the collection and transfer of personal
data in China. For example, the Regulation on the Administration of Human Genetic Resources, or the HGR
Regulation, promulgated by the State Council, which became effective on July 1, 2019, applies to activities
that involve collection; biobanking; use of HGR, which includes the genetic materials with respect to organs,
tissues, cells and other materials that contain the human genome, genes and other genetic substances, or the
China Biospecimens; and derived data, in China (together with the China Biospecimens, the “China-Sourced
HGR”), and provision of such items to foreign parties. The HGR Regulation prohibits both onshore and
offshore entities established or actually controlled by foreign entities and individuals from collecting or
biobanking any China-Sourced HGR in China, as well as providing such China-Sourced HGR out of China.
Chinese parties are required to seek an advance approval for the collection of certain HGR and biobanking of
all HGR. Approval for any export or cross-border transfer of China Biospecimens is required, and transfer of
derived data by Chinese parties to foreign parties or entities established or actually controlled by them also
requires the Chinese parties to file, before the transfer, a copy of the data with the China Human Genetic
Resources Administrative Office, or HGRAO, for record and obtain a notification filing number in order to
transfer. The HGR Regulation also requires that foreign parties ensure the full participation of Chinese
parties in international collaborations and share all records and data with the Chinese parties.
If the Chinese parties fail to comply with data protection laws, regulations and practice standards, and
our research data is obtained by unauthorized persons, used or disclosed inappropriately or destroyed, we
may lose our confidential information and be subject to litigation and government enforcement actions. It is
possible that these laws may be interpreted and applied in a manner that is inconsistent with our or our
collaborators’ practices, potentially resulting in suspension of relevant ongoing clinical trials or delays in the
initiation of new trials, confiscation of China-Sourced HGR, administrative fines, disgorgement of illegal
gains or temporary or permanent debarment of our or our collaborators’ entities and responsible persons
from further clinical trials and, consequently, a de-facto ban on the debarred entities from initiating new
clinical trials in China. So far, the HGRAO has disclosed a number of HGR violation cases. In one case, the
sanctioned party was the Chinese subsidiary of a multinational pharmaceutical company that was found to
have illegally transferred certain biospecimens to CROs for conducting certain unapproved research. In
addition to a written warning and confiscation of relevant HGR materials, the Chinese subsidiary of the
multinational pharmaceutical company was requested by the HGRAO to take rectification measures and was
also banned by the HGRAO from submitting any clinical trial applications until the HGRAO was satisfied with
the rectification results, which rendered it unable to initiate new clinical trials in China until the ban was
lifted. In another case, the CRO engaged by the Chinese subsidiary of a multi-national pharmaceutical
company was found to have forged an ethics committee approval in order to accelerate the HGRAO approval.
Both the Chinese subsidiary of the multi-national pharmaceutical company and the CRO were debarred from
initiating new applications for a period of six to 12 months, respectively.
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To further tighten the control of China HGR, the SCNPC issued the Eleventh Amendment to the
Criminal Law of the People’s Republic of China on December 26, 2020, which became effective on March 1,
2021, criminalizing the illegal collection of China-Sourced HGR, the illegal transfer of China-sourced
biospecimens outside of China, and the transfer of China-sourced derived data to foreign parties or entities
established or actually controlled by them without going through security review and assessment. An
individual who is convicted of any of these violations may be subject to public surveillance, criminal
detention, a fixed-term imprisonment of up to seven years and/or a criminal fine. In October 2020, the
SCNPC adopted the Biosecurity of the People’s Republic of China, or the PRC Biosecurity Law, which
became effective on April 15, 2021. The PRC Biosecurity Law established an integrated system to regulate
biosecurity-related activities in China, including, among others, the security regulation of HGR and biological
resources. The PRC Biosecurity Law for the first time expressly declares that China has sovereignty over its
HGR, and further endorsed the HGR Regulation by recognizing the fundamental regulatory principles and
systems established by it over the utilization of China-Sourced HGR by foreign entities in China. Though the
PRC Biosecurity Law does not provide any specific new regulatory requirements on HGR, as it is a law
adopted by China’s highest legislative authority, it gives China’s major regulator of HGR, the Ministry of
Science and Technology, or the MOST, significantly more power and discretion to regulate HGR and it is
expected that the overall regulatory landscape for China-Sourced HGR will evolve and become even more
rigorous and sophisticated. In addition, the interpretation and application of data protection laws in China
and elsewhere are often uncertain and in flux.
In addition, in the United States, at both the federal and state levels, and in territories outside of
Mainland China where we have rights to and plan to develop and commercialize our in-licensed product
candidates, including Hong Kong, Macau, Singapore, South Korea, Taiwan and Thailand, we are subject to
laws and regulations that address privacy, personal information protection and data security. Numerous laws
and regulations, including security breach notification laws, health information privacy laws and consumer
protection laws, govern the collection, use, disclosure and protection of health-related and other personal
information. Given the variability and evolving state of these laws, we face uncertainty as to the exact
interpretation of the new requirements, and we may be unsuccessful in implementing all measures required
by regulators or courts in their interpretation.
We expect that these data protection and transfer laws and regulations will receive greater attention
and focus from regulators going forward, and we will continue to face uncertainty as to whether our efforts
to comply with evolving obligations under data protection, privacy and security laws in China, the United
States and other countries where we plan or conduct business will be sufficient.
Any failure or perceived failure by us to comply with applicable laws and regulations could result in
reputational damage or proceedings or actions against us by governmental entities, individuals or others.
These proceedings or actions could subject us to significant civil or criminal penalties and negative publicity,
result in the delayed or halted transfer or confiscation of certain personal information, result in the
suspension of ongoing clinical trials or ban on initiation of new trials, require us to change our business
practices, increase our costs and materially harm our business, prospects, financial condition and results of
operations. In addition, our current and future relationships with customers, vendors, pharmaceutical
partners and other third parties could be negatively affected by any proceedings or actions against us or
current or future data protection obligations imposed on them under applicable law, including the European
Union General Data Protection Regulation, Cyber Security Law and HGR Regulation. In addition, a data
breach affecting personal information, including health information, or a failure to comply with applicable
requirements could result in significant management resources, legal and financial exposure and
reputational damage that could potentially have a material adverse effect on our business and results of
operations. Moreover, the legal uncertainty created by the Data Security Law and the recent Chinese
government actions could materially adversely affect our ability, on favorable terms, to raise capital,
including engaging in follow-on offerings of our securities in the U.S. market. Even if our practices are not
subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation
and brand and adversely affect our business, financial condition and results of operations.
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The approval of or filing with the CSRC or other PRC government authorities may be required in
connection with our offshore offerings under PRC law, and, if required, we cannot predict whether
or for how long we will be able to obtain such approval.
On February 17, 2023, CSRC promulgated Trial Administrative Measures of the Oversea s Securities
Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures and relevant five
guidelines, which became effective on March 31, 2023. The Overseas Listing Trial Measures
comprehensively improves and reforms the existing regulatory regime for overseas offering and listing of
PRC domestic companies’ securities and regulates both direct and indirect overseas offering and listing of
PRC domestic companies’ securities by adopting a filing-based regulatory regime. According to the Overseas
Listing Trial Measures, any of our offering and listing in an overseas market in future may be subject to the
filing with the CSRC.
According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list
securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure
with the CSRC and report relevant information.
The Overseas Listing Trial Measures provides that if the issuer meets the following criteria, the
overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering
by PRC domestic companies: (i) 50% or more of any of the issuer’s operating revenue, total profit, total
assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal
year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are
conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority
of senior management staff in charge of its business operations and management are PRC citizens or have
their usual place(s) of residence located in mainland China.
Furthermore, according to the Overseas Listing Trial Measures, if a domestic company fails to
complete the filing procedure or conceals any material fact or falsifies any major content in its filing
documents, such domestic company may be subject to administrative penalties, such as order to rectify,
warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other
directly liable persons may also be subject to administrative penalties, such as warnings and fines. However,
since the Overseas Listing Trial Measures was newly promulgated, the interpretation, application and
enforcement of Overseas Listing Trial Measures remain unclear.
On February 17, 2023, CSRC also issued the Notice on Administration for the Filing of Overseas
Offering and Listing by Domestic Companies, which, among others, provided that the domestic companies
that have already been listed overseas on or before the effective date of the Overseas Listing Trial Measures
(i.e. March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not
required to complete the filling procedures immediately, and they shall be required to file with the CSRC
when subsequent matters such as refinancing are involved.
Furthermore, according to the Negative List promulgated by the MOFCOM and the NDRC that became
effective on January 1, 2022, domestic enterprises engaged in activities in any field prohibited from foreign
investment under the Negative List shall be subject to review and approval by the relevant authorities of the
PRC when listing and trading overseas. If it is determined that any approval, filing or other administrative
procedure from the CSRC or other PRC governmental authorities is required for any future offering or
listing, we cannot assure that we can obtain the required approval or accomplish the required filings or other
regulatory procedures in a timely manner, or at all. If we fail to obtain the relevant approval or complete the
filings and other relevant regulatory procedures, we may face sanctions by the CSRC or other PRC
regulatory agencies, which may include fines and penalties on our operations in China, limitations on our
operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by
our subsidiaries in China, or other actions that could have a material and adverse effect on our business,
financial condition, results of operations, reputation and prospects, as well as the trading price of our
ordinary shares. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making
it advisable for us, to halt our offerings before settlement and delivery of the shares offered. Consequently, if
investors engage in market trading or other activities in anticipation of and prior to settlement and delivery,
they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory
authorities later promulgate new rules or explanations requiring that we obtain their approvals or
accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be
unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain
such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially
and adversely affect our business, prospects, financial condition, reputation, and the trading price of our
ordinary shares.
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Risks Related to Our Ordinary Shares
The trading prices of our ordinary shares are likely to be volatile, which could result in substantial
losses to you.
The trading price of our ordinary shares 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 U.S. may affect the volatility in the price of and trading volumes for our ordinary shares.
Some of these companies have experienced significant volatility. The trading performances of these Chinese
companies’ securities at the time of or after their offerings may affect the overall investor sentiment towards
other Chinese companies listed in the U.S. and consequently may impact the trading performance of our
ordinary shares.
In addition to market and industry factors, the price and trading volume for our ordinary shares may
be highly volatile for specific business reasons, including:
● announcements of regulatory approval or a complete response letter, or specific label indications
or patient populations for the use of our product candidates, or changes or delays in the
regulatory review process;
● announcements of therapeutic innovations or new products by us or our competitors;
● adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing
supply chain or sales and marketing activities;
● any adverse changes to our relationship with manufacturers or suppliers;
● the results of our testing and clinical trials;
● the results of our efforts to acquire or license additional product candidates;
● variations in the level of expenses related to our existing product candidates or preclinical studies
and clinical trials;
● any intellectual property infringement actions in which we may become involved;
● announcements concerning our competitors or the pharmaceutical industry in general;
● achievement of expected product sales and profitability;
● manufacturing, supply or distribution shortages;
● variations in our results of operations;
● announcements about our earnings that are not in line with analyst expectations;
● publication of operating or industry metrics by third parties, including government statistical
agencies, that differ from expectations of industry or financial analysts;
● research reports and changes in financial estimates by securities research analysts;
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● announcements made by us or our competitors of new product and service offerings, acquisitions,
strategic relationships, joint ventures or capital commitments;
● press reports, whether or not true, about our business;
● additions to, or departures of, our management;
● fluctuations of exchange rates between the RMB and the U.S. dollar;
● release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares;
● sales or perceived potential sales of additional ordinary shares;
● sales of our ordinary shares by us, our executive officers and directors or our shareholders in the
future;
● general economic and market conditions and overall fluctuations in the U.S. equity markets;
● changes in accounting principles; and
● changes or developments in the Chinese or global regulatory environment.
Any of these factors may result in large and sudden changes in the volume and trading price of our
ordinary shares. 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 are involved
in a class action suit, it could divert the attention of management, and, if adversely determined, have a
material adverse effect on our financial condition and results of operations.
In addition, the stock market, in general, and small pharmaceutical and biotechnology companies have
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of these companies. Broad market and industry factors may negatively affect the
market price of our ordinary shares, regardless of our actual operating performance. Further, factors related
to financial markets beyond our control may cause our ordinary shares price to decline rapidly and
unexpectedly.
Sales or the availability for sales of substantial amounts of our ordinary shares in the public
market could cause the price of our ordinary shares to decline significantly.
Sales of our ordinary shares or other equity securities in the public market, or the perception that
these sales could occur, could cause the market price of our ordinary shares to decline significantly. As of
April 1, 2024, we had 39,029,163 ordinary shares outstanding. Among these shares, 17,311,997 ordinary
shares have been registered under the Securities Act and are freely transferable by persons other than our
“affiliates” without restriction or registration; the remaining shares outstanding have not been registered
under the Securities Act and may be offered or sold only pursuant to an effective registration statement or
pursuant to an available exemption from the registration requirements. If these shares are sold, or if it is
perceived that they will be sold, in the public market, the trading price of our ordinary shares could decline.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price
appreciation of the ordinary shares 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 our ordinary shares as a source for any future dividend
income.
Our board of directors has significant discretion as to whether to distribute dividends. Our
shareholders may, by ordinary resolution, declare dividends, but no dividend shall exceed the amount
recommended by our board of directors. 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 our ordinary shares
will likely depend entirely upon any future price appreciation of the ordinary shares. Our ordinary shares
may not appreciate in value or even maintain the price at which you purchased the ordinary shares. You may
not realize a return on your investment in the ordinary shares, and you may even lose your entire investment
in the ordinary shares.
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We are a Cayman Islands exempted 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, among other things, our amended and restated memorandum
and articles of association (as may be amended from time to time), the Companies Act (As Revised) of the
Cayman Islands and the common law of the Cayman Islands, or the Companies Act. 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.
The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in
the Cayman Islands as well as from English common law, the decisions of those courts are persuasive, but
not binding, 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 U.S. In particular, the Cayman Islands has a
less developed body of securities law than the U.S. Some states in the U.S., such as Delaware, have more
fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition,
Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal
court of the United States.
In addition, as shareholders of a Cayman Islands exempted company, our shareholders have no general
rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of
association, our register of mortgages and charges and special resolutions of our shareholders), or to obtain
a copy of our register of members. 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 exempted
company, we may not have standing to initiate a derivative action in a federal court of the U.S. 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 U.S. 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, and some of our directors reside outside the U.S.
We are incorporated as an exempted company in the Cayman Islands. Some of our directors reside
outside the U.S. and a substantial portion of their assets are located outside of the U.S. 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
U.S. 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
U.S. or China, although the courts of the Cayman Islands will generally recognize and enforce a foreign
money judgment of a foreign court of competent jurisdiction without retrial of the merits of the underlying
disputes based on the principle that a judgment of a competent foreign court imposes upon a judgment
debtor an obligation to pay the sum for which judgment has been given, provided that such judgment (i) is
given by a foreign court of competent jurisdiction; (ii) imposes on the judgment debtor a liability to pay a
liquidated sum for which the judgment has been given; (iii) is final and conclusive; (iv) is not in respect of
taxes, a fine or penalty; and (v) is not inconsistent with a Cayman Islands judgment in respect of the same
manner, impeachable on the grounds of fraud and is not obtained in a manner and is not of a kind the
enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.
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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 our ordinary shares and deprive you of an opportunity to receive a
premium for your ordinary shares.
Our directors, executive officers and shareholders holding more than 10% of our ordinary shares
beneficially owned approximately 40.90% of our ordinary shares as of April 1, 2024. 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 our ordinary shares. These actions may be taken even if they are opposed
by our other shareholders, including the holders of our ordinary shares. In addition, these persons could
divert business opportunities away from us to themselves or others.
We incur increased costs as a result of operating as a public company, and our management is
required to devote substantial time to new compliance initiatives and corporate governance
practices.
As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley
Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the
Nasdaq Capital 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 devote a substantial amount of time
to these compliance initiatives.
Under Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report by our management
on our internal control over financial reporting in connection with this annual report on Form 20-F. However,
while we remain a non-accelerated filer, 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 of the Sarbanes-Oxley Act, we have engaged in a process to document and
evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we
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, we may 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 of the
Sarbanes-Oxley Act. 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. See “Item 3.
Key Information—D. Risk Factors—Risks Related to Our Industry, Business and Operation— We have
identified two material weaknesses in our internal control over financial reporting. If our remediation of
these material weaknesses is not effective, or if we experience additional material weaknesses in the future
or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to
accurately or timely report our financial condition or results of operations, which may adversely affect
investor confidence in us and, as a result, the value of our ordinary shares.”
As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws
and are permitted to file less information with the SEC than a U.S. company. This may limit the
information available to holders of our ordinary shares.
We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we
are not subject to all of the disclosure requirements applicable to public companies organized within the U.S.
For example, we are exempt from certain rules under the Exchange Act, that regulate disclosure obligations
and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a
security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange
Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery
provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of
our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC
as frequently or as promptly as U.S. domestic issuers and will not be required to file quarterly reports on
Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there is less publicly
available information concerning our company than there would be if we were not a foreign private issuer.
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As a foreign private issuer, we are permitted to adopt certain home country practices in relation to
corporate governance matters that differ significantly from the Nasdaq Capital Market corporate
governance listing standards. These practices may afford less protection to shareholders than they
would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer listed on the Nasdaq Capital Market, we are subject to corporate
governance listing standards. However, rules permit a foreign private issuer like us to follow the corporate
governance practices of its home country. Certain corporate governance practices in the Cayman Islands,
which is our home country, may differ significantly from corporate governance listing standards. For
example, under Cayman Islands law, we are not required to hold annual shareholders meetings every year,
and we generally follow home country practice with respect to annual meetings and did not hold an annual
meeting of shareholders in 2023. We expect to hold annual shareholders meetings in the future only if there
are matters that require shareholders’ approval.
Currently, we fully comply and intend to continue to fully comply with the Nasdaq Capital Market
corporate governance listing standards. In addition, other than the annual meeting practice described above,
there are no significant differences between our corporate governance practices and those followed by U.S.
domestic companies under Nasdaq Stock Market Rules. However, we may in the future choose to follow
certain home country practice. Therefore, our shareholders may be afforded less protection than they
otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status in the future, which could result in significant
additional costs and expenses.
While we currently qualify as a foreign private issuer, the determination of foreign private issuer status
is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and,
accordingly, the next determination will be made with respect to us on June 30, 2024.
In the future, we would lose our foreign private issuer status if we fail to meet the requirements
necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if
more than 50% of our securities are held by U.S. residents and more than 50% of the members of our
management or members of our board of directors are residents or citizens of the U.S., we could lose our
foreign private issuer status.
The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be
significantly more than the costs we incur as a foreign private issuer. If we are not a foreign private issuer,
we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with
the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign
private issuer. We would be required to modify certain of our policies to comply with corporate governance
practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions
from certain corporate governance requirements on U.S. stock exchanges that are available to foreign
private issuers, such as exemptions from procedural requirements related to the solicitation of proxies.
We may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a
decline in the market price of its securities. This risk is especially relevant for us because biotechnology and
biopharmaceutical companies have experienced significant share price volatility in recent years. If we were
to be sued, it could result in substantial costs and a diversion of management’s attention and resources,
which could harm our business.
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We may be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes,
which could result in adverse U.S. federal income tax consequences for our U.S. shareholders.
A non-U.S. corporation such as the Company will be classified as a PFIC for U.S. federal income tax
purposes for any taxable year if either: (i) 75% or more of its gross income for such year consists of certain
types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a
quarterly average) during such year is attributable to assets that produce or are held for the production of
passive income. Whether we are a PFIC for a given taxable year is a factual determination that is made on an
annual basis after the close of such taxable year. This determination will depend on, among other things, the
composition of our income and assets, as well as the value of our assets (which generally will be determined
by reference to the public price of our ordinary shares, which may fluctuate significantly), from time to time.
Based on the current and anticipated composition of our income, assets and operations and the price of
our ordinary shares, we believe that it is likely that we were not a PFIC for U.S. federal income tax purposes
for the taxable year that ended December 31, 2023. However, we have been classified as a PFIC in prior
years and may again be classified as a PFIC in the future, which could result in adverse U.S. federal income
tax consequences for our U.S. shareholders. Our PFIC status for the current taxable year ending December
31, 2024, will not be determinable until after the close of the taxable year. There can be no assurance that
we will not be a PFIC for any taxable year.
If we are a PFIC for any taxable year during which U.S. shareholders hold our ordinary shares, such
U.S. shareholders could be subject to adverse U.S. federal income tax consequences, including having gains
realized on the sale of our ordinary shares treated as ordinary income, rather than as capital gains, in the
case of U.S. shareholders who are individuals, losing the preferential rate applicable to dividends received
on our ordinary shares, and having interest charges apply to distributions by us and the proceeds of sales of
our ordinary shares. Additionally, if we are a PFIC for any taxable year during which U.S. shareholders hold
our ordinary shares, we would generally continue to be treated as a PFIC with respect to such U.S.
shareholders even if we do not satisfy either of the above tests to be classified as a PFIC in a subsequent
year. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations.”
The Internal Revenue Service, or IRS, may not agree with the conclusion that we should not be
treated as a U.S. corporation for U.S. federal income tax purposes.
Under current U.S. federal income tax law, a corporation is generally considered a tax resident in the
jurisdiction of its organization or incorporation. Thus, as a corporation incorporated under the laws of the
Cayman Islands, we should generally be classified as a non-U.S. corporation (and therefore as a non-U.S. tax
resident) for U.S. federal income tax purposes. In certain circumstances, however, under section 7874 of the
U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation organized outside the United
States will be treated as a U.S. corporation (and, therefore, as a U.S. tax resident).
In July of 2015, we completed our internal restructuring. Based on the rules in effect at the time of the
internal restructuring, we expect that the internal restructuring did not result in us being treated as a U.S.
corporation for U.S. federal income tax purposes by virtue of section 7874 of the Code. Nevertheless,
because the section 7874 rules and exceptions are complex and subject to factual and legal uncertainties,
there can be no assurance that we will not be treated as a U.S. corporation for U.S. federal income tax
purposes. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Tax
Residence of BeyondSpring Inc. for U.S. Federal Income Tax Purposes.”
Item 4. Information on the Company
A. History and Development of the Company
BeyondSpring Inc. was incorporated as an exempted company under the laws of the Cayman Islands on
November 21, 2014. In July 2015, we completed our internal restructuring.
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Our principal executive offices are located at 100 Campus Drive, West Side, 4th Floor, Suite 410,
Florham Park, New Jersey 07932 and our telephone number is +1 (646) 305-6387. Our registered office in
the Cayman Islands is located at the offices of Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour
Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. Our agent for
service of process in the U.S. is CT Corporation System located at 28 Liberty Street, 42nd Floor, New York,
New York 10005. Our website is www.beyondspringpharma.com. The information contained on, or that can
be accessed through, our website does not constitute part of this annual report on Form 20-F and is not
incorporated by reference herein.
Initial Public Offering, Concurrent Private Placement, Subsequent Financing and Business
Development
In March 2017, we completed our initial public offering and the concurrent private placement, in which
we received gross proceeds of $54.3 million, before deducting underwriting discounts and commissions and
other offering expenses, from selling 174,286 ordinary shares in the initial public offering and selling
2,541,048 ordinary shares in the current private placement, after deducting underwriting discounts and
commissions, fees and expenses. Our ordinary shares are listed on the Nasdaq Capital Market under the
symbol “BYSI.”
In May 2018, we entered into various agreements with certain third-party investors to issue 739,095
ordinary shares with a par value $0.0001 per share for an aggregate cash consideration of $20.0 million or
$27.06 per ordinary share. To date, we have received $14.0 million from the financing and 221,729 ordinary
shares issued in connection with such investment for which we did not receive the cash consideration were
surrendered by one investor to us in October 2021.
On May 21, 2019, we entered into an Open Market Sale AgreementSM with Jefferies LLC as sales agent,
or the Agent, which was amended on February 7, 2020, or, as amended, the Sales Agreement, in connection
with our “at-the-market offering” program, or the ATM Program. Pursuant to the Sales Agreement, we may
offer and sell up to 2,202,080 ordinary shares in the aggregate from time to time through the Agent. As of
the date of this annual report on Form 20-F, we have sold 630,228 ordinary shares having aggregate gross
proceeds of $13.2 million under the ATM Program.
In June and July 2019, Wanchunbulin, our partially owned Chinese subsidiary, and Wanchun Biotech
entered into definitive agreements for the sale of its equity interests, or the Equity Purchase Agreements, to
certain investors led by Efung Capital. Under the Equity Purchase Agreements, Wanchunbulin sold 3.38% of
the equity interest of Wanchunbulin for aggregate cash consideration of RMB 70 million, or approximately
$10.1 million, before deducting offering expenses.
In July 2019, we completed an underwritten offering, in which we received gross proceeds of $35.0
million, before deducting underwriting discounts and commissions and other offering expenses, from selling
2,058,825 ordinary shares.
In October and November 2019, we completed an underwritten offering, in which we received gross
proceeds of $25.8 million (including the exercise of the underwriters’ option to purchase additional shares),
before deducting underwriting discounts and commissions and other offering expenses, from selling
1,908,996 ordinary shares.
In June 2020, we completed an underwritten offering and a concurrent private placement, in which we
received gross proceeds of $33.9 million (including the exercise of the underwriters’ option to purchase
additional shares), before deducting underwriting discounts and commissions and other offering expenses,
from selling 2,604,115 ordinary shares.
In November 2020, we completed an underwritten offering, in which we received gross proceeds of
$86.3 million (including the exercise of the underwriters’ option to purchase additional shares), before
deducting underwriting discounts and commissions and other offering expenses, from selling 8,625,000
ordinary shares.
In November 2020, our subsidiary SEED entered into a research collaboration and license agreement
with Eli Lilly to discover and develop new chemical entities that could produce therapeutic benefit through
TPD, where SEED received a $10 million upfront cash payment. SEED would also be eligible to receive up to
approximately $780 million in potential pre-clinical and clinical development, regulatory and commercial
milestones, as well as tiered royalties on net sales of products that result from the collaboration. As of the
date of this annual report, SEED has received $3 million of these milestone payments for pre-clinical
development. See “Item 4. Information on the Company—B. Business Overview—Other Programs— SEED’s
Targeted Protein Degradation (TPD) platform and Pipeline.”
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In November 2020, we and Eli Lilly entered into share purchase agreements with SEED to purchase
preferred shares of SEED. SEED sold an aggregate of 1,194,030 shares of its Series A-1 Preferred Shares to
us and SEED Technology Limited, or SEED Technology, a British Virgin Islands company and our majority-
owned indirect subsidiary (collectively, the BYSI Entities) and 1,990,000 shares of its Series A-2 Preferred
Shares to Eli Lilly, each at a cash purchase price of $2.5125 per share.
In June 2022, upon the achievement of certain milestones as described in the share purchase
agreement, the BYSI Entities collectively purchased an additional 1,194,028 Series A-1 Preferred Shares for
an aggregate purchase price of $3.0 million and Eli Lilly purchased an additional 1,990,000 Series A-2
Preferred Shares for an aggregate purchase price of $5.0 million, each at a cash purchase price of $2.5125
per share. Following the closing of these transactions, and after taking into account shares already held by
the BYSI Entities, the BYSI Entities hold approximately 60.1% of the outstanding equity interest in SEED,
calculated on an as-converted basis (excluding any shares that may be reserved under an employee stock
ownership plan, or similar arrangement). See “Item 4. Information on the Company—B. Business
Overview—Other Programs— SEED’s Targeted Protein Degradation (TPD) platform and Pipeline.”
In August 2021, Wanchunbulin, our partially owned Chinese subsidiary, entered into an exclusive
commercialization and co-development agreement with Hengrui to further develop and commercialize
Plinabulin in Greater China. Under the terms of the agreement, Wanchunbulin granted Hengrui exclusive
rights to commercialize and co-develop Plinabulin in the Greater China markets, including mainland China,
Hong Kong, Macau and Taiwan. Wanchunbulin retains the manufacturing rights of Plinabulin in the Greater
China markets and will receive all Plinabulin net sales proceeds in such markets. Hengrui will receive a pre-
determined percentage of the net sales in each quarter. Wanchunbulin received an upfront payment of RMB
200 million (approximately $31 million), and will receive regulatory and sales milestones of up to RMB 1.1
billion (approximately $171 million). Hengrui will be responsible for all costs associated with
commercialization of Plinabulin in the Greater China markets. Pursuant to the terms of the agreement,
Wanchunbulin will be responsible for 100% of the clinical and regulatory costs for the first two indications
for Plinabulin: prevention of CIN and second/third- line treatment of NSCLC (EGFR wild type). Hengrui will
fund 50% of the clinical development costs for additional indications for Plinabulin in the Greater China
markets, with a Joint Steering Committee overseeing the clinical strategy and priorities. See “Item 4.
Information on the Company—B. Business Overview—Commercialization” and “Risk Factors—Risks Related
to our Industry, Business and Operation—We and our major shareholders have been, and may in the future
become, subject to claims, litigation, arbitration and investigations, any of which may require significant
management attention, could result in significant legal expenses and may result in unfavorable outcomes, all
or any of which could have a material adverse impact on our financial condition and results of operations,
harm our reputation or otherwise negatively impact our business.”
B. Business Overview
Summary
We are a clinical stage global biopharmaceutical company focused on developing innovative therapies
to improve clinical outcomes for patients with high unmet medical needs. Our first-in-class lead asset,
Plinabulin, which has been administered to over 700 cancer patients with generally good tolerability, is being
developed as a potential “pipeline in a drug” in various cancer indications as a direct anti-cancer agent and
to prevent CIN. We are also developing three small molecule immune agents, currently in preclinical stages.
In addition, our subsidiary SEED is utilizing a proprietary Targeted Protein Degradation (TPD) drug
discovery platform, or “molecular glue” technology, to develop innovative therapeutic agents from internal
research and development efforts and from collaboration. SEED is collaborating with Eli Lilly to discover and
develop new chemical entities through this proprietary TPD platform that could produce therapeutic
benefits.
Through our 15-year research efforts in our lead asset Plinabulin, we discovered that Plinabulin has
the potent effect of maturing immune dendritic cells, which leads to T-cell activation for potential durable
anti-cancer benefit. Therefore, we believe Plinabulin’s mechanism in innate and adaptive immunity could be
applied in clinical studies for both anti-cancer and CIN indications for unmet medical needs.
First, Plinabulin is being studied as an anti-cancer agent in a number of company-sponsored studies
and investigator-initiated studies. We completed a randomized global Phase 3 study of Plinabulin in
combination with docetaxel vs. docetaxel alone for second- and third- line treatment of NSCLC, EGFR wild
type (DUBLIN-3 Phase 3 registration study). The DUBLIN-3 study has completed global enrollment of 559
patients and final positive topline results from the study with significant overall survival benefit were
reported in August 2021 and at ESMO in September 2021. We plan to use our best efforts to file an NDA
with the NMPA as soon as possible.
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In addition, Plinabulin is being studied in investigator-initiated trials for its therapeutic potential in
combination with various immuno-oncology agents and chemotherapy or radiation, in patients who
progressed on PD-1/PD-L1 antibodies, which we believe represent severe unmet medical needs, and in first-
line treatment of patients with ES-SCLC who currently have limited median progression free survival, or
PFS. These studies include 1) in combination with nivolumab, a PD-1 antibody, for the treatment of NSCLC
at UCSD and the University of Washington (Phase 1 completed); 2) in combination with nivolumab, a PD-1
antibody, and ipilimumab, a CTLA-4 antibody, for the treatment of ES-SCLC at the Rutgers University and
other U.S. clinical centers (Phase 1 completed, Phase 2 completed for patients who progressed on PD-1/PD-
L1 antibodies); 3) in combination with PD-1 or PD-L1 antibodies and radiation for the treatment of patients
with various cancers who progressed from PD-1/PD-L1 antibodies at MD Anderson Cancer Center; 4) in
combination with Keytruda® (pembrolizumab), a PD-1 antibody, and docetaxel for the treatment of NSCLC
patients who progressed from PD-1/PD-L1 antibodies at Peking Union Medical College Hospital in China; and
5) in combination with Keytruda® (pembrolizumab), a PD-1 antibody, and etoposide and platinum for the
first-line treatment of ES-SCLC patients at Wuhan Union Hospital in China.
Second, we are studying Plinabulin alone or in combination with G-CSF, including pegfilgrastim, for its
potential benefit in the prevention of CIN, which has the potential to provide improved tolerability to
chemotherapy. In September 2020, the combination received Breakthrough Therapy Designation from both
the FDA and the NMPA. Based on the PROTECTIVE-2 Phase 3 registration study results, we filed an NDA
with the FDA and the NMPA for the use of Plinabulin in combination with G-CSF for the prevention of CIN in
March 2021. In November 2021, the FDA issued a Complete Response Letter for Plinabulin in combination
with G-CSF for the prevention of CIN. We expect to work closely with the FDA to consider the possible future
clinical and regulatory pathway for the CIN prevention indication. In March 2023, we withdrew the NDA
submission for the indication of Plinabulin in combination of pegfilgrastim agents to treat CIN in adult non-
myeloid cancer from the NMPA. We continue to communicate with the NMPA regarding the re-filing of the
NDA for the CIN indication and plan to use our best efforts to re-file the NDA as soon as possible. In
addition, Plinabulin in combination with pegfilgrastim is being studied in a Phase 1 investigator-initiated trial
for the reduction of neutropenia burden in multiple myeloma patients who have undergone AHCT at
Memorial Sloan Kettering Cancer Center.
Our principal executive offices are located in New Jersey, and we also have offices in Pennsylvania,
Beijing and Dalian, China. We are incorporated in the Cayman Islands. Our management team has deep
experience and capabilities in biology, chemistry, drug discovery, clinical development, regulatory and
capital markets.
Plinabulin, Our Lead Drug Candidate
Plinabulin is a first-in-class, novel small molecule derived from a natural compound found in marine
microorganisms. It is a Selective Immunomodulating Microtubule-Binding Agent, which may provide multiple
therapeutic opportunities. As a low molecular weight small molecule, Plinabulin is relatively simple to
manufacture. An advantage of natural products and their derivatives, such as Plinabulin, is that it may be
difficult for others to discover structurally distinct molecules possessing a similar array of activities.
Plinabulin triggers the release of the immune defense protein, GEF-H1, which leads to two distinct
effects: 1) a durable anti-cancer benefit due to the maturation of dendritic cells resulting in activation of
tumor antigen-specific T-cells to target cancer cells and 2) early-onset action in CIN prevention after
chemotherapy by boosting the number of hematopoietic stem/progenitor cells, or HSPCs. Effects on HSPCs
could explain the potential for Plinabulin not only to prevent CIN but also to increase circulating CD34+ cells
in patients. As a potential “pipeline in a drug,” Plinabulin is being broadly studied in combination with
various immuno-oncology agents that could boost the effects of the PD-1/PD-L1 antibodies and potentially
allow patients who progressed on PD-1/PD-L1 antibodies to respond to PD-1/PD-L1 combination with
Plinabulin. The elucidation of this mechanism was a multi-year collaborative effort among us, University of
Basel, Massachusetts General Hospital, and MD Anderson.
In aggregate, as of the date of this annual report on Form 20-F, Plinabulin has been administered to
over 700 patients with advanced cancer and thus far is generally well-tolerated. We believe the data from
completed and ongoing clinical trials suggest there is a path forward for Plinabulin in the treatment of
advanced NSCLC and the prevention of CIN.
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Plinabulin for the Treatment of Advanced NSCLC
NSCLC disease overview
According to the National Cancer Institute, approximately 230,000 patients are diagnosed with lung
cancer in the U.S. per year. The prognosis for patients with lung cancer is poor with five-year survival rate of
only 18.6%. Lung cancer is the leading cause of cancer death in the U.S. and a global health problem with
approximately 1.8 million cases diagnosed per year. Approximately one-third of lung cancer patients
worldwide are in China, with approximately 700,000 cases of lung cancer diagnosed in China in 2015. These
lung cancers are typically divided into two groups based upon the histologic appearance of the tumor
cells—SCLC and NSCLC, which are treated with distinct chemotherapeutic approaches. NSCLC accounts for
approximately 87% of lung cancer cases. The global NSCLC market is increasing at a rate of 10% per year,
with estimated sales of $26.7 billion and $44.6 billion in 2021 and 2026, respectively. In China, between
2015 and 2019, the number of new cases of NSCLC increased from 669,000 to 761,000, and the number of
new cases is expected to reach over 1 million by 2030. According to Frost & Sullivan, in China, NSCLC
targeted drug sales reached RMB 12.7 billion (approximately $2.0 billion) in 2018, RMB 20.8 billion
(approximately $3.3 billion) in 2019, and RMB 29.1 billion (approximately $4.6 billion) in 2020.
Lung cancer is typically diagnosed relatively late in its clinical course after it has metastasized to other
tissues in the body. In these advanced cases, treatment is not curative, and patients are generally treated
with systemic therapies. Initial therapy is often based on broad chemotherapy drugs such as cisplatin. Most
patients, however, do not obtain a long-term benefit with the overall increase in survival associated with the
use of these drugs being only two months. Additional treatments fall into several general categories:
● other chemotherapy agents, such as docetaxel or pemetrexed;
● inhibitors of intracellular enzymes that have specific mutations in genes, including EGFR kinases;
● agents that disrupt blood vessel formation in tumors, such as ramucirumab; and
● checkpoint inhibitors, such as nivolumab.
Tyrosine Kinase inhibitors are only effective on EGFR mutant patients. EGFR wild type patients
account for approximately 70% of Asian NSCLC population, and approximately 85% of Western NSCLC
population. Only four therapies have been approved for second and third-line NSCLC patients with EGFR
wild type. These four therapies include PD-1/PD-L1 antibodies, pemetrexed, docetaxel, and ramucirumab
plus docetaxel, all of which have limited efficacy benefit with median overall survival, or OS, of around 9 to
12 months.
While each of these therapies may provide significant benefit, they are also associated with specific
limitations. Docetaxel, for example, leads to neutropenia in up to 40% of patients. Pemetrexed has limited
survival benefit compared to docetaxel (hazard ratio for OS of at 0.99). Ramucirumab, which is an
antiangiogenic agent that prevents or slows the formation of new blood vessels, leads to a modest increase in
OS (1.4 months, hazard ratio for OS at 0.86) when used in combination with docetaxel, and the combination
has 49% of severe neutropenia. Second and third-line NSCLC patients are advance stage cancer patients and
quite weak, thus high severe neutropenia rate negatively impacts these patients’ quality of life. Finally,
checkpoint inhibitors such as nivolumab have demonstrated remarkable activity in NSCLC but that activity is
limited to less than 20% of patients. Thus, despite the availability of multiple drugs to treat NSCLC, we
believe there is still a need for novel therapies in NSCLC.
In addition, with the current change of treatment landscape, PD-1 antibody and pemetrexed (Keytruda
+ platinum + pemetrexed) have been approved in the first-line treatment for NSCLC, so when patients fail
from this treatment (around 50%), they cannot use PD-1 or PD-L1 antibodies or pemetrexed in the second-
and third-line. This results in narrowing the treatment option for these patients to only two docetaxel-based
therapies: docetaxel and ramucirumab plus docetaxel. Both therapies have limited survival benefit and very
high severe neutropenia rate (>40%), both of which the Plinabulin and docetaxel combination is aimed to
improve.
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Since the approval of PD-1/PD-L1 inhibitors for second-line use in 2015, only two new regimens have
demonstrated an OS advantage after progression on platinum therapy compared docetaxel in Phase 3 studies
with positive but mixed data. In the LUNAR study, tumor treating fields combined with standard systemic
therapy showed survival benefit compared with standard systemic therapy (HR=0·74) but did not meet
statistical significance in ORR and PFS. In the TROPION-Lung01 study, compared to docetaxel, datopotamab
deruxtecan (an antibody-drug conjugate (ADC)) improved PFS (HR=0·75) but had limited survival benefit
(HR=0·90). Therefore, we believe new treatments for advanced and metastatic NSCLC with EGFR wild-type
after platinum therapy progression are urgently needed.
Plinabulin in advanced NSCLC
Plinabulin is a Selective Immunomodulating Microtubule-Binding Agent, which activates immune
defense protein GEF-H1, and leads to dendritic cell maturation and T-cell activation (La Sala 2019; Kashyap
2019) for anti-cancer benefit. High GEF-H1 immune signature patients in anti-cancer studies live much
longer than the ones who have lower GEF-H1 immune signature (Kashyap 2019).
Phase 1/2 in advanced and metastatic NSCLC (Study 101)
The primary purpose of the Phase 2 portion of the Phase 1/2 trial was to evaluate the potential anti-
cancer effect of Plinabulin in combination with docetaxel compared to docetaxel monotherapy in advanced
second- and third-line NSCLC patients. The trial enrolled 163 advanced NSCLC patients in the U.S.,
Australia, Argentina, Chile, Brazil and India. Patients enrolled in the trial had unresectable, locally advanced
or metastatic cancers, meaning that in some patients the disease had spread to adjacent lymph nodes if not
throughout the body. In such patients there may not be measurable lesions in the lungs.
For intent to treat, or ITT, population with no targeted patient selection, the trial did not meet the
primary endpoint of a statistically significant improvement in overall survival for Plinabulin in combination
with docetaxel compared to docetaxel monotherapy, with only modest 1.2 months survival benefit in the
combination vs. docetaxel alone. However, we identified a subset of patients with measurable lung lesions
(Plinabulin mechanism targeted patients) in which the addition of Plinabulin to docetaxel may increase anti-
tumor activity compared to docetaxel monotherapy with survival benefit of 4.6 months. In this mechanism-
based subset analysis, patients in the Plinabulin plus docetaxel arm had a median OS of 11.3 months, while
those treated with docetaxel alone had a median OS of 6.7 months. Additionally, the Plinabulin plus
docetaxel cohort had an objective response rate, or ORR, of 18.4% compared to 10.5% for the docetaxel
monotherapy arm. This subset included only 38 patients from each arm and did not reach statistical
significance on the OS (p=0.29). The patients who received Plinabulin plus docetaxel also had a duration of
response, the time of initial response until documented tumor progression, of 12.7 months compared to only
one month for the patients who received docetaxel monotherapy (p=0.049). This subset analysis was
presented as an oral presentation at 2017 American Society of Clinical Oncology—Society for
Immunotherapy of Cancer, or ASCO-SITC, conference and was selected as one of five highlights of the
meeting.
Phase 3 in advanced and metastatic NSCLC (Study 103 or DUBLIN-3)
In June 2016, we initiated a Phase 3 trial (DUBLIN-3), a randomized, active-controlled, single blind to
patients, global trial that enrolled 559 patients in second- and third-line NSCLC, EGFR wild type, with a
measurable lung lesion. Patients were treated on a 21-day cycle with infusion of docetaxel (D, 75 mg/m2 on
Day 1) and Plinabulin (P, 30 mg/m2 on days 1 and 8) or with docetaxel alone (D, 75 mg/m2 on Day 1). The
study was conducted in the U.S., China and Australia.
The primary endpoint is overall survival in patients given a combination of Plinabulin and docetaxel
compared to patients given docetaxel alone. Secondary endpoints include the frequency of grade 4
neutropenia, ORR, PFS percentage of patients at or longer than two years of survival and at or longer than
three years of survival, duration of response, cycles of chemo treatment, and quality of life. We enrolled 559
patients for this study.
Final topline results of the trial at a death event of approximately 439 patients were reported in August
2021 and at ESMO in September 2021. The primary endpoint of OS was met in the ITT population
(Combination (DP): n = 278; docetaxel (D): n = 281). The following summarizes the topline results:
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Primary endpoint (OS, ITT population):
● Mean OS (SE) months(M): DP 15.08 M (0.848) vs. D 12.77 M (0.676); p = 0.0332
● Median OS (95% CI): DP 10.5 M (9.3, 11.9) vs. D 9.4 M (8.4, 10.7)
● Log-rank p = 0.0399; HR = 0.82
Key secondary endpoints (ITT population):
● ORR (based on investigator review: DP: 12.2% vs. D: 6.7%; p = 0.0275)
● PFS (based on investigator review):
o Mean (SE): DP 6.0 M (0.4) vs. D 4.4 M (0.3); p = 0.006
o Median (95% CI): DP 3.6 M (3.0, 4.4) vs. D 3.0 M (2.8, 3.7)
o Log-rank p = 0.008; HR = 0.76
● Incidence of Grade 4 neutropenia, cycle 1 Day 8 (DP: 5.3% vs. D: 27.8%; p ‹ 0.0001)
● 24 Month OS rate: DP: 22.1% vs. D: 12.5%; p = 0.0072
● 36 Month OS rate: DP: 11.7% vs. D: 5.3%; p = 0.0393
● 48 Month OS rate: DP: 10.6% vs. D: 0%; p = not calculable
● Q-TWIST (Quality-adjusted Time Without Symptoms of Disease and Toxicity): DP: 12.4 M vs. D: 10.47 M;
18.43% relative gain in Q-TWIST, p = 0.0393
Plinabulin in Combination with Immuno-oncology Agents in Anti-Cancer Indications
Preclinical studies have identified some novel and intriguing activities of Plinabulin associated with
stimulation of the immune system, consistent with Plinabulin’s ability to enhance the activity of other
immuno-oncology agents. We have observed in these studies that Plinabulin works at multiple early steps in
the process of immune activation against cancer, in particular, to activate and mobilize tumor antigen-
specific T-cells to the tumor. The potential role of Plinabulin in stimulating the activity of other immuno-
oncology agents has been explored in several investigator-initiated Phase 1/2 trials described below.
Overview of immuno-oncology
The immune system is capable of recognizing and eliminating tumor cells; however, tumors are
sometimes able to evade the immune response through alteration of regulatory checkpoint pathways. One of
these pathways is driven by PD-1, a receptor that is expressed on immune T-cells. Between 35% and 100% of
some tumors such as melanoma, hepatocellular carcinoma, colorectal cancer and NSCLC overexpress PD-L1,
a compound naturally bound by PD-1. Binding of PD-L1 to PD-1 suppresses immune activation, allowing the
tumor to evade destruction by the immune system. Immune checkpoint cancer therapies that target PD-1
such as nivolumab (Opdivo) have been approved for the treatment of around 20 types of cancers, including
melanoma, NSCLC, renal cell carcinoma, classic Hodgkin’s lymphoma, head and neck squamous cell
carcinoma, urothelial carcinoma, colorectal carcinoma and hepatocellular carcinoma. While PD-1/PD-L1
inhibitors are highly effective in a subset of tumors, there are multiple pathways that tumors rely upon to
evade the immune system allowing many tumors to continue to proliferate.
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The global market of PD-1 and PD-L1 inhibitors/ immune checkpoint inhibitors was expected to grow
from $34.17 billion in 2022 to $39.80 billion in 2023 at a compound annual growth rate (CAGR) of 16.4%
(https://finance.yahoo.com/news/pd-1-pdl1-inhibitors-immune-140500447.html). Around 60% of the patients
who receive such treatment progressed from PD-1/PD-L1 antibodies. The mechanism for acquired resistance
could be due to T-cell exhaustion and antigen presentation pathway mutation (Cancer Cell 2024).
As with the treatment of most cancers, combination treatments are often required to increase efficacy.
In 2020, the combination of nivolumab, a PD-1 antibody, and ipilimumab, a CTLA-4 antibody, was approved
in melanoma based on increased efficacy. However, this combination resulted in increases in grades 3 and 4
adverse events, which occurred in 55% of the combination patients compared to 16.3% in patients treated
with nivolumab alone and 27.3% of patients treated with ipilimumab alone. We believe that the addition of
Plinabulin to an immune checkpoint inhibitor such as PD-1 or PD-L1 antibodies has the potential to increase
activity without increasing the rate of serious adverse events, or potentially decrease immune-related side
effects. In addition, cancer patients who progressed from PD-1/PD-L1 antibodies could potentially benefit
from Plinabulin and PD-1/PD-L1 combination and chemotherapy/radiation. Current investigator-initiated
studies on these Plinabulin combinations aim to help design an optimum registrational study for these
indications for patients who failed PD-1/PD-L1 inhibitors, especially in NSCLC.
Preclinical study data supporting Plinabulin in immuno-oncology
Checkpoint inhibitors (PD-1/PD-L1 inhibitors) alleviate immune system blocks at a relatively late stage
in the overall immune process—at the point when T-cells recognize cancer cells. Recent “Cancer Cell 2024”
paper studied the mechanism of “acquired resistance” of PD-1/PD-L1 inhibitors, including T-cell exhaustion
and antigen presentation pathway mutation, which we believe Plinabulin has the potential to revert.
Preclinical studies indicate that Plinabulin activates the immune system multiple steps earlier in the process
of immune activation, and thus has the potential to complement the activity of checkpoint inhibitors. Both
published and unpublished preclinical study data have suggested that Plinabulin can stimulate an immune
response to cancer cells by increasing the “presentation of cancer antigens” by dendritic cells, stimulating
dendritic cell proliferation, increasing levels of helper T-cells and by decreasing the levels of
immunosuppressive regulatory T-cells. While it is unclear which of the many activities or which combination
of activities is important for Plinabulin’s immune stimulatory activity, its activity in animal models is
comparable to other immuno-oncology agents such as nivolumab, an approved immuno-oncology agent that
targets the PD-1 checkpoint.
One example of this is in a colon cancer model (MC38) in immune competent mice. The combination of
Plinabulin and a PD-1 antibody resulted in tumors that were approximately 25% smaller than those from
control animals, similar to the levels seen with the combination of a PD-1 antibody and a CTLA-4 antibody.
The triple combination of Plinabulin, a PD-1 antibody and a CTLA-4 antibody resulted in tumors that were
smaller than those in animals treated with any of the other studied agents or the studied combinations
thereof and approximately 40% smaller than the vehicle control.
Another example is in a PD-1 non-responsive tumor model which was conducted at Dr. Steven Lin’s lab
at MD Anderson. The results of this preclinical study were highlighted in a poster presentation titled
“Plinabulin, a microtubule destabilizing agent, improves tumor control by enhancing dendritic cell
maturation and CD8 T-cell infiltration in combination with immuno-radiotherapy,” at American Association
for Cancer Research Virtual Annual Meeting in June 2020. Data highlights include:
● Preclinical effectiveness:
The triple immuno-oncology combination of Plinabulin, anti-PD-1 and radiation (triple combination) achieved a 100% complete response
in a breast cancer model that is not responsive to PD-1 antibody alone.
● Sequential benefit:
Plinabulin’s effects on dendritic cell maturation are greater when administered after each dose of
fractionated radiotherapy, compared to administration before radiation, or administration only once after
the first dose of radiotherapy.
● Abscopal effect:
The Plinabulin triple combination anti-cancer effects in both irradiated and non-irradiated tumors in the
same mice indicate the activation of a systemic anti-cancer immune response. Notably, CD8 cell levels in
the non-irradiated tumors were almost double in the triple combination group compared to anti-PD-1 and
radiation alone.
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● Dendritic cell major histocompatibility complex class II, or MHC-II, up-regulation and T-cell
tumor infiltration:
Plinabulin triple combination significantly increased dendritic cell MHC-II expression and T-cell
infiltration in the tumor.
● Immuno-oncology mechanism:
AP-1 and NF-kB molecular pathways are crucial in the Plinabulin-induced maturation of dendritic cells.
We believe that the activation of dendritic cells is a key to unlocking the next boost to the efficacy of
immuno-oncology agents. Activated dendritic cells present foreign tumor antigens to T-cells to induce
cancer-directed immune attacks. Thus, adding this critical step of dendritic cell activation in the immune
cascade to the established effects of immune checkpoint inhibition therapies is expected to increase overall
anti-cancer efficacy in the clinic. Our anti-cancer strategy was to activate dendritic cells and T-cells, in
combination with checkpoint inhibition and to add onto the benefits of neoantigen generation and immune
activation from radiotherapy, as Plinabulin serves as the key to reverse the tumor non-response to PD-1/PD-
L1 antibodies. We believe the data strongly indicates that this triple combination has potential to help
patients who failed or have progressed on anti-PD-1/PD-L1 targeted therapy, which represents a severely
unmet medical need.
Investigator-initiated studies in Plinabulin in immuno-oncology
We have explored and plan to continue to explore the role of Plinabulin in stimulating the activity of
other immuno-oncology agents in clinical programs:
● Plinabulin + PD-1 antibody in NSCLC
In September 2016, UCSD enrolled the first patient in an investigator-initiated Phase 1/2 trial of
Plinabulin in combination with nivolumab in patients with metastatic NSCLC. UCSD has completed the
enrollment of 18 patients. The study had achieved its Phase 1 endpoint of safety evaluation and dose
selection. In addition, Fred Hutchison Cancer Center, together with the University of Washington, launched
an investigator-initiated Phase 1/2 trial of Plinabulin in combination with nivolumab in patients with
advanced NSCLC who have failed up to two previous therapies. The University of Washington study achieved
the dose regimen endpoint and therefore the study site has been closed. Preliminary safety data from these
two trials were presented at the ASCO-SITC meeting in January 2018. In the 10 patients evaluated, the
combination therapy was well-tolerated, with no immune related serious adverse events. Only two patients
presented with immune related adverse events, one with a grade 1 event and the other with a grade 2 event.
● Plinabulin + PD-1 + CTLA-4 antibodies in ES-SCLC
In October 2018, we announced the opening of an investigator-initiated Phase 1 clinical trial with a
triple combination therapy, consisting of Plinabulin, nivolumab (one type of PD-1 antibody), and ipilimumab
(one type of CTLA-4 antibody), for the treatment of second- and third-line SCLC. The trial, conducted
through the Big Ten Cancer Research Consortium, enrolled 16 patients at Rutgers Cancer Institute of New
Jersey and other clinical centers in the U.S. in the Phase 1 portion of this Phase 1/2 combined study. This
study investigates whether the addition of Plinabulin results in a reduction of immune-related side effects of
PD-1 and CTLA-4 antibodies and if it provides efficacy synergy. In ASCO meeting in June 2021, we presented
positive Phase 1 data from this study on 13 evaluable patients with PD-1/PD-L1 naïve or resistant tumors in
second-line and beyond in SCLC, Plinabulin in combination with nivolumab and ipilimumab showed a 46%
ORR. Additionally, the data demonstrated the Plinabulin combination was able to re-sensitize tumors to
immune-oncology therapy, that had previously progressed on prior immunotherapies, with a 43% ORR.
In October 2021, the first patient was enrolled in the Phase 2 portion of this investigator-initiated
study. Up to 26 patients with histological or cytological confirmed ES-SCLC who progressed after at least
one platinum-based chemotherapy regimen and checkpoint inhibitors will receive the triple combination of
Plinabulin + nivolumab + ipilimumab. Patients in the Phase 2 study will continue treatment until disease
progression, development of unacceptable toxicity, or one of the protocol-defined reasons for treatment
discontinuation occurs. Enrollment of the Phase 2 study has been completed in February 2023.
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● Plinabulin + PD-1/PD-L1 antibody + Radiation in multiple cancers of PD-1/PD-L1 failed patients
In July 2018, we entered into a sponsored research agreement with MD Anderson to evaluate the
benefits of adding Plinabulin to radiation therapy plus immune checkpoint antibodies. The pre-clinical study
has demonstrated that the triple combination approach (Plinabulin+radiation+PD-1 antibody) has dramatic
benefits in tumor reduction (100% tumor shrinkage), increasing tumor dendritic cell maturation and
increasing tumor T-cell infiltration in animal models.
In June 2021, the first patient was dosed in this Phase 1/2 study at MD Anderson, for the treatment of
patients after progression on PD-1 or PD-L1 antibody therapies in seven different cancer types with
Plinabulin+PD-1/PD-L1 antibodies and radiation. The cancer types include bladder cancer, melanoma,
Merkle cell cancer, microsatellite instability-high cancers (of any histology), NSCLC, renal cell cancer, and
hogkins lymphoma. The protocol was updated in 2022 to include patients that have any tumor type with
checkpoint inhibitor approval that may or may not have progressed on previous anti-PD-1/PD-L1 mAb
treatment +/- chemotherapy or anti-CTLA4 requiring further treatment in Phase 1. Enrollment of the Phase 1
study has been completed in March 2023. Topline clinical data with corresponding biomarker analysis was
presented at the Society for Immunotherapy of Cancer’s 38th Annual Meeting in November 2023. Durable
response was observed in heavily pre-treated patients, including two Hodgkin’s lymphoma patients who
progressed after 12 or 16 prior lines of therapy respectively. In addition, DC maturation was observed in
patients with the clinical benefit of partial response and stable disease.
We believe that radiation with Plinabulin and PD-1/PD-L1 antibodies could help reverse immune
checkpoint inhibitor resistance in immune checkpoint inhibitor-refractory tumors and generate responses
that are greater than radiation with immune checkpoint inhibitor alone.
● Plinabulin + PD-1 + docetaxel in NSCLC in PD-1/PD-L1 antibody failed patients
In March 2023, we announced the enrollment of the first patient in an investigator-initiated Phase 2
trial of Plinabulin in combination with pembrolizumab (Merck’s anti-PD-1 therapy), and docetaxel for
previously treated patients with metastatic NSCLC and progressive disease after immunotherapy (anti-PD-1 /
PD-L1 inhibitor) alone or in combination with platinum-doublet chemotherapy. This trial is conducted at
Peking Union Medical College Hospital in Beijing, China. We believe this triple-combination therapy has the
potential to improve immune checkpoint inhibitors resistance and provide a new treatment option for
metastatic NSCLC patients previously treated with an immunotherapy.
● Plinabulin + PD-1 + etoposide and platinum in first-line ES-SCLC
In March 2024, we announced the enrollment of the first patient in an investigator-initiated Phase 2
trial of Plinabulin in combination with pembrolizumab (Merck’s anti-PD-1 therapy), and etoposide/platinum
for first line ES-SCLC. This trial is being conducted at Wuhan Union Hospital in Wuhan, China. We believe
this triple-combination therapy has the potential to improve progression free survival in these patients,
which is short at <6 months with the current approved therapies.
Plinabulin in Prevention of CIN
CIN overview
Neutropenia is an abnormally low blood concentration of neutrophils, a type of white blood cell, which
may result from an abnormal rate of destruction or a low rate of synthesis of white blood cells in bone
marrow. Neutropenia is graded according to its severity, which generally depends on neutrophil count. An
absolute neutrophil count below 500 cells/mm3 (0.5 x 10^9 /L) is categorized as grade 4 neutropenia and a
neutrophil count between 500 and 1,000 cells/mm3 (0.5-1.0 x 10^9 /L) is categorized as grade 3
neutropenia. Patients with low neutrophil counts are more susceptible to bacterial infections and sepsis,
which are a significant cause of morbidity and mortality in cancer patients. According to the Centers for
Cancer Prevention and Control, more than 60,000 patients are hospitalized each year in the U.S. for
neutropenia associated with fever, which represents a growth opportunity for products that can deliver
improved outcomes in the CIN space. The mortality rate of these patients is between 9% and 18%.
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Neutropenia represents a key limitation associated with most chemotherapies. The current standard of
care for neutropenia is biologic drugs based on G-CSF, a human growth factor that stimulates the
proliferation, differentiation and maturation of neutrophils. Treatment or prevention of CIN with G-CSF has
been the standard of care since Neupogen (filgrastim) was approved in 1991. G-CSF includes filgrastim and
pegfilgrastim, which is long-lasting filgrastim. While monotherapy G-CSF reduces duration of severe
neutropenia, or DSN, over 80% of patients still experience grade 4 neutropenia, which is the most common
reason for reducing relative dose intensity of chemotherapy, downgrading the chemotherapy regimen,
delaying chemotherapy schedule and discontinuing chemotherapy, all of which will negatively impact
patients’ long-term survival outcome. Furthermore, G-CSF cannot be given on the same day as chemotherapy
and the expansion of bone marrow generated by monotherapy G-CSF causes bone pain. According to post-
marketing patient surveys, between 59% and 71% of patients report having experienced bone pain and, of
those patients, about one-quarter describe the pain as severe.
The number of first cycle chemotherapy treatments was expected to grow by 53% between 2018 and
2040. Industry reports from IQVIA (NPS Data January-December 2020) show that the current U.S. CIN
market is approximately $4 billion and growing in unit volume. With the change in the National
Comprehensive Cancer Network, or NCCN, guidelines to include intermediate-risk chemotherapy patients
for prophylaxis of CIN, the addressable market has increased by over 100% and we expect the market to
continue to grow as oncologists continue to be more aggressive in their prophylaxis of these intermediate-
risk patients, who comprise approximately 37% of the CIN population. Under the updated NCCN guidelines,
more than 70% of all chemotherapy patients qualify for prophylaxis for CIN in the U.S. According to IQVIA
MIDAS and TF Securities reports, G-CSF sales in China had annual revenue increase of approximately 30% a
year, with total sales of RMB 5 billion (approximately $780 million) in 2019 and RMB 8 billion (approximately
$1.2 billion) in 2020. Only four long-lasting G-CSF were approved in China, with total sales at RMB 3 billion
(approximately $470 million) in 2019 and RMB 5.2 billion (approximately $820 million) in 2020. Hengrui’s
long-lasting G-CSF is among the top-three best sellers in China.
The main benefit of G-CSF treatment, however, is in week 2 after chemotherapy. Week 1 after
chemotherapy is considered the “Neutropenia Vulnerability Gap” where over 75% of CIN-related clinical
complications occur, including febrile neutropenia, infection, hospitalization and death. Plinabulin has the
potential to fill this “Neutropenia Vulnerability Gap” by working in week 1 to prevent the onset and
progression of CIN. Therefore, we believe combining Plinabulin with G-CSF may maximize the protection of
patients for the full cycle of chemotherapy, as demonstrated in the PROTECTIVE-2 Phase 3 registration
study.
PROTECTIVE-2 Phase 3 study is the registration study to support the NDA submission for the use of
Plinabulin in combination with G-CSF for the prevention of CIN. The NDA submission was based on positive
data from this study, which shows that Plinabulin in combination with pegfilgrastim demonstrated superior
CIN prevention benefit, compared to pegfilgrastim alone. The study met the primary endpoint, with a
statistically significant improvement in the rate of prevention of grade 4 neutropenia (improved from 13.6%
to 31.5%, p=0.0015) and met all key secondary endpoints, including DSN and absolute neutrophil count, or
ANC nadir. In addition, the combination reduced clinical complications such as incidence and severity of
febrile neutropenia, and incidence and duration of hospitalization for febrile neutropenia patients. The
combination is well-tolerated, with over 20% reduction of grade 4 Treatment Emergent Adverse Events in
the combination compared to that of pegfilgrastim. The NDA submissions included five supportive trials that
show consistent CIN prevention in various chemotherapy regimens and cancers in over 1,200 patients.
Based on the meta-analysis data over 7,000 patients in 36 clinical studies which was published in
Cancer Investigation 2023, grade 4 neutropenia rate (primary endpoint of PROTECTIVE-2 Phase 3) is linked
to adverse clinical consequences, such as febrile neutropenia and hospitalization.
Plinabulin’s effect in preventing CIN has been demonstrated in six clinical trials so far, namely Study
101, DUBLIN-3, PROTECTIVE-1 (Phase 2 and Phase 3), and PROTECTIVE-2 (Phase 2 and Phase 3), with
consistent data for CIN prevention early onset benefit in week 1 after chemotherapy.
● In the Phase 2 portion of Study 101, the addition of Plinabulin to a standard regimen of docetaxel resulted
in a statistically significant reduction (p=0.002) in the incidence of grade 3 and 4 neutropenia adverse
events from 26% of patients in the docetaxel monotherapy arm to 7% in the Plinabulin plus docetaxel arm
based upon a retrospective analysis of the data.
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● In DUBLIN-3, a Phase 3 study for NSCLC, we evaluated 559 patients on a secondary endpoint of grade 4
neutropenia reduction in cycle 1 Day 8 and demonstrated Plinabulin’s ability to reduce docetaxel induced
grade 4 neutropenia in NSCLC patients (p<0.0001).
● In our registration program for CIN, Plinabulin has been studied in two Phase 2/3 clinical trials, the first
in Plinabulin monotherapy compared to pegfilgrastim for the prevention of CIN caused by intermediate-
risk chemotherapy with high risk factors, composed solely of Taxotere (docetaxel), in various cancer
including NSCLC, breast cancer and prostate cancer patients (PROTECTIVE-1), and the second in the
Plinabulin and pegfilgrastim combination compared to pegfilgrastim alone for the prevention of CIN
caused by high-risk chemotherapy, a myelosuppressive chemotherapeutic regimen composed of three
agents, Taxotere (docetaxel), Adriamycin (doxorubicin) and Cytoxan (cyclophosphamide), in breast cancer
patients (PROTECTIVE-2). TAC is an example of high febrile neutropenia risk chemotherapy and is the
regimen used in all G-CSF biosimilar registration studies.
PROTECTIVE-1 (Plinabulin monotherapy vs. Pegfilgrastim monotherapy)
Based on the clinical profile observed in Study 101 and the results of the discussions between us and
the FDA, we refined our design of our two Phase 2/3 trials in CIN. The first trial, PROTECTIVE-1, is a Phase
2/3 trial of Plinabulin monotherapy compared to pegfilgrastim monotherapy in 160 patients in both Phase 2
and Phase 3 studies in various cancers, including advanced breast cancer, hormone refractory prostate
cancer and advanced NSCLC patients, treated with docetaxel (intermediate febrile neutropenia risk
chemotherapy with high risk factors) in the U.S., China, Russia and Ukraine.
The primary endpoint of this trial is non-inferiority in DSN in the first cycle of chemotherapy,
compared to the standard of care, Neulasta (one type of pegfilgrastim, a long-lasting G-CSF). DSN
represents the days the patient has grade 4 neutropenia. A clinically meaningful DSN is less than one day.
In the Phase 2 portion of PROTECTIVE-1, published at JAMA Oncology in September 2020, 55 NSCLC
patients treated with one dose of Plinabulin at 20 mg/m2 on Day 1 (same day as chemotherapy) had the same
incidence or rate of severe neutropenia (grade 4) as patients treated with one dose of Neulasta (6 mg) in the
first 21-day cycle. Grade 4 neutropenia occurred in 14% of patients treated with either Plinabulin or
Neulasta. This result established the recommended dose of 40 mg (equivalent to 20 mg/m2) for the Phase 3
portion of the trial based on a clear dose response in grade 4 neutropenia incidence and the DSN seen in the
Phase 2 portion. Additionally, in the Phase 2 portion of PROTECTIVE-1, Plinabulin was shown to reduce
thrombocytopenia and demonstrated a superior immune profile compared to Neulasta based on
promyelocytes and immature neutrophil data.
One of the secondary endpoints evaluated in PROTECTIVE-1 was the reduction of bone pain. Bone pain
is a significant issue for this patient population and results in many patients discontinuing therapy. In the
Phase 2 portion of PROTECTIVE-1, bone pain occurred in fewer patients treated with Plinabulin at 20 mg/m2
(11%, or 0% from Day 3) compared to patients treated with Neulasta (35%).
In the Phase 2 portion of PROTECTIVE-1, nearly half (45%) of patients who received Neulasta
experienced thrombocytopenia (any grade) in cycle 1, compared to 0% of patients who received 20 mg/m2 of
Plinabulin. Plinabulin’s platelet-protective effect also carried through all four cycles in a statistically
significant manner. Clinically significant thrombocytopenia, which is defined as a decrease in platelet counts
of more than 30%, occurred less frequently in patients who received docetaxel with Plinabulin, compared to
patients who received docetaxel and Neulasta over all four cycles (p=0.019).
In addition, our data further demonstrated that Plinabulin mobilizes CD34+ progenitor cells into the
peripheral blood through a mechanism of action different from G-CSF or Plerixafor, potentially presenting a
new option for hematopoietic cell transplantation. We evaluated CD34+ cell counts in the blood by
measuring CD34+ levels pre-dose and at multiple time points through Day 8 of treatment with docetaxel,
both with and without Plinabulin. CD34+ measurements were obtained in at least nine patients on both Day
0 and Day 8 for each Plinabulin dose. Patients treated with Plinabulin had statistically significant increases in
CD34+ levels at Day 8 in a dose-dependent manner (p<0.0004).
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In the Phase 3 portion of PROTECTIVE-1 (double-blind, active-controlled), 105 NSCLC, breast cancer
and prostate cancer patients were enrolled to compare Plinabulin with Neulasta in CIN prevention benefit,
with DSN in cycle 1 as the primary endpoint. The Phase 3 portion of PROTECTIVE-1 has met its primary
endpoint of non-inferiority versus Neulasta for DSN in the first cycle, with statistical significance in a pre-
specified interim analysis at 105-patient enrollment in December 2018. This conclusion was confirmed at the
Data and Safety Monitoring Board meeting in January 2019, chaired by Dr. Crawford, founding member and
former Chairman of the NCCN guidelines for Neutropenia Management in the U.S.
PROTECTIVE-2 (Plinabulin + Pegfilgrastim combination vs. Pegfilgrastim monotherapy)
The second trial, PROTECTIVE-2, is a Phase 2/3 trial of Plinabulin in combination with a
myelosuppressive chemotherapeutic regimen composed of three agents, Taxotere (docetaxel), Adriamycin
(doxorubicin) and Cytoxan (cyclophosphamide) in 336 patients with solid tumors (breast cancer) in China
and Ukraine. This trial compares Plinabulin in combination with Neulasta (6 mg) (the Plinabulin/Neulasta
Combo) to measure superiority in efficacy as compared to Neulasta monotherapy, with rate of prevention of
grade 4 neutropenia as the primary endpoint per protocol.
We enrolled 115 patients in the Phase 2 portion of PROTECTIVE-2. In October 2018, we announced
Phase 2 data that demonstrated that the Plinabulin/Neulasta Combo led to a clinically meaningful reduction
of the duration of grade 3 and 4 neutropenia, a statistically significant increase in the percentage of patients
with no severe neutropenia (grade 3 and 4 neutropenia) in the first cycle of chemotherapy, a statistically
significant reduction of bone pain, and less immune suppression compared with Neulasta monotherapy in the
first cycle. Additionally, the Plinabulin/Neulasta Combo presented good tolerability and no cardio-safety
issues. Our data suggested that combining Plinabulin with Neulasta reverses the immune-suppressive profile
of Neulasta by lowering the percentage of patients with a neutrophil-to-lymphocyte ratio of less than 5
(p<0.007) or with a lymphocyte-to-monocyte ratio of greater than 3.2 (p<0.07) versus Neulasta alone. The
data further suggested that Plinabulin can also activate the body’s innate immune response by increasing
plasma levels of both neutrophil count and the immune-modulatory protein haptoglobin.
In the Phase 3 portion of PROTECTIVE-2 (double-blind, active-controlled, registration superiority
study), 221 patients were enrolled to evaluate the CIN prevention effect of the Plinabulin and pegfilgrastim
combination compared with pegfilgrastim alone. It was designed as a superiority study to compare the safety
and efficacy of Plinabulin (40 mg, Day 1 dose) in combination with pegfilgrastim (6 mg, Day 2 dose) versus a
single dose of pegfilgrastim (6 mg, Day 2 dose) in patients with breast cancer, treated with TAC. The primary
endpoint was the rate of prevention of grade 4 neutropenia, which correlates with high rates of infection,
bacteremia, infection, fever and mortality. According to literature, patients treated with TAC and
pegfilgrastim still have an incidence of grade 4 neutropenia of approximately 83-93%, or 7-17% of patients
with rate of prevention of grade 4 neutropenia. Secondary endpoints include DSN cycle 1, which is the
legacy primary endpoints for all biosimilar G-CSF approval studies. In addition, the incidence and duration of
profound neutropenia were evaluated. According to literature, profound neutropenia leads to 80% patient
death in first week of infection, 48% febrile neutropenia, and 50% infection.
PROTECTIVE-2 Phase 3 registration study demonstrated CIN prevention superiority in the Plinabulin
and pegfilgrastim combination compared to pegfilgrastim alone, which met all primary and key secondary
endpoints. Results of comparison of CIN prevention benefit between combo arm (Plinabulin+pegfilgrastim,
n=111) and peg arm (pegfilgrastim alone, n=110) are detailed below.
● Primary endpoint (rate of prevention of grade 4 neutropenia): 31.5% (combo) vs. 13.6% (peg), 95% CI
17.90 (7.13, 28.66), p=0.0015;
● Key secondary endpoints in hierarchical testing order:
● DSN Cycle 1 Day 1-8 (ANC < 0.5 x 109 cells/L): lower DSN in combo vs. peg, p=0.0065;
● Mean ANC nadir Cycle 1 (x 109 cells/L): 0.538 (combo) vs. 0.308 (peg), p=0.0002;
● Percentage of patients without grade 3 and 4 neutropenia: 20.7% (combo) vs. 4.6% (peg), p=0.0003;
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● DSN Cycle 1: lower DSN in combo vs. peg, p=0.0324;
● Exploratory endpoints:
● Incidence of profound neutropenia Cycle 1 (ANC < 0.1 x 109 cells/L): 21.6% (combo) vs. 46.4% (peg),
p=0.0001;
● Duration of profound neutropenia Cycle 1: 0.34 day (combo) vs. 0.63 day (peg), p=0.0004;
● Febrile neutropenia rate for patients with profound neutropenia: 4.2% (combo) vs. 13.7% (peg);
● Hospitalization rate for patients with profound neutropenia: 8.3% (combo) vs. 11.8% (peg).
The NDA submission based on positive results in our PROTECTIVE-2 study, and supported by five
additional clinical studies as described above, for the use of Plinabulin in combination with G-CSF for the
prevention of CIN was accepted by both the FDA and the NMPA. The indication we are seeking is a broad
label in “concurrent administration with myelosuppressive chemotherapeutic regimens in patients with non-
myeloid malignancies for the prevention of CIN,” which is the indication for which we received Breakthrough
Therapy Designation from both the FDA and the NMPA. In November 2021, the FDA issued a Complete
Response Letter for Plinabulin in combination with G-CSF for the prevention of CIN. In March 2023, we
withdrew the NDA submission for the indication of Plinabulin in combination of pegfilgrastim agents to treat
CIN in adult non-myeloid cancer from the NMPA. We continue to communicate with the NMPA regarding the
re-filing of the NDA for the CIN indication and plan to use our best efforts to re-file the NDA as soon as
possible.
Investigator-initiated Study in Multiple Myeloma (Plinabulin + Pegfilgrastim combination)
Plinabulin in combination with pegfilgrastim is being studied in a Phase 1, open label, investigator-
initiated trial for the reduction of neutropenia burden in multiple myeloma patients who have undergone
AHCT at Memorial Sloan Kettering Cancer Center. In this pilot study, patients with multiple myeloma are
treated with a single high dose of melphalan and undergo AHCT. Patients receive a Plinabulin 40 mg fixed
dose intravenous infusion, and on day +1, pegfilgrastim 6 mg is administered per standard of care. The
objectives of this study were to evaluate neutropenia burden, safety, tolerability, neutrophil and platelet
engraftment rate, disease response, progression free survival, overall survival and patient reported outcome
(PRO) assessment of symptom burden. In January 2022, the first patient was dosed in this study. Preliminary
data was presented in August 2022 at the 19th International Myeloma Society Annual Meeting, showing that
Plinabulin is well tolerated and only one out of the 10 patients enrolled (10%) had non-engraftment related
neutropenic fevers or febrile neutropenia (FN) with Plinabulin and pegfilgrastim, compared to a historical
number of 60% of FN with standard of care.
Enrollment of this Phase 1 study was completed in March 2023. The topline data was presented at the
American Society of Clinical Oncology meeting, or ASCO, in June 2023.
Other Programs
In addition to exploring Plinabulin’s therapeutic potential in combination with immuno-oncology
agents, we have a pipeline of preclinical immuno-oncology product candidates and have utilized our research
collaborators to advance these programs.
BPI-002 program
Our BPI-002 program is based on an oral small molecule agent that increases T-cell co-stimulation. Due
to its short pharmacokinetics half-life, it has the potential of managing immune-related adverse events better
than biological long half-life agents like CTLA-4 inhibitors in combination with PD-1/PD-L1 inhibitors. In
preclinical cancer models, BPI-002 has significant anti-cancer effects as a monotherapy and in combination
with checkpoint inhibitors. Investigational New Drug, or IND, enabling studies and efforts related to
manufacturing and safety testing have been initiated.
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BPI-003 program
Our IKK program, BPI-003, is based on a novel small molecule inhibitor of IKK, a protein kinase. IKK is
involved in survival of some tumor cells as well as in the production of a number of cytokines and growth
factors that serve as survival factors for various tumors. Our IKK inhibitor has shown promising activity in
multiple animal models of pancreatic cancer.
BPI-004 program
Our BPI-004 program is focused on a small molecule that induces the production of neo-antigens by
tumor cells, allowing tumors containing no immune cells to be infiltrated by the immune system. A large
proportion of human cancers do not produce antigens that are recognized by the immune system. As a result,
these tumors do not respond to treatments that work through interaction with the patient’s immune
response. For example, these tumors will not respond to treatment with PD-1 inhibitors. A treatment that
induces the tumor cells to produce antigens has the potential to make these cancers responsive to PD-1
inhibitors.
SEED’s Targeted Protein Degradation (TPD) platform and Pipeline
We are also investigating an alternative approach to disease treatment in which disease-causing
proteins are marked for early degradation. This approach uses a protein called a ubiquitin E3 ligase to target
and promote the destruction of disease-causing proteins. To trigger degradation, the target protein is labeled
with poly-ubiquitin by a specific ubiquitin ligase enzyme. Poly-ubiquitin acts as an indicating tag to cellular
proteasome machinery that the target protein should be destroyed. One approach to tagging the target
protein is using our proprietary “molecular glue” technology to bind the ubiquitin ligase to the target
protein.
We have formed a subsidiary, SEED, to explore this proprietary TPD technology platform on
harnessing and engineering “molecular glue” to attack previously believed undruggable targets. Backed by a
comprehensive intellectual property portfolio, SEED’s mission is to positively impact human health by
creating novel protein degradation therapeutics to treat various severe diseases that currently have limited
options for patients and their families. Through ongoing collaborations with world-leading academic experts
in the field, including Nobel Prize winner in TPD field, Dr. Avram Hershko, SEED is establishing a growing
pipeline of novel drug candidates on a path to potential clinical and commercial success.
We believe SEED is an established leader in overcoming the significant scientific challenges to
discovering “molecular glue”, which enables the development of a new class of drugs with the potential to
treat many previously untreatable medical conditions through the targeting of disease-causing proteins that
are resistant to inhibition with traditional drug discovery methods. SEED stands out from its competitors
through the discovery and use of its proprietary technology platforms for “molecular glue” discovery,
focused on platforms addressing the most challenging aspect of this effort, which is to select the E3 ligase to
glue to the disease-causing protein to mark it for degradation.
In November 2020, SEED entered into a research collaboration and license agreement, or the
Collaboration Agreement, with Eli Lilly, to discover and develop new chemical entities that could produce
therapeutic benefit through TPD.
Under the terms of the Collaboration Agreement, SEED received a $10 million upfront cash payment.
SEED will also be eligible to receive up to approximately $780 million in potential pre-clinical and clinical
development, regulatory and commercial milestones, as well as tiered royalties on net sales of products that
result from the collaboration. As of the date of this annual report, SEED has received $3 million of these
milestone payment for pre-clinical development. With the proceeds of these payments, SEED has invested in
developing additional breakthrough and proprietary methods for “molecular glue” discovery, in order to
enhance its advantage in growing “molecular glue” drug discovery and development efforts.
In connection with this collaboration, we and certain of our subsidiaries transferred certain contracts
and intellectual property related to certain platform technology for the Ubiquitin Platform Technology to
SEED, and we granted SEED an exclusive sublicense with respect to certain rights to intellectual property
and other materials related to the Ubiquitin Platform Technology.
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SEED’s 6 internal programs and joint development programs with Eli Lilly involve multiple novel E3s
and target oncology, neurodegeneration, immunology, and antiviral indications. Additional programs are in
development for anti-aging applications. SEED’s lead program is a novel RBM39 degrader for multiple solid
and liquid cancers, targeting IND filing in 2025.
We and Eli Lilly also entered into share purchase agreements with SEED to purchase preferred shares
of SEED. SEED sold an aggregate of 1,194,030 shares of its Series A-1 Preferred Shares to us and SEED
Technology and 1,990,000 shares of its Series A-2 Preferred Shares to Eli Lilly, each at a cash purchase price
of $2.5125 per share. In June 2022, upon the achievement of certain milestones as described in the share
purchase agreement, the BYSI Entities collectively purchased an additional 1,194,028 Series A-1 Preferred
Shares for an aggregate purchase price of $3.0 million and Eli Lilly purchased an additional 1,990,000 Series
A-2 Preferred Shares for an aggregate purchase price of $5.0 million, each at a cash purchase price of
$2.5125 per share. Following the closing of these transactions, and after taking into account shares already
held by the BYSI Entities, the BYSI Entities hold approximately 60.1% of the outstanding equity interest in
SEED, calculated on an as-converted basis (excluding any shares that may be reserved under an employee
stock ownership plan, or similar arrangement).
Our Pipeline
The following table summarizes the current status of Plinabulin’s indication in development.
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The following table summarizes the current status of SEED’s pipeline.
Our Strategy
● Develop Plinabulin as a “pipeline in a drug” in multiple cancer indications. We are
exploring the potential of Plinabulin in combination with immuno-oncology agents and continue to
develop a pipeline of other immuno-oncology agents through the utilization of our scientific
collaborators. Plinabulin is a novel dendritic cell maturation small molecule agent in Phase 3
development. We believe that its unique mechanism supports the improved anti-cancer efficacy
potential in combination with checkpoint inhibitors and tumor antigen generators, including
chemotherapy or radiation. We have a few ongoing investigator-initiated studies collaborating
with Merck, BMS, and research collaborators, such as MD Anderson to advance Plinabulin in
clinical trials to investigate its therapeutic potential as an immuno-oncology agent in multiple
cancers, especially in PD-1/PD-L1 antibody failed patients, which we believe represent severe
unmet medical needs.
● Advance Plinabulin through global clinical trials and obtain regulatory approvals in the
U.S. and China. We have treated over 700 cancer patients with Plinabulin with good tolerability,
and completed two Phase 2/3 trials for CIN and have submitted NDAs in the U.S. and China in
March 2021. We received a Complete Response Letter for the prevention of CIN from the FDA in
November 2021, and withdrew the NDA submission for the indication of Plinabulin in combination
of pegfilgrastim agents to treat CIN in adult non-myeloid cancel from the NMPA in March 2023.
We plan to use our best efforts to re-file the NDA as soon as possible. We have completed our
Phase 3 trial for NSCLC and have reported positive clinical data, and we plan to use our best
efforts to file an NDA with the NMPA as soon as possible. All of our clinical trials have been
conducted globally by working with leading global CROs, such as ICON and Covance (now
Labcorp) to assure the quality of the data. We believe that our global development strategy has
provided and will continue to provide significant advantages, including the ability to conduct trials
in China with quicker enrollment and lower costs. In addition, as China is the second largest
pharmaceutical market in the world, we believe obtaining potential approvals in China could lead
to significant commercial opportunity for Plinabulin.
● Partner with one or more global pharmaceutical companies to commercialize Plinabulin
in the U.S. and the rest of world. We believe Plinabulin, if approved, could have significant
commercial potential in the U.S. and globally as an anti-cancer agent, including in combination
with chemotherapy as an anti-cancer agent, in combination therapy as an immune-oncology agent,
and as a monotherapy or in combination with G-CSF in the prevention of CIN. Our clinical data
demonstrates that Plinabulin can provide added value to anti-tumor therapy when used with
chemotherapy. Additionally, our early clinical results in immune-oncology indicate that Plinabulin
may play an important role in triple combination immunotherapy to improve or expand
effectiveness of current immune-oncology therapeutic regimens.
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● Maximize the value of SEED’s targeted protein degradation (TPD) technology
platform. Through ongoing collaborations with world-leading pioneer experts in the ubiquitin
proteasome and “molecular glue” discovery field, including Nobel Prize winner Dr. Avram
Hershko, our subsidiary SEED is developing a breakthrough technology platform for “molecular
glue” discovery focused on protein of interest. We believe the collaboration with Eli Lilly serves to
validate this TPD platform and its enormous future potential. Further, SEED has since reached
three R&D milestones under the Collaboration Agree,ent with Eli Lilly, which we believe
demonstrates its team’s execution capabilities. With over 600 E3 ligases in the cell, TPD has the
potential to develop drugs for over 70% undruggable target with novel discovery agents in
multiple disease areas. Through our subsidiary SEED, we are conducting internal research and
collaborating with Eli Lilly to discover and develop new chemical entities that could produce
therapeutic benefits through TPD in various diseases. We will seek to form additional partnerships
to expand our TPD platform into several therapeutic areas.
Commercialization
In August 2021, Wanchunbulin, our partially owned Chinese subsidiary, entered into an exclusive
commercialization and co-development agreement with Hengrui to further develop and commercialize
Plinabulin in Greater China. Under the terms of the agreement, Wanchunbulin granted Hengrui exclusive
rights to commercialize and co-develop Plinabulin in the Greater China markets, including mainland China,
Hong Kong, Macau and Taiwan. Wanchunbulin retains the manufacturing rights of Plinabulin in the Greater
China markets and will receive all Plinabulin net sales proceeds in such markets. Hengrui will receive a pre-
determined percentage of the net sales in each quarter. Wanchunbulin received an upfront payment of RMB
200 million (approximately $31 million), and will receive regulatory and sales milestones of up to RMB 1.1
billion (approximately $171 million). Hengrui will be responsible for all costs associated with
commercialization of Plinabulin in the Greater China markets. Pursuant to the terms of the agreement,
Wanchunbulin will be responsible for 100% of the clinical and regulatory costs for the first two indications
for Plinabulin: prevention of CIN and second/third- line treatment of NSCLC (EGFR wild type). Hengrui will
fund 50% of the clinical development costs for additional indications for Plinabulin in the Greater China
markets, with a Joint Steering Committee overseeing the clinical strategy and priorities.
In 2023, Hengrui initiated an arbitration proceeding with respect to the commercialization and co-
development agreement, seeking to, among other things, unilaterally terminate the agreement and request
for full refund of the upfront payment. On January 10, 2024, the arbitral tribunal at China International
Economic and Trade Arbitration Committee issued a final award, denying all claims made by Hengrui.
In the U.S. and for the rest of the world, we currently plan to prioritize seeking a commercialization
partner to maximize Plinabulin’s potential in multiple cancer indications.
Intellectual Property
The proprietary nature of, and protection for, our product 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 U.S. patents and filed patent applications in the U.S. and other countries relating to
certain of our product candidates, and are pursuing additional patent protection for them and for other of
our product candidates and technologies.
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.
As of April 10, 2024, we owned or co-owned 150 patents, in 32 jurisdictions, including 21 issued U.S.
patents. We also owned 12 pending U.S. non-provisional patent applications as well as corresponding patent
applications pending in other jurisdictions and five pending U.S. provisional patent applications. In addition,
we owned three pending international patent applications related to Plinabulin filed under the PCT, which
we plan to file nationally in the U.S. and in other jurisdictions directed to kits and methods for providing and
administering plinabulin, use of Plinabulin in combination with a PARP inhibitor, and Plinabulin micelle
compositions.
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Our patent portfolio as of April 10, 2024 included 17 issued U.S. patents directed to Plinabulin
synthesis, Plinabulin use in the treatment of various disorders, polymorphic forms of Plinabulin, Plinabulin
compositions, and Plinabulin analogs. In particular, we owned 15 issued U.S. patents directed to the methods
of synthesizing Plinabulin, polymorphic forms of Plinabulin, compositions comprising Plinabulin, and
methods of treating various disorders with Plinabulin including docetaxel-induced neutropenia and certain
other CIN, various cancers such as lung cancer, breast cancer, melanoma, prostate cancer, RAS mutant
tumors, and brain tumors, and use of Plinabulin in combination with gemcitabine to reduce
thrombocytopenia. These U.S. patents were scheduled to expire between 2025 and 2039, excluding any
potential patent term restorations. The patent portfolio also contained counterpart patents granted in 31
foreign jurisdictions including Japan, South Korea, China, Europe and other countries.
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 U.S., 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 U.S., the
term of a patent 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 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, the term of one patent for a
given drug product can be restored (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. We
plan to seek such an extension of one of our U.S. patents directed to Plinabulin or its use when appropriate.
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. In particular, up to a five-year extension may be available in the EU
and Japan. We plan to seek such extensions as appropriate.
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 U.S. The scope of patent protection outside the U.S. is even more uncertain. Changes in the patent
laws or in interpretations of patent laws in the U.S. and other countries have diminished, and may further
diminish, our ability to protect our inventions and enforce our intellectual property rights and, more
generally, could affect the value of intellectual property.
Additionally, while we have already secured a number of issued patents directed to our product
candidates, we cannot predict the breadth of claims that may issue from our pending patent applications or
may have or may be issued from patents and patent applications 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 U.S. 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 product candidates
and any future drugs, discoveries or technologies we might develop may have already been issued or filed,
which could prohibit us from commercializing our product candidates.
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 product 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 pending patent applications that
we currently own, 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 required for clinical development and
regulatory review of a drug we may develop, it is possible that, before any of our product 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.
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We may rely, in some limited 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 existence of any patent by others with claims covering or related to aspects of our product
candidates would require us to alter our development of commercial strategies, redesign our product
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 product candidates would have a
material adverse impact on us. If others have prepared and filed patent applications in the U.S. that also
claim technology to which we have filed patent applications or otherwise wish to challenge our patents, we
may have to participate in interferences, post-grant reviews, inter parties reviews, derivation or other
proceedings in the USPTO and other patent offices to determine issues such as priority of claimed invention
or validity of such patent applications as well as our own patent applications and issued patents.
For more information on these and other risks related to intellectual property, see “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Intellectual Property.”
Competition
Our industry is highly competitive and subject to rapid and significant change. While we believe that
our development and commercialization experience, commercial strategy, Breakthrough Therapy
Designation status, scientific knowledge and industry relationships provide us with competitive advantages,
we face competition from pharmaceutical and biotechnology companies, including specialty pharmaceutical
companies, and generic drug companies, academic institutions, government agencies and research
institutions.
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 product candidates. For treatment of NSCLC with EGFR wild type, with PD-1 and pemetrexed have
moved into first-line therapy, only the ramucirumab/docetaxel combination and docetaxel are effectively
approved for treatment of second/third-line NSCLC. Bristol-Myers Squibb Company and Merck & Co., Inc.
currently market and sell Opdivo (nivolumab) and Keytruda (pembrolizumab), respectively, both of which are
PD-1 inhibitors. Eli Lilly currently markets and sells Cyramza (ramucirumab). Moreover, a number of
additional drugs are currently in ongoing Phase 3 clinical trials as second- and third-line treatments of
NSCLC, and may become competitors if and when they receive regulatory approval.
Our strategy in developing Plinabulin as an anti-cancer agent is in its unique mechanism as a potent
dendritic cell maturation agent, which leads to tumor antigen specific T-cell activation. Plinabulin effectively
activates GEF-H1, an immune defense protein, which is shown to prolong patient survival in a number of
cancers. The immune mechanism of Plinabulin can effectively add more T-cells, or “hit the gas” to kill cancer
cells, while PD-1/PD-L1 antibodies are known to let T-cells “see” cancer cells, or “release the break.” Thus,
combining Plinabulin and PD-1/PD-L1 antibodies have the potential to elevate the anti-cancer benefit.
Neutropenia can be prevented or treated by G-CSF, a protein that promotes the survival, proliferation
and differentiation of neutrophils. Recombinant G-CSF therapies, such as filgrastim (Neupogen), a short-
acting drug, and pegfilgrastim (Neulasta), a long-acting drug, are commonly used to prevent and treat CIN.
The major manufacturer of these competing therapies is Amgen. Other approved long-acting G-CSFs include
Coherus’ Udenyca, Mylan’s Fulphila, Sandoz’s Ziextenzo, and Pfizer’s Nyvepria, all of which are Neulasta’s
biosimilars. In addition, G1 Therapeutics, Inc.’s COSELA (trilaciclib) has been approved to treat CIN in
SCLC.
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We believe Plinabulin in combination with G-CSFs, if approved, should face minimal competition with
established manufacturers of G-CSFs due to its indication of being given in combination with G-CSF. We
believe the combination of Plinabulin and G-CSF, if approved, has the potential to be the first therapy to
elevate the standard of care in the prevention of CIN in over 30 years.
While we are investigating an alternative approach to disease treatment by using molecular glue
technology to tag dysfunctional proteins with ubiquitin ligase and destroy such proteins, there are a number
of companies who are also working on using such technology to target and destroy dysfunctional proteins.
Many of our competitors have longer operating histories, better name recognition, stronger
management capabilities, better supplier relationships, a larger technical staff and sales force and greater
financial, technical or marketing resources 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. 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
product candidates, or any future product candidates we may develop, or obtain regulatory approval for their
products more rapidly than we may obtain approval for our current product candidates or any such future
product candidates. Our success will be based in part on our ability to identify, develop and manage a
portfolio of product candidates that are safer and more effective than competing products.
Government Regulation
Government authorities in the U.S. 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, 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 to address the requirements of and in the format
specific to each regulatory authority, submitted for review and approved by the regulatory authority. This
process is very lengthy and expensive, and success is uncertain.
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, voluntary product recalls
or withdrawals from the market, product seizures, total or partial suspension of production or distribution,
injunctions, disbarment, fines, refusals of government contracts, restitution, disgorgement, or civil or
criminal penalties. Any such administrative 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 U.S. 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, post-approval monitoring and reporting,
marketing, export and import of drug products such as those we are developing. In the U.S., the FDA
regulates drugs under the FDCA and its implementing regulations and biologics under the FDCA and the
Public Health Service Act and its implementing regulations.
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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 product candidates or any future
product candidates we may develop. 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.
U.S. Drug Development Process
The process of obtaining regulatory approvals and maintaining compliance with appropriate federal,
state and local statutes and regulations requires 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
or lead to voluntary product recalls. Administrative or judicial sanctions could include the FDA’s refusal to
approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, 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 may be marketed in the U.S. generally involves the following:
● completion of nonclinical laboratory tests, preclinical studies and formulation studies according to
Good Laboratory Practices, or GLP, regulations;
● submission to the FDA of an IND, which must become effective before human clinical trials may
begin;
● approval by an independent IRB, at each clinical site before each trial may be initiated;
● performance of adequate and well-controlled human clinical trials according to GCPs, to establish
the safety and efficacy of the proposed product for its intended use;
● preparation and submission to the FDA of an NDA, for a drug;
● satisfactory completion of an FDA advisory committee review, if applicable;
● 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 cGMP; and
● payment of user fees and FDA review and approval of the NDA.
The testing and approval process requires substantial time, effort and financial resources and we
cannot be certain that any approvals for our product candidates, or any future product candidates we may
develop, will be granted on a timely basis, if at all.
Once a drug product candidate is identified for development, it enters the nonclinical testing stage.
Nonclinical tests include laboratory evaluations of product chemistry, toxicity, formulation and stability, as
well as preclinical studies. IND sponsor must submit the results of the nonclinical tests, together with
manufacturing information, analytical data and any available clinical data or literature, to the FDA as part of
the IND prior to commencing any testing in humans. An IND sponsor must also include a protocol detailing,
among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion
criteria, 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 nonclinical 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.
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We are conducting our current clinical trials under two INDs. Investigator-led clinical trials are being
conducted under separate INDs.
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 IRB
representing each institution participating in a clinical trial must review and approve the plan for any clinical
trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the
study at least annually. An IRB is responsible for protecting the rights of clinical trial subjects and 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 submitted for FDA review, and to the IRBs for approval. The Food and
Drug Omnibus Reform Act, or FDORA, which was signed into law on December 29, 2022, made numerous
amendments to the FDCA including provisions intended to, among other things, decentralize and modernize
clinical trials and enhance diversity in clinical trial populations.
Human clinical trials are typically conducted in three sequential phases that may overlap or be
combined:
● 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.
● Phase 2. The drug is administered to 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.
● Phase 3. The drug is administered to an expanded patient population, generally at geographically
dispersed clinical trial sites, in well-controlled clinical trials to generate data to evaluate the
efficacy and safety of the product for approval, to establish the overall benefit-risk profile of the
product, and to provide adequate information for the labeling of the product.
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 clinical investigators within 15 calendar days for
serious and unexpected suspected adverse events, any clinically important increase in the rate of a serious
suspected adverse 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 drug
candidate. Additionally, a sponsor must notify FDA of any unexpected fatal or life-threatening suspected
adverse reaction no later than 7 calendar days after the sponsor’s receipt of the information. Phase 1, Phase
2 and Phase 3 testing 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 preclinical 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.
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U.S. Review and Approval Processes
The results of product development, nonclinical studies and clinical trials, together with other detailed
information regarding 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 requesting approval to
market the new drug in the U.S. for one or more indications. Under the Prescription Drug User Fee Act, as
amended, applicants are required to pay fees to the FDA for reviewing an NDA. These user fees, as well as
the annual fees required for commercial manufacturing establishments and for approved products, can be
substantial. The NDA review fee alone can currently exceed $4 million, and is likely to increase over time.
The user fee requirement is subject to certain limited deferrals, waivers and reductions.
The FDA reviews all NDAs submitted within 60 days of submission 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 for filing. In this event, the NDA 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’s
established goal is to review 90% of NDA applications given “Priority” status – where there is evidence that
the proposed product would be a significant improvement in the safety or effectiveness in the treatment,
diagnosis, or prevention of a serious condition – within 6 months, and 90% of applications given “Standard”
status within 10 months, whereupon a review decision is to be made. The FDA, however, may not approve a
drug within these established goals, and its review goals are subject to change from time to time. The FDA
reviews an NDA to determine, among other things, whether a product is safe and effective 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, 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 also may
refer the NDA 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 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
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 FDA will issue a complete response
letter if the agency decides not to approve the NDA in its present form. The complete response letter usually
describes all of the specific deficiencies that the FDA identified in the NDA 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,
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 approval and may require
testing and surveillance programs to monitor the safety of approved products that have been
commercialized. The FDA also may conclude that an NDA may only be approved with a REMS designed to
mitigate risks through, for example, a medication guide, physician communication plan, or other elements to
assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.
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Post-Approval Requirements
Any products for which we receive FDA approval would be 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. 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 product candidates and any future product
candidates we may develop. 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 if compliance with regulatory requirements is not
maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product may result in restrictions on the product’s marketing 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 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 consent decrees, or civil or criminal penalties, or may lead to voluntary product recalls.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA approval of the use of our product
candidates, or any future product candidates we may develop, some of our U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term
of up to five years as compensation for patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the remaining term of a patent beyond a
total of 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 plus the time between the
submission date of an NDA and the approval of that application, except that this review period is reduced by
any time during which the applicant failed to exercise due diligence. Only one patent applicable to an
approved product is eligible for the extension and the application for the extension must be submitted prior
to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the
application for any patent term extension or restoration. In the future, if available, we intend to apply for
restorations of patent term for some of our currently owned patents beyond their current expiration dates,
depending on the expected length of the clinical trials and other factors involved in the filing of the relevant
NDA; however, any such extension may not be granted to us.
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Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain
applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the
first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the
FDA has not previously approved any other new drug containing the same active moiety, which is the
molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may
not accept for review an 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 of
reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to
demonstrate safety and effectiveness.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and
disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information
related to the product, patient population, phase of investigation, study sites and investigators, and other
aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to
disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be
delayed 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 U.S., 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, or formulary,
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.
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 product
candidates, or any future product candidates we may develop, 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, requirements for substitution of generic products for branded prescription
drugs, and increased transparency around drug pricing practices. For example, the Affordable Care Act
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. There also has been increased
public and governmental scrutiny of the cost of drugs and drug pricing strategies, including by the U.S.
Senate and federal and state prosecutors. In May 2018, former President Trump released the Blueprint
which, along with related drug pricing measures proposed since the Blueprint, could cause significant
operational and reimbursement changes for the pharmaceutical industry. Although a number of these and
other proposed measures will require authorization through additional legislation to become effective,
Congress and the Biden administration have each indicated that they will continue to seek new legislative
and/or administrative measures to control drug costs. For example, the Inflation Reduction Act of 2022,
enacted on August 16, 2022, seeks to reduce prescription drug costs by, among other provisions, allowing
Medicare to negotiate prices for certain high-cost prescription drugs in Medicare Parts B and D, imposing an
excise tax on pharmaceutical manufacturers that refuse to negotiate pricing with Medicare, requiring
inflation rebates to limit annual drug price increases in Medicare, and redesigning the Medicare Part D
formula. Adoption of government controls and measures, and tightening of restrictive policies in jurisdictions
with existing controls and measures, could limit payments for pharmaceuticals including our product
candidates, if any achieve approval.
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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, the emphasis on cost containment measures in the U.S. has increased and we expect will continue
to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates
also 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:
● 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;
● federal civil and criminal false claims laws, false statement 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;
● HIPAA, which imposes federal criminal and civil liability for executing a scheme to defraud any
healthcare benefit program and making false statements relating to healthcare matters;
● the federal transparency laws, including the federal Physician Payments Sunshine Act, which is
part of the Affordable Care Act, that requires applicable manufacturers of covered drugs to
disclose payments and other transfers of value provided to physicians and teaching hospitals and
physician ownership and investment interests;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act
and its implementing regulations, also imposes certain requirements relating to the privacy,
security and transmission of individually identifiable health information; and
● state law equivalents of each of the above federal laws, such as anti-kickback and false claims
laws which may apply to items or services reimbursed by any third-party payor, including
commercial insurers, state laws that require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines, 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 are not preempted by HIPAA, thus complicating compliance efforts.
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The Affordable Care Act 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 Affordable Care Act provides 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 or the civil monetary penalties statute. These and similar laws may be
subject to further amendment or reinterpretation, and implementing regulations may be revised or
reinterpreted, in ways that may significantly affect our business. For example, in November 2020 the U.S.
Department of Health and Human Services issued rules that amended the regulations to the federal Anti-
Kickback Statute; however, implementation of these rules has been and may continue to be affected by
subsequent legislative and regulatory action or litigation delaying or challenging these rules. 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.
Although we would not submit claims directly to payors, manufacturers can be held liable under the
federal False Claims Act and other healthcare 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, will be subject to scrutiny under the False Claims Act. Penalties
for a False Claims Act violation include three times the actual damages sustained by the government, plus
mandatory civil penalties, and the potential for exclusion from participation in federal healthcare programs.
The applicable civil penalties are subject to an annual increase based on inflation; effective February 12,
2024, the penalties are between $13,946 and $27,894 for each separate false claim. In addition, 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. Further, 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.
Patient Protection and the Affordable Care Act
The Affordable Care Act, enacted in March 2010, includes measures that have or will significantly
change the way health care is financed in the U.S. by both governmental and private insurers. Among the
provisions of the Affordable Care Act of greatest importance to the pharmaceutical industry are the
following:
● 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 Affordable Care Act increased
pharmaceutical manufacturers’ rebate liability on most branded prescription drugs from 15.1% of
the average manufacturer price to 23.1% of the average manufacturer price, added a new rebate
calculation for line extensions of solid oral dosage forms of branded products, and modified the
statutory definition of average manufacturer price. The Affordable Care Act also expanded the
universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical
manufacturers to pay rebates on Medicaid managed care utilization and expanding the population
potentially eligible for Medicaid drug benefits.
● 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
Affordable Care Act expanded the types of entities eligible to receive discounted 340B pricing.
● The Affordable Care Act 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”).
● The Affordable Care Act 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 does not apply to
sales of certain products approved exclusively for orphan indications.
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In addition to these provisions, the Affordable Care Act established a number of bodies whose work
may have a future impact on the market for certain pharmaceutical products. These include the Patient-
Centered Outcomes Research Institute, established to oversee, identify priorities in, and conduct
comparative clinical effectiveness research and the Center for Medicare and Medicaid Innovation within the
Centers for Medicare and Medicaid Services, to test innovative payment and service delivery models to lower
Medicare and Medicaid spending.
The Affordable Care Act has been subject to challenges and numerous ongoing efforts to repeal or
amend the Act in whole or in part. Since the November 2016 U.S. election, the U.S. Congress, as well as the
administration of former President Trump, have made numerous efforts to repeal or amend the Affordable
Care Act in whole or in part. For example, the Tax Cuts and Jobs Act, which former President Trump signed
into law in December 2017, repealed the Affordable Care Act’s individual health insurance mandate, which is
considered a key component of the Affordable Care Act. In addition, in December 2018, the U.S. District
Court for the Northern District of Texas ruled (i) that the individual mandate was unconstitutional as a result
of the associated tax penalty being repealed by Congress as part of the Tax Act; and (ii) the individual
mandate is not severable from the rest of the Affordable Care Act, as a result the entire Affordable Care Act
is invalid. On June 17, 2021, the U.S. Supreme Court held that state and individual plaintiffs did not have
standing to challenge the individual mandate provision of the ACA; in so holding, the Supreme Court did not
consider larger constitutional questions about the validity of this provision or the validity of the ACA in its
entirety. Another case challenging the ACA’s requirement that private insurers cover certain preventative
services is currently pending before the same U.S. District Court Judge in the Northern District of Texas who
ruled against the individual mandate in 2018. In September 2022, the judge held that the ACA requirement
to cover certain preventative services violated the U.S. Constitution and set a schedule for additional briefing
regarding the scope of the remedy. That briefing was completed in January 2023. In March 2023, the judge
struck down the requirement with immediate nationwide effect by ruling, in part, that members of a panel
charged under the ACA with recommending preventative services coverage had been appointed in an
unconstitutional manner. Parties on both sides of the lawsuit have appealed this ruling, and in June 2023 the
U.S. Court of Appeals for the Fifth Circuit approved an agreement by the parties on a stay of the lower
court’s ruling pending the appeal. A panel of the Fifth Circuit heard oral arguments in March 2024, and it is
unclear when or how the court will rule. It is unclear how this or any potential future litigation and other
efforts to repeal and replace the ACA will impact the ACA. Thus, the full impact of the Affordable Care Act,
or any law replacing elements of it, on our business remains unclear. These and other laws may result in
additional reductions in healthcare funding, which could have a material adverse effect on customers for our
product candidates, if we gain approval for any of them. Although we cannot predict the full effect on our
business of the implementation of existing legislation or the enactment of additional legislation pursuant to
healthcare and other legislative reform, we believe that legislation or regulations that would reduce
reimbursement for, or restrict coverage of, our products could adversely affect how much or under what
circumstances healthcare providers will prescribe or administer our product candidates if we gain approval
for any of them.
Chinese Regulation
In China, we operate in an increasingly complex legal and regulatory environment. We are subject to a
variety of Chinese laws, rules and regulations affecting many aspects of our business. This section
summarizes the principal Chinese laws, rules and regulations relevant to our business and operations.
General Regulations on China Food and Drug Administration
In China, the NMPA monitors and supervises the administration of pharmaceutical products, as well as
medical devices and equipment. The NMPA’s primary responsibility includes evaluating, registering and
approving new drugs, generic drugs, 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 cosmetics,
pharmaceuticals and medical equipment; 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.
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The PRC Drug Administration Law, promulgated by the Standing Committee of the National People’s
Congress in 1984, as amended in 2001, 2013, 2015 and 2019, respectively, and the Implementing Measures
of the PRC Drug Administration Law promulgated by the State Council in 2002, as amended in 2016 and
2019, respectively, 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 to strengthen the supervision and administration of
pharmaceutical products and to ensure the quality and safety of those products for human use. The revised
PRC Drug Administration Law applies to the development, production, trade, application, supervision and
administration activities of pharmaceutical products. It regulates and prescribes a framework for the
administration of pharmaceutical preparations of medical institutions and for the development, research,
manufacturing, distribution, packaging, pricing and advertisement of pharmaceutical products. The most
recently revised PRC Drug Administration Law incorporates the drug marketing authorization holder system,
reiterates that several kinds of drugs may be approved conditionally or enjoy priority to the drug marketing
examination and approval procedures, applies a so-called implied license system for clinical trial approval
and cancels several certification requirements. The revised Implementing Measures of the PRC Drug
Administration Law provide detailed implementing regulations for the revised PRC Drug Administration Law.
Under these regulations, we need to follow related regulations for nonclinical research, clinical trials
and production of new drugs.
Good Laboratories Practice Certification for Nonclinical Research
To improve the quality of animal research, the CFDA promulgated the Administrative Measures for
Good Laboratories Practice of Nonclinical Laboratory in 2003, which was amended in July 2017, and began
to conduct the certification program of the GLP. In April 2007, the CFDA issued the Circular on Measures for
Certification of Good Laboratory Practice, or CFDA Circular 214, which was amended on January 19, 2023,
providing that the NMPA is responsible for certification of nonclinical research institutions. Under CFDA
Circular 214, the NMPA will approve and issue GLP certificates to the applicants that meet the GLP
requirements, and the GLP certificates are valid for 5 years.
Approval for Clinical Trials and Production of New Drugs
According to the Provisions for Drug Registration promulgated by the State Administration for Market
Regulation in 2020, Circular on Chemical Drug Registration Classification and Requirements on Application
Materials by the NMPA in June 2020, Drug Administration Law promulgated and amended by the Standing
Committee of the National People’s Congress in 2019, 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.
Good Clinical Trial Practice
To improve the quality of clinical trials, the CFDA promulgated the Administration Rules of Quality of
Drug Clinical Practice in August 2003. According to the Administration Rules of Quality of Drug Clinical
Practice, clinical trial means systematical investigation of drugs conducted on human subjects (patients or
healthy volunteers) to prove or reveal the function, adverse reactions and/or absorption, distribution,
metabolism and excretion of the drug being investigated. The purpose of a clinical trial is to determine the
therapeutic efficacy and safety of the drug.
In April 2020, the NMPA and the National Health Commission promulgated the revised Administration
Rules of Quality of Drug Clinical Practice, which became effective in July 2020, in order to further ensure the
quality of clinical trials and the safety of human subjects. The revised Administration Rules of Quality of Drug
Clinical Practice provides comprehensive and substantive requirements on the design and conduct of clinical
trials in China. In particular, the revised Administration Rules of Quality of Drug Clinical Practice enhances
the protection for study subjects and tightens the control over bio-samples collected under clinical trials.
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The revised Administration Rules of Quality of Drug Clinical Practice also set out the qualifications and
requirements for the investigators and centers participating in clinical trial, including: (i) professional
certification at a clinical trial center, professional knowledge, training experience and capability of clinical
trial, and being able to provide the latest resume and relevant qualification documents per request; (ii) being
familiar with the trial protocol, investigator’s brochure and relevant information of the trial drug provided by
the applicant; (iii) being familiar with and complying with the revised Administration Rules of Quality of Drug
Clinical Practice and relevant laws and regulations relating to clinical trials; (iv) keeping a copy of the
authorization form on work allocation signed by investigators; (v) investigators and clinical trial centers shall
accept supervision and inspection organized by the applicant and inspection by the drug regulatory
authorities; and (vi) in the case of investigators and clinical trial centers authorizing other individual or
institution to undertake certain responsibilities and functions relating to clinical trial, they shall ensure such
individual or institution are qualified and establish complete procedures to ensure the responsibilities and
functions are fully performed and generate reliable data.
Clinical Trial Application
Upon completion of its nonclinical research, a research institution must apply for approval of a clinical
trial application before conducting clinical trials.
On July 24, 2018, the NMPA issued the Announcement on Adjusting the Approval Process for Drug
Clinical Trials, which provides that clinical trials shall be deemed to have been approved if the application is
filed with the CDE and there is no negative or questionable comment received from the CDE in 60 working
days from the date that the application is accepted and the application fee is paid.
On December 1, 2019, the newly revised PRC Drug Administration Law came into effect, which
adopted the above-mentioned implied license system into state legislative level. It provides that the medical
products administrative department under the State Council shall, within 60 working days from the date of
acceptance of the application for clinical trial, decide whether to approve the application and notify the
clinical trial applicant of the decision; if it fails to notify the clinical trial applicant within the aforesaid time
limit, it shall be deemed that the application is approved.
On January 22, 2020, the revised Provisions for Drug Registration were issued by the State
Administration for Market Regulation, or SAMR, which came into effect on July 1, 2020. The provisions
provide that the CDE shall decide whether to approve an application for clinical trial within 60 working days
upon acceptance. If the applicant is not notified within such time limit, it shall be deemed that the
application is approved.
Special Examination and Approval for Domestic Category 1 Pharmaceutical Products
Domestic Category 1 New Drugs are Eligible for Preferred Procedures
According to Provisions for Drug Registration promulgated by the SAMR in 2020, drugs fall into one of
three categories, namely chemical drugs, biological product or traditional Chinese medicine. And according
to the Circular on the Chemical Drug Registration Classification and Requirements on Application Materials,
which was promulgated by the NMPA on June 29, 2020 and came into effect on July 1, 2020, chemical drugs
are classified into 5 categories. A Category 1 drug is a new drug that has never been marketed in any
country. As of the date of this annual report on Form 20-F, our NDA for Plinabulin in the CIN prevention
indication submitted to the NMPA has been accepted with Category 1 designation.
Pursuant to the revised Provisions for Drug Registration, during the clinical trial for new drugs used
for severe life-threatening diseases or diseases which seriously impact the quality of life and for which there
is no other effective treatment approach or there is adequate evidence to prove that said new drugs have
obvious clinical advantages over existing treatment approach(es), the applicant may request for application
of breakthrough therapeutic drug procedure. The clinical trials under the breakthrough therapeutic drug
procedure may enjoy the following priority: (i) the applicant may submit an application for communication to
the CDE during the key phase of the clinical trial of drugs, and the CDE shall arrange for review officers to
communicate with the applicant; (ii) the applicant may submit research materials in phases to the CDE; and
(iii) the CDE shall, based on the available research materials, give opinions or recommendations pertaining
to the next step of the research scheme and feedback to the applicant. On December 10, 2020, the NMPA
issued the revised Administration Measures for the Communication of Drug Development and Technical
Review which stipulated detailed procedural rules of the communication.
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Pursuant to the revised Provisions for Drug Registration, the following drugs with significant clinical
value may enjoy a priority procedure for drug marketing authorization: (i) urgently needed clinical drugs and
innovative drugs and improved new drugs developed for prevention and treatment of major infectious and
orphan diseases; (ii) new varieties, dosage forms and specifications of children’s medicines that conform to
the physiological characteristics of children; (iii) urgently needed vaccines and innovative vaccines for
disease prevention and control; (iv) pharmaceuticals under breakthrough therapeutic drug procedures; (v)
drugs meeting the requirements of conditional approvals; and (vi) other circumstances as further specified
by the NMPA. The drug registration applicant may submit an application for priority review and approval for
their drug applications simultaneously with filing the drug marketing application upon confirmation with the
CDE beforehand. The drug marketing review time limit is stipulated as 130 working days for the drug
applications, which enjoy a priority procedure for drug marketing authorization. On July 7, 2020, the NMPA
issued Protocol for the Review of Breakthrough Therapeutic Drugs (Trial), Protocol for Review and Approval
of Conditional Approval of Drugs Marketing Applications (Trial) as well as Protocol for Prioritized Review
and Approval of Drugs Marketing Certificates (Trial), which stipulated detailed procedural rules for the
breakthrough therapeutic drug procedure and priority procedure, procedural rules for drugs that meet the
conditions for conditional approval for marketing, and procedures and detailed conditions of the priority
review and approval, respectively.
Plinabulin has been granted Breakthrough Therapy Designation by the NMPA, may enable us to pursue
a more expedited path to approval in China and bring therapies to patients more quickly.
The Advantages of Category 1 New Drugs over Category 5 Drugs
Prior to the enactment of Reform Plan, Category 3 drugs are drugs which have already been marketed
abroad by multinational companies, but are not yet approved in China, and Category 3 drugs now are
reclassified as Category 5 according to the Reform Plan. NMPA issued the Circular on Chemical Drug
Registration Classification and Requirements on Application Materials in June 2020 (effective in July 2020),
which reaffirmed the principles of the classification of chemical drugs set forth by the Reform Plan, and
made minor adjustments to the subclassifications of Category 5. According to such rule, Category 5.1 are
innovative chemical drugs and improved new chemical drugs while Category 5.2 are generic chemical drugs,
all of which shall have been already marketed abroad but not yet approved in China. Compared with the
application for Category 5 drugs, the application for Category 1 domestic new drugs has a more straight-
forward registration pathway. According to Provisions for Drug Registration and the Administration
Measures for the Communication of Drug Development and Technical Review issued by NMPA on December
10, 2020, where breakthrough therapeutic drug procedure and priority procedure is granted, the application
for clinical trial and marketing will be handled with priority and with enhanced communication with the
CDE.
In comparison, according to Provisions for Drug Registration promulgated by the SAMR in 2020, the
registration pathway for Category 5 drugs is complicated and evolving. Category 5 drug applications may
only be submitted after a company obtains an NDA approval and receives the CPP granted by a major
regulatory authority, such as the FDA or the EMA. Multinational companies may need to apply for
conducting multi-regional clinical trials, which means that companies do not have the flexibility to design the
clinical trials to fit the Chinese patients and standard-of-care. Moreover, a requirement to further conduct
local clinical trials can potentially delay market access by several years from its international NDA approval.
Further, according to Opinions on Reforming the Review and Approval Process for Drugs and Medical
Devices issued by the State Council in August 2015, which is a guideline for future legislation and NMPA
examination, the drugs which have already been marketed abroad may no longer be categorized as new
drugs under Chinese law in the future, and therefore may not be able to enjoy any preferential treatment for
new drugs. In order to implement this guideline, in March 2016, the CFDA issued the Reform Plan, which
changed the registration category of chemical medicine stipulated in Provisions for Drug Registration.
According to the Interpretation of Reform Plan issued by CFDA, a new drug refers to a drug that has never
been marketed in China or abroad. And according to Provisions for Drug Registration promulgated by the
SAMR in 2020 and the Circular on the Chemical Drug Registration Classification and Requirements on
Application Materials which was promulgated by the NMPA on June 29, 2020 and came into effect on July 1,
2020, the interpretation on new drugs was also accepted.
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Our product candidates are all new therapeutic agents and we expect that all of our current product
candidates fall under the Category 1 application process. Although the regulatory framework previously
required approval of separate clinical trial applications prior to initiating each phase of clinical development,
in December 2015, the CFDA approved our clinical trial application including all phases of clinical trials for
Plinabulin as a direct anti-cancer agent in NSCLC when combined with docetaxel and for the prevention of
CIN.
Changes to the Review and Approval Process
In August 2015, the State Council issued Opinions on Reforming the Review and Approval Process for
Drugs and Medical Devices, providing several potential policy changes that could benefit the pharmaceutical
industry:
● A plan to accelerate innovative drug approval with a special review and approval process, with a
focus on areas of high unmet medical needs, including innovative drugs for HIV, malignant
tumors, serious infectious diseases, orphan diseases; drugs sponsored by national science and
technology major projects and national major research and development plans; innovative drugs
to be manufactured locally in China; children’s drugs; drugs using advanced formulation
technology, using innovative treatment methods, or having distinctive clinical benefits;
● A plan to adopt a policy which would allow companies to act as the marketing authorization
holder and to hire contract manufacturing organizations to produce drug products;
● A plan to improve the review and approval of clinical trials, and to allow companies to conduct
clinical trials in China at the same time as they are doing so in other countries and encourage
domestic clinical trial institutions 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:
● 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;
● A fast-track drug registration or clinical trial approval pathway will be available for the following
applications: (1) registration of innovative new drugs treating and preventing HIV, malignant
tumors, serious infectious diseases and orphan diseases, etc.; (2) registration of pediatric drugs;
(3) registration of geriatric drugs that treat China-prevalent geriatric diseases; (4) registration of
drugs sponsored by national science and technology major projects and national major research
and development plans ; (5) registration for drugs with urgent clinical need 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 U.S. or European
Union, or concurrent drug registration applications for drugs which have applied for marketing
authorization and passed onsite inspections in the U.S. or European Union and are manufactured
with 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 December 2017, the CFDA released the Opinions on Encouraging Drug Innovations and Implying
the Prioritized Review and Approval System, which further stipulated the scope of priority review and
approval. The following drugs will be entitled to priority review and approval:
● Drugs with obvious clinical benefits if any of the following circumstances applies: (1) registration
applications for innovative drugs that are not marketed in China or abroad; (2) registration
applications for innovative drugs to be manufactured locally in China; (3) registration applications
for drugs using advanced formulation technology, using innovative treatment methods, or having
distinctive clinical benefits; (4) clinical trial applications for patented drugs with patent to be
expired in three years and manufacturing applications for drugs with patent to be expired in one
year; (5) concurrent applications for new drug clinical trials which are already approved in the
U.S. or European Union, or concurrent drug registration applications for drugs which have
applied for marketing authorization and passed onsite inspections in the U.S. or European Union
and are manufactured using the same production line in China; (6) registration applications for
traditional Chinese drugs (including ethnic drugs) with clear clinical directions in the prevention
and treatment of severe diseases; (7) registration applications for new drugs sponsored by
national science and technology major projects, national major research and development plans
and of which clinical trials were conducted by national clinical medical research centers and
recognized by the administration department of such centers.
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● Drugs with obvious clinical benefits in the prevention and treatment of following diseases: (1)
HIV; (2) pulmonary tuberculosis; (3) viral hepatitis; (4) orphan diseases; (5) malignant tumor; (6)
pediatric drugs; (7) geriatric diseases.
On July 7, 2020, the NMPA issued Protocol for the Review of Breakthrough Therapeutic Drugs (Trial),
Protocol for Review and Approval of Conditional Approval of Drugs Marketing Applications (Trial) as well as
Protocol for Prioritized Review and Approval of Drugs Marketing Certificates (Trial), which replaced the
Opinions on Encouraging Drug Innovations and Implying the Prioritized Review and Approval System.
In November 2015, the Standing Committee of the National People’s Congress issued the Decision on
Authorizing the State Council to Conduct the Pilot Program of the System of the Marketing Authorization
Holder in Several Regions and the Relevant Issues, which authorized the State Council to conduct the pilot
program of the system of the holders of drug marketing licenses in Beijing, Tianjin, Hebei, Shanghai, Jiangsu,
Zhejiang, Fujian, Shandong, Guangdong and Sichuan, and authorized the State Council to conduct reforms of
registration category for drugs. In May 2016, the General Office of the State Council issued Circular 41,
which signals that the drug marketing authorization holder system is finally put into implementation.
Circular 41 allows institutions of drugs research and development and research specialist staff in Beijing,
Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong and Sichuan, to act as the
applicant of drugs registration and to submit applications for drug clinical trials and drug marketing. For
those drugs newly registered after the effective date of Circular 41, applicants are allowed to submit
applications for becoming a drug marketing authorization holder at the same time as they submit
applications for drug clinical trials or drug marketing. In July 2016, the CFDA issued Circular on Conducting
Works regarding the Pilot Program for the Drug Marketing Authorization Holder System, which provides
further details on the application procedures stipulated in Circular 41. In August 2017, the CFDA issued the
Circular on the Matters relating to Promotion of the Pilot Program for the Drug Marketing Authorization
Holder System. This notice was issued, among other things, to advance implementation of a system pilot
program for holders of drug marketing authorization, to delineate the rights and obligations of such holders,
to enhance the quality control system for the drug manufacturing process and to improve the responsibility
system over drug manufacturing and marketing supply chains. In October 2018, the Standing Committee of
the National People’s Congress issued the Decisions on Extending the Term of the Pilot Program for the
Drug Marketing Authorization Holder System in Several Regions, which extended the expiration date of the
pilot program from November 4, 2018 to November 4, 2019.
On December 1, 2019, the newly revised PRC Drug Administration Law came into effect, which
formally adopts and signals the nationwide implementation of the drug marketing authorization holder
system. In accordance with the PRC Drug Administration Law, an enterprise or a drug research and
development institution is permitted to act as the marketing authorization holder and to engage
pharmaceutical manufacturers to produce drug products. Moreover, it provides that the drug marketing
authorization holder shall establish a drug quality assurance system and shall be responsible for the non-
clinical research, the clinical trials, the drug production and operation, the post-marketing research and the
adverse reaction monitoring of the drugs, etc.
Furthermore, the PRC Drug Administration Law provides that priority in the drug registration approval
process shall be given to drugs in short clinical supply and new drugs developed for the prevention and
treatment of major infectious diseases, orphan diseases and other diseases.
On January 22, 2020, the revised Provisions for Drug Registration were issued by the SAMR, which
came into effect on July 1, 2020. Pursuant to the revised Provisions for Drug Registration, the following
drugs with significant clinical value may enjoy a priority procedure for drug marketing authorization: (1)
urgently needed clinical drugs and innovative drugs and improved new drugs developed for prevention and
treatment of major infectious and orphan diseases; (2) new varieties, dosage forms and specifications of
children’s medicines that conform to the physiological characteristics of children; (3) urgently needed
vaccines and innovative vaccines for disease prevention and control; (4) pharmaceuticals under
breakthrough therapeutic drug procedures; (5) drugs meeting the requirements of conditional approvals;
and (6) other circumstances as further specified by the NMPA. The drug registration applicant may submit
an application for priority review and approval for their drug applications simultaneously with filing the drug
marketing application upon confirmation with the CDE beforehand. The drug marketing review time limit is
stipulated as 130 working days for the drug applications, which enjoy a priority procedure for drug
marketing authorization. On July 7, 2020, the NMPA issued Protocol for Prioritized Review and Approval of
Drugs Marketing Certificates (Trial), which stipulated procedures and detailed conditions of the priority
review and approval, while replacing the Opinions on Encouraging Drug Innovations and Implying the
Prioritized Review and Approval System by the CFDA.
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On March 11, 2021, the National People’s Congress released the Fourteenth Five-Year Plan, which
provides that the government will improve the accelerated review and approval mechanism for innovative
drugs, vaccines and medical devices, enhance the review and approval of drugs and medical devices for the
treatment of orphan diseases and diseases with urgent clinical needs, and promote the domestic marketing
of new drugs and medical devices marketed abroad with urgent clinical needs.
On April 27, 2021, the General Office of the State Council issued the Implementing Opinions on
Comprehensively Strengthening the Building of Drug Regulation Capability. It provides that the ability of the
authorities on technical review shall be improved. Focusing on the strategic needs of coordinated regional
development, existing regulatory resources shall be integrated, the establishment of inspection institutions
for traditional Chinese medicine and biological products (vaccines) shall be optimized, and professional and
technical abilities shall be strengthened. The coordinated working mechanism between research and review
of drugs and medical devices which are innovative or with urgent clinical needs shall be improved and the
application of new technologies and research and development of new products shall be encouraged. The
authority shall give full play to the role of expert advisory committees in reviewing and making decisions,
and disclose expert opinions, evaluation results and evaluation reports in accordance with the laws.
Communication methods and channels shall be enhanced, communication frequency of innovative medicine
and medical device conferences shall be increased, and technical guidance and services for applicants shall
be strengthened. The system for importing overseas marketed drugs with urgent clinical needs shall also be
improved.
Non-Inferiority Standard
In China, a drug may receive regulatory approval without showing superiority in its primary endpoint.
Rather, a drug may be approved for use if it shows non-inferiority in its primary endpoint and superiority in
one of its secondary endpoints.
Accelerated or Conditional Approval
In October 2017, the General Office of the Central Committee of the Communist Party of China and the
State Council issued the Opinions on Deepening the Reform of the Review and Approval System and
Inspiring Innovation of Drugs and Medical Devices. This opinion provides that, among other things:
● the review and approval process should be accelerated for drugs or medical devices that are
urgently in need for clinical practice;
● for drugs or medical devices that are (i) for treatment of severe and life threatening diseases that
cannot be cured in an effective manner, or (ii) urgently in need for public health, if early and mid-
term indicators in clinical trials for the aforementioned drugs or medical devices show efficacy
and potential clinical value, the marketing of these drugs and medical devices may be approved
conditionally, and companies who desire to market such drugs or medical devices shall develop
risk control plans and conduct research according to applicable requirements;
● extend the protection term for patents related to certain new drugs in trials, given that clinical
trials and the review and approval process may cause delay in bringing new drugs to the market;
and
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● clinical trial data obtained from international multi-centers may be used to register drugs and
medical devices in China if such data meet applicable requirements for the registration of drugs
and medical devices in China.
On November 19, 2020, the Announcement on the Technical Guidance Principles for Conditional
Approval of Drugs (Trial) was issued by the CDE and came into effect on the same day. This Announcement
stipulates the definition of severe and life-threatening diseases and drugs in need in public health and
requires applicants to discuss and reach consensus with the CDE on the research and other contents
promised to be completed after the marketing, including without limitation, submitting post-marketing
clinical research plans, the anticipated completion date thereof, the submission date of the clinical research
report and the post-marketing risk control plans, etc.
On December 1, 2019, the newly revised PRC Drug Administration Law came into effect, which
reiterates that drugs (i) for treatment of severe and life-threatening diseases that cannot be cured in an
effective manner or (ii) urgently in need to improve public health, may be approved conditionally, provided
that indicators in clinical trials for these drugs show efficacy and potential clinical value. With regard to a
drug that has been approved conditionally, the market authorization holder of the drug shall take
corresponding risk management measures and complete the relevant research as required within the
prescribed time limit. If the research fails to be completed as required within the prescribed time limit or
fails to prove that the benefits outweigh the risks, then, at the worst, the drug marketing license may be
revoked.
On January 22, 2020, the revised Provisions for Drug Registration were issued by the SAMR, which
came into effect on July 1, 2020. Such revised Provisions of Drug Registration adopt the aforesaid conditional
approval mechanism and further provide that, in addition to the aforementioned two categories of drugs,
vaccines urgently needed in response to major public health emergencies or other vaccines urgently needed
as determined by the National Health Commission of the PRC, of which the benefits outweigh the risks upon
assessment, may also be approved conditionally. After a drug has been approved conditionally, the market
authorization holder shall take corresponding risk management measures, complete the clinical trial and
other relevant studies as required within the prescribed time limit, and apply for the registration for the drug
in the form of a supplementary application.
On October 17, 2020, the revised Patent Law of the PRC was issued by the Standing Committee of the
National People’s Congress, which came into effect on June 1, 2021. Such revised Patent Law of the PRC
stipulates that in order to compensate for the time consumed in the examination and approval of new drugs
for marketing, the patent administration department shall, at the request of the patentee, grant
compensation for the term of the patent right for invention patents related to new drugs that have been
approved for marketing in China.
On July 7, 2020, the NMPA issued Protocol for Review and Approval of Conditional Approval of Drugs
Marketing Applications (Trial) which stipulated procedures and detailed conditions of the conditional
approval. On August 24, 2023, the NMPA issued the revised draft Protocol for Review and Approval of
Conditional Approval of Drugs Marketing Applications (Trial) and the policy interpretations for such protocol
for public comments. The draft protocol and its policy interpretations provide for strengthened post-
marketing supervisions for conditionally approved drugs, and state that if a drug has been conditionally
approved, clinical trials application targeting at conditional approval of similar drugs with the same
mechanism, target, or indications in principle will not be approved. The NMPA solicited comments until
September 25, 2023, and as of the date of this annual report, there is no timeline for its enactment.
On March 12, 2021, the National People’s Congress issued the Fourteenth Five-Year Plan, which
provides that the accelerated evaluation and approval mechanism shall be improved for innovative drugs,
vaccines, medical devices. The evaluation and approval of drugs and medical devices with urgent clinical
needs or for orphan diseases shall be advanced. The import of overseas on market new drugs and medical
devices with urgent clinical needs shall also be facilitated.
Four Phases of Clinical Trials
A clinical trial 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, which provides evidence and
support for the design of Phase 3 clinical trial and settles the administrative dose regimen. Phase 3 refers to
clinical trials undertaken to confirm the therapeutic effectiveness of a drug. Phase 3 is used to further verify
the drug’s therapeutic effectiveness and safety on patients with target indication(s), to evaluate overall
benefit-risk relationships of the drug, and ultimately to provide sufficient evidence for the review of drug
registration application. Phase 4 refers to a new drug’s post-marketing study to assess therapeutic
effectiveness and adverse reactions when the drug is widely used, to evaluate overall benefit-risk
relationships of the drug when used among general population or specific groups, and to adjust the
administration dose, etc. On July 1, 2020, the revised Provisions for Drug Registration came into effect,
which in the latest version removed the definitions of the four Phases.
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Drug Clinical Practice Certification
To improve the quality of clinical trial, the CFDA promulgated the Administration Rules of Quality of
Drug Clinical Practice in August 2003, which was further revised by the NMPA and the National Health
Commission of the PRC, formerly known as the Ministry of Health or the National Health and Family
Planning Commission, on April 23, 2020. The revised Administration Rules of Quality of Drug Clinical
Practice came into effect on July 1, 2020.
In February 2004, the CFDA issued the Circular on Measures for Certification of Drug Clinical Practice
Institutions (trial), providing that the NMPA is responsible for certification of clinical trial institutions, and
that the National Health Commission of the PRC is responsible for relevant things in respect of certification
of clinical trial institutions within its duties. Under the Circular on Measures for Certification of Drug Clinical
Practice Institutions (trial), the NMPA and the National Health Commission of the PRC decide whether an
institution is qualified for undertaking pharmaceutical clinical trial upon the evaluation of the institution’s
organizational administration, its research personnel, its equipment and facilities, its management system
and its standard operational rules. If all requirements are met, a GCP Certification will be issued by the
NMPA and the result will be published on the NMPA’s website.
On December 1, 2019, the newly revised PRC Drug Administration Law came into effect, which
provides that instead of the aforesaid certification, the drug clinical trial institutions are now subject to a
record-filing system. In accordance therewith, the NMPA and the National Health Commission of the PRC
jointly issued the Announcement on the Release of Regulations for Drug Clinical Trial Institutions on
November 29, 2019, which changes the GCP certification system for drug clinical trial institutions to a filing
system and overrides the Circular on Measures for Certification of Drug Clinical Practice Institutions (trial).
A clinical trial institution shall, by itself or appoint third parties, to evaluate whether the institution is
qualified for undertaking pharmaceutical clinical trial. If such evaluation determines that the institution is
qualified then a filing is required to the newly established filing system run by the NMPA.
New Drug Application
When Phase 1, 2 and 3 of the clinical trials have been completed, the applicant must apply to the
NMPA for approval of an NDA. The NMPA then determines whether to approve the application according to
the comprehensive evaluation opinion provided by the CDE of the NMPA. We have obtained approval of our
clinical trial application for Plinabulin as a direct anti-cancer agent in NSCLC when combined with docetaxel
in China, and we initiated clinical trials in June 2016. We must obtain approval of an NDA before our drugs
can be manufactured and sold in the Chinese market.
Good Manufacturing Practice
All facilities and techniques used in the manufacture of products for clinical use or for sale in China
must be operated in conformity with cGMP guidelines as established by the NMPA. Failure to comply with
applicable requirements could result in the termination of manufacturing and significant fines. The NMPA
issued the Good Manufacturing Practice for Drugs Used in Clinical Trial (Exposure Draft for Public
Comment) on July 2018, which provides the requirements on quality management, personnel, facilities and
equipment, packaging and certain other issues relating to drugs used in clinical trials. As of the date of this
annual report, there is no timetable as to the enactment of the exposure draft.
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Animal Test Permits
According to Regulations for the Administration of Affairs concerning Experimental Animals approved
by the State Council and promulgated by the State Science and Technology Commission in November 1988
and amended in January 2011, July 2013 and March 2017, and Administrative Measures on the Certificate
for Animal Experimentation (Trial) promulgated by the MOST and other regulatory authorities in December
2001, performing experiments on animals requires a Certificate for Use of Laboratory Animals. Applicants
must satisfy the following conditions:
● Laboratory animals must be qualified and sourced from institutions that have Certificates for
Production of Laboratory Animals;
● The environment and facilities for the animals’ living and propagating must meet state
requirements;
● The animals’ feed and water must meet state requirements;
● The animals’ feeding and experimentation must be conducted by professionals, specialized and
skilled workers, or other trained personnel;
● The management systems must be effective and efficient; and
● The applicable entity must follow other requirements as stipulated by Chinese laws and
regulations.
International Multi-Center Clinical Trials Regulations
On January 30, 2015, the CFDA promulgated Notice on Issuing the International Multi-Center Clinical
Trial Guidelines (Trial), or the Multi-Center Clinical Trial Guidelines, which took effect as of March 1, 2015,
aiming to provide guidance for the regulation of application, implementation and administration of
international multi-center clinical trials in China. Pursuant to the Multi-Center Clinical Trial Guidelines,
international multi-center clinical trial applicants may simultaneously perform clinical trials in different
centers using the same clinical trial protocol. Where the applicant plans to make use of the data derived from
the international multi-center clinical trials for application to NMPA for approval of an NDA, such
international multi-center clinical trials shall satisfy, in addition to the requirements set forth in the PRC
Drug Administration Law and its implementation regulations, Provisions for Drug Registration and relevant
laws and regulations, the following requirements:
● The applicant shall first conduct an overall evaluation on the global clinical trial data and further
make trend analysis of the Asian and Chinese clinical trial data. In the analysis of Chinese clinical
trial data, the applicant shall consider the representativeness of the research subjects, i.e., the
participating patients;
● The applicant shall analyze whether the amount of Chinese research subjects is sufficient to
assess and adjudicate the safety and effectiveness of the drug under clinical trial, and satisfy the
statistical and relevant legal requirements; and
● The onshore and offshore international multi-centers clinical trial research centers shall be
subject to on-site inspections of competent PRC governmental agencies.
International multi-center clinical trials shall follow international prevailing GCP principles and ethics
requirements. Applications shall ensure the truthfulness, reliability and trustworthiness of clinical trials
results; the researchers shall have the qualification and capability to perform relevant clinical trials; ethics
committee shall continuously review the trials and protect the subjects’ interests, benefits and safety. Before
the performance of the international multi-center clinical trial applicants shall obtain clinical trial approvals
or complete filings pursuant to requirements under the local regulations where clinical trials are conducted,
and register and disclose the information of all major researcher, clinical trial organizations on the NMPA
drug clinical trial information platform.
When using international multi-center clinical trial data to support NDAs in China, applicants shall
submit the completed global clinical trial report, statistical analysis report and database, along with relevant
supporting data in accordance with ICH-CTD (International Conference on Harmonization-Common
Technical Document) content and format requirements; subgroup research results summary and
comparative analysis shall also be conducted concurrently.
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In April 2020, the NMPA and the National Health Commission promulgated the revised Administration
Rules of Quality of Drug Clinical Practice, which came into effect in July 2020. The revised Administration
Rules of Quality of Drug Clinical Practice summarizes the requirements for initiating a multi-center clinical
trial, that is, before initiating a multi-center clinical trial: (i) the applicant shall ensure that all the centers
participating in the clinical trial comply with the trial protocol; (ii) the applicant shall provide each center
with the same trial protocol, and each center shall comply with the same unified evaluation criterion for
clinical trial and laboratory data and the same guidance for case report form; (iii) each center shall use the
same case report form to record the data of each human subject obtained during the trial; (iv) before
initiating a clinical trial, a written document is required to specify the responsibilities of the investigators of
each center; and (v) the applicant shall ensure the communication among the investigators of each center.
Leveraging the clinical trial data derived from international multi-center clinical trials, we may avoid
unnecessary repetitive clinical trials and thus further accelerate the NDA process in China.
Collecting and Using Patients’ Human Genetic Resources and Derived Data
In June 1998, the MOST and the former Ministry of Health jointly established the Interim Measures for
the Administration of Human Genetic Resources in China. In July 2015, the MOST issued the Service Guide
for the Examination and Approval of Sampling, Collecting, Trading, Exporting Human Genetic Resources,
which provides that foreign entities that collect and use patients’ human genetic resources in clinical trials
shall be required to file for an advance approval with the HGRAO through its online system.
In October 2017, the MOST issued the Circular on Optimizing the Administrative Examination and
Approval of Human Genetic Resources, which simplified the approval process for collecting and using human
genetic resources for the purpose of seeking marketing authorization of drugs in China.
In May 2019, the State Council issued the HGR Regulation, which stipulates the approval requirements
pertinent to research collaborations between Chinese and foreign-owned entities. Pursuant to this new rule,
a new filing system (as opposed to the advance approval approach originally in place) is put in place for
international clinical trials using Chinese patients’ biospecimens at clinical study sites without involving the
export of such biospecimens outside of China. A notification filing that specifies the type, quantity and usage
of the biospecimens, among others, with the HGRAO is required before conducting such clinical trials. The
collection, use, and outbound transfer of Chinese patients’ biospecimens in international collaboration for
basic scientific research involving export are still subject to the advance approval of the HGRAO.
In October 2020, the SCNPC promulgated the China Biosecurity Law, which became effective on
April 15, 2021. The China Biosecurity Law reaffirms the regulatory requirements stipulated by the HGR
Regulation while potentially increasing the administrative fines significantly in cases in which foreign
entities are alleged to have collected, preserved or exported Chinese human genetic resources.
In May 2023, the MOST promulgated the Implementing Rules of the Regulation on the Administration
of Human Genetic Resources, which became effective on July 1, 2023. The Implementing Rules of the
Regulation on the Administration of Human Genetic Resources further provide specific requirements on the
collection, preservation, utilization and external provision of China’s human genetic resources.
Data Privacy and Data Protection
China continues to strengthen its regulation of network security, data protection, and personal
information (including personal health information). For example, the PRC Civil Code, which was
promulgated by the National People’s Congress in May 2020 and became effective in January 2021, provides
that the personal information of a natural person shall be protected by the law. Any organization or
individual that needs to obtain personal information of others shall obtain such information legally and
ensure the safety of such information, and shall not illegally collect, use, process or transmit personal
information of others, or illegally purchase or sell, provide or make public personal information of others.
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In November 2016, the SCNPC promulgated the Cyber Security Law, which became effective in June
2017. The Cyber Security Law requires network operators to perform certain functions related to
cybersecurity protection and strengthen the network information management. For instance, under the
Cyber Security Law, network operators of key information infrastructure generally shall, during their
operations in the PRC, store the personal information and important data collected and produced within the
territory of the PRC. When collecting and using personal information, in accordance with the Cyber Security
Law, network operators shall abide by the “lawful, justifiable and necessary” principles. The network
operator shall collect and use personal information by announcing rules for collection and use, expressly
notify the purpose, methods and scope of such collection and use, and obtain the consent of the person
whose personal information is to be collected. The network operator shall neither collect the personal
information unrelated to the services they provide, nor collect or use personal information in violation of the
provisions of laws and administrative regulations or the agreements with such persons, and shall process the
personal information they store in accordance with the provisions of laws and administrative regulations and
agreements reached with such persons. The network operator shall not disclose, tamper with or destroy
personal information that it has collected, or disclose such information to others without prior consent of the
person whose personal information has been collected, unless such information has been processed to
prevent a specific person from being identified and such information from being restored. Each individual is
entitled to require a network operator to delete his or her personal information if he or she finds that
collection and use of such information by such operator violate the laws, administrative regulations or the
agreement by and between such operator and such individual, and is entitled to require any network
operator to make corrections if he or she finds errors in such information collected and stored by such
operator. Such operator shall take measures to delete the information or correct the error. Any individual or
organization may neither acquire personal information by stealing or through other illegal ways, nor illegally
sell or provide personal information to others. On September 12, 2022, the CAC issued the proposed
amendment to the Cyber Security Law for public comment. The amendment included adjusting the types and
ranges of administrative penalties for violations endangering network operation security and strengthening
the responsibility of critical information infrastructure operations. The amendment also seeks to improve the
legal liability systems of network information security and personal information protection.
In July 2018, the National Health Commission promulgated the Measures on Health and Medical Big
Data, which set out the guidelines and principles for standards management, security management and
services management of health and medical big data. Pursuant to the Measures on Health and Medical Big
Data, the healthcare data produced by the PRC citizens in the PRC can be managed and used by the state for
the purposes of the state strategic safety and the benefits of the life and health of the PRC citizens, provided
that the state guarantees the PRC citizens their respective right of information, usage and personal privacy.
On December 28, 2021, the CAC, National Development and Reform Commission, or the NDRC, and
several other administrations jointly promulgated the Cybersecurity Review Measures, which took effect on
February 15, 2022 and replace the Measures for Cybersecurity Review promulgated in April 2020 and
effective in June 2020. According to the Cybersecurity Review Measures, critical information infrastructure
operators that intend to purchase internet products and services and internet platform operators engaging in
data processing activities that affect or may affect national security must be subject to the cybersecurity
review, and an internet platform operator possessing personal information of over one million users and
intending to be listed on a foreign stock exchange must be subject to the cybersecurity review.
In June 2021, the SCNPC promulgated the Data Security Law, which became effective on September 1,
2021. The Data Security Law establishes a tiered system for data protection in terms of their importance.
Data categorized as “important data”, which will be determined by governmental authorities in the form of
catalogs, shall be treated with higher levels of protection. Specifically, the Data Security Law provides that
processors of important data shall appoint a “data security officer” and a “management department” to take
charge of data security. In addition, such processor shall evaluate the risk of its data activities periodically
and file assessment reports with relevant regulatory authorities. Since the Data Security Law is relatively
new, uncertainties still exist in relation to its interpretation and implementation.
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On July 7, 2022, the CAC promulgated the Security Assessment Measures for Outbound Data Transfer,
effective from September 1, 2022, or the Security Assessment Measures, to regulate outbound data transfer
activities, protect the information rights and interests of individuals, safeguard national security and social
public interests, and promote the safe and free cross-border flow of data. Furthermore, the Security
Assessment Measures provide that the security assessment for outbound data transfers shall follow
principles of the combination of pre-assessment and continuous supervision and the combination of risk self-
assessment and security assessment, so as to prevent the security risks arising from outbound data transfers
and ensure the orderly and free flow of data according to the law. For outbound data transfers activities that
have been carried out prior to the implementation of the Security Assessment Measures, and not in
compliance with the Security Assessment Measures, rectification shall be completed within 6 months from
the implementation of the Security Assessment Measures. The Security Assessment Measures further
provide that a data processor intending to implement outbound data transfer under the following
circumstances shall apply for security assessment to the CAC: (a) a data processor intending to provide
critical data abroad; (b) a critical information infrastructure operator or a data processor processing the
personal information of more than one million individuals intending to provide personal information abroad;
(c) a data processor, who has cumulatively provided personal information of 100,000 individuals or sensitive
personal information of 10,000 individuals abroad since January 1st of the previous year, intending to
provide personal information abroad; and (d) other circumstances prescribed by the CAC for which
application for security assessment for outbound data transfers is required. On March 22, 2024, the CAC
promulgated the Provisions on Facilitating and Regulating Cross-border Data Flow, effective on the same
date. The provisions require data processors to identify and declare important data in accordance with the
regulations, and provide that unless the competent departments or areas so notify or publicly release certain
data as important data, the data processors do not need to apply for security assessment for outbound
important data transfer for such data. The provisions set forth various circumstances exempted from
application for security assessment for outbound data transfer, execution of a standard contract for personal
information outbound transfer and passing of the certification for personal information protection. To the
extent in compliance with the national data classification and hierarchical protection system framework, the
provisions allow the pilot free trade zones to promulgate their own negative list of data requiring application
for security assessment for outbound data transfer, execution of a standard contract for personal information
outbound transfer or passing of the certification for personal information. The provisions further provide for,
subject to exemptions set forth therein and negative lists of pilot free trade zones, circumstances requiring
application for security assessment for outbound data transfer, execution of a standard contract for personal
information outbound transfer or passing of the certification for personal information protection. A data
processor intending to implement outbound data transfer under the following circumstances should apply for
security assessment to the CAC: (a) a critical information infrastructure operator intending to provide
personal information or important data abroad; or (b) a data processor that is not a critical information
infrastructure operator intending to provide important data abroad, or has since January 1st of the current
year cumulatively provided personal information (excluding sensitive personal information) of over one
million individuals, or sensitive personal information of over 10,000 individuals, abroad. For any data
processors other than critical information infrastructure operators who have since January 1st of the current
year cumulatively provided personal information (excluding sensitive personal information) of over 100,000
and less than one million individuals, or sensitive personal information of less than 10,000 individuals
abroad, should execute a standard contract for outbound transfer of personal information with the recipient
abroad or pass the certification for personal information protection. The approval for security assessment for
outbound data transfer is valid for three years and may be applied for extension if the data processors need
to carry on its outbound data transfer activities and there occurs no circumstance requiring re-application
for security assessment for outbound data transfer. To the extent that any provision set forth in the Security
Assessment Measures is inconsistent with the provisions set forth in the provisions, the provisions prevail.
Additional regulations, guidelines, and measures relating to data privacy and data protection are
expected to be adopted, including the Measures for Security Assessment for Cross-border Transfer of
Personal Information and Important Data (Draft for Comment), published in 2017, the Measures for Security
Assessment for Cross-border Transfer of Personal Information (Draft for Comment), published in 2019, the
Administrative Regulations on the Internet Data Security (Draft for Comment) published in November 2021,
each of which indicates a trend of more stringent compliance requirements, and, if adopted or effective,
would require security assessment and review before transferring personal health information out of China.
Since our subsidiaries are located in China, we are required to comply with the requirements of
China’s network and data protection regime. In addition, in the ordinary course of our business, we collect
and store personal information, including personal information about our clinical trial subjects, customers,
and employees in China. We may need to share such personal information with our subsidiaries, licensors,
partners, or contractors located outside China. China’s network and data protection regime is constantly
evolving, and we continue to face uncertainties as to whether our efforts to comply with these requirements
will be sufficient. Although we develop and maintain compliance protocols and controls designed to maintain
compliance with these requirements, development and maintenance of these protocols and controls is costly.
In addition, our CROs, licensees, and partners are also required to comply with these laws, and our
agreements with them require them to comply with these requirements, but there is always a risk that they
may not fully comply with them.
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PRC Enterprise Income Tax Law and Its Implementation
The EIT Law and its implementation rules permit certain high and new technologies enterprises, or
HNTEs, to enjoy a preferential enterprise income tax rate subject to these HNTEs meeting certain
qualification criteria. One of our Chinese subsidiaries enjoys such preferential tax treatment.
On March 23, 2016, the Ministry of Finance and the SAT issued the Circular on Comprehensively
Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax. Effective from May
1, 2016, the PRC tax authorities collect VAT in lieu of business tax in all regions and industries. VAT is
applicable at a rate of 6% in lieu of business taxes for certain services and 17%, as adjusted to 16% between
May 1, 2018 and March 31, 2019 and as adjusted to 13% starting from April 1, 2019, for the sale of goods
and provision of tangible property lease services not listed in Article 2 Sub-article 2 of the Provisional
Regulations on Value Added Tax of the PRC promulgated by the State Council in November, 2008 and
further amended in 2016 and 2017, respectively. 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.
Regulations Relating to Intellectual Property Rights
Patent
General
Pursuant to the Patent Law of the PRC, most recently amended in October 2020, and its
implementation rules, most recently amended in December 2023, patents in China 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 the whole or part 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, patents relating to designs are effective for fifteen years from the initial
date the patent application was filed, and patents relating to invention are effective for twenty 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.
Moreover, in order to compensate for the time consumed in the examination and approval of new drugs
for marketing, the patent administration department shall, at the request of the patent holder, grant
compensation for the term of the patent right for invention patents related to new drugs that have been
approved for marketing in China. The compensation period shall not exceed five years, and the total validity
term of patent rights since the new drug approved to be marketed shall not exceed 14 years.
Compared with the Patent Law of the PRC revised in 2008, changes in the 2020 revised Patent Law
mainly include: (i) clarifying the incentive mechanism for inventor or designer relating to service inventions;
(ii) extending the duration of design patent; (iii) establishing a new system of “open licensing”; (iv)
strengthening the joint liability of internet service providers for network patent infringement; (v) improving
the distribution of burden of proof in patent infringement cases; (vi) increasing the compensation for patent
infringement; and (vii) patent term adjustment to compensate delays of the China National Intellectual
Property Administration, or CNIPA, or the CNIPA in the review of patent applications.
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Existing patents can become invalid or unenforceable due to a number of factors, including lack of
novelty, and/or lack of inventive step in technology, and deficiencies in patent application. In China, a patent
must have novelty, inventive step and practical applicability. Under the Patent Law of the PRC, novelty
means that before a patent application is filed, no identical invention or utility model has been publicly
disclosed in any publication in China 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 recorded in patent application
documents or patent documents published after the filing date. Inventive step means, compared with
existing technology, an invention has prominent substantial features and represents notable progress, and a
utility model has substantial features and represents any progress; practical applicability means an invention
or utility model can be manufactured or used and may produce positive results. Patents in China are filed
with the CNIPA. Normally, the CNIPA publishes an annoucement for the invention patent 18 months after
the application is filed, which may be shortened upon request by the applicant. The applicant must apply to
the CNIPA for a substantive examination within three years from the date the application is filed.
Article 19 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 CNIPA for a confidential examination. Failure to comply with this
requirement will result in the denial of any Chinese patent for the subject invention or utility model. This
added requirement of confidential examination by the CNIPA has raised concerns by foreign companies who
conduct research and development activities in China or outsource research and development activities to
service providers in China. Currently we have 11 invention patents granted by CNIPA and 14 invention
patents 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 of forgery of the patents belonging to other persons may be subject to
criminal penalties.
When a dispute arises as a result of infringement of the patent owner’s patent right, Chinese 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. A Chinese 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 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 using a reasonable multiple of the license fee under a contractual license.
For intentional infringement of patent rights, in certain cases, the compensation amount shall be one to five
times the amount determined pursuant to the aforesaid method. Where it is difficult to ascertain the losses of
the patent holder, the benefits gained by the infringer and the license fee of the patent, the people’s court
may, in light of such factors as patent right type as well as infringement nature and circumstances,
determine a compensation amount ranging from RMB 30,000 to RMB 5,000,000. As in other jurisdictions,
with one notable exception, the patent owner in China has the burden of proving that the patent is being
infringed. However, if the owner of an invention patent for manufacturing process of a new product 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, for the purpose of public health, the CNIPA may grant a
compulsory license for manufacturing patented drugs and exporting them to countries or regions covered
under relevant international treaties to which the PRC has acceded.
Exemptions for Unlicensed Manufacture, Use, Sell or Import of Patented Drugs
The Patent Law of the PRC provides five exceptions for unlicensed manufacture, use, sell or import of
patented drugs. None of following circumstances are deemed an infringement of the patent rights, and any
person may manufacture, use, sell or import patented drugs without authorization granted by patent owner
as follows:
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● Any person who uses, promises to sell, sells or imports any patented product or product directly
obtained in accordance with the patented methods after such product is sold by the patent owner
or by its licensed entity or individual;
● Any person who has manufactured an identical product, has used an identical method or has
made necessary preparations for manufacture or use prior to the date of patent application
continues to manufacture such product or use such method only within the original scope;
● Any foreign transportation facility that temporarily passes through the territory, territorial waters
or territorial airspace of China uses the relevant patents in its devices and installations for its own
needs in accordance with any agreement concluded between China and that country to which the
foreign transportation facility belongs, or any international treaty to which both countries are
party, or on the basis of the principle of reciprocity;
● Any person who uses the relevant patents solely for the purposes of scientific research and
experimentation; or
● Any person who manufactures, uses or imports patented drugs or patented medical equipment for
the purpose of providing information required for administrative approval, or manufactures, uses
or imports patented drugs or patented medical equipment for the abovementioned person.
However, even if patented drugs are utilized on the ground of exemptions for unlicensed manufacture,
use, sell or import of patented drugs prescribed in Patent Law of the PRC, such patented drugs cannot be
manufactured, used, sold or imported for any commercial purposes without authorization granted by the
patent owner.
Trademarks
Trademarks are protected by the Trademark Law of the People’s Republic of China, or the PRC
Trademark Law, adopted on August 23, 1982 and subsequently amended on February 22, 1993, October 27,
2001, August 30, 2013 and April 23, 2019, respectively, as well as the Implementation Regulation of the PRC
Trademark Law adopted by the State Council on August 3, 2002 and amended on April 29, 2014. The
Trademark Office of the CNIPA handles trademark registrations and grants a term of ten years to registered
trademarks and another ten years if requested upon expiry of the first or any renewed ten-year term. The
PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration.
Trade Secrets
According to the Law Against Unfair Competition of the PRC promulgated in September 1993 and
amended in November 2017 and April 23, 2019, respectively, the term “trade secrets” refers to technical
information, business operation information and other commercial information that are not known to the
public and have commercial value and for which corresponding confidentiality measures have been taken by
their rights 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, coercion or electronic intrusion; (2) disclosing, using or permitting others to use the
trade secrets obtained illegally under item (1) above; (3) disclosing, using or permitting others to use the
trade secrets, in violation of any confidentiality obligations or any requirements of the legal owners or
holders to keep such trade secrets in confidence; or (4) instigating, inducing or helping others to obtain,
disclose, use or allow others to use the trade secrets of the rights holders in violation of any confidentiality
obligations or any requirements of the legal owners or holders to keep such trade secrets in confidence.
Natural persons, legal persons and other unincorporated organizations other than business persons, if
violating the aforementioned provisions, shall be deemed to have infringed upon trade secrets. 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 RMB100,000 to RMB1,000,000, and where the infringement is material, the fine
shall range from RMB500,000 to RMB5,000,000. Alternatively, persons whose trade secrets are being
misappropriated may file lawsuits in a Chinese court for loss and damages caused by the misappropriation.
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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 Chinese foreign exchange
regulations, payments of current account items, such as trade and service-related foreign exchange
transactions, may be made in foreign currencies without prior approval from SAFE, by complying with
certain procedural requirements. In contrast, approval from or registration with appropriate government
authorities is 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 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 China, and remittance of
foreign exchange profits and dividends by a Foreign Investment Enterprise, or FIE, 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 SAFE or its local branches over direct investment by foreign investors in
China will be conducted by way of registration, and banks must process foreign exchange business relating
to the direct investment in China based on the registration information provided by SAFE and its branches.
Under the Circular of the SAFE on Further Improving and Adjusting the Policies for Foreign Exchange
Administration under Capital Accounts promulgated by SAFE on January 10, 2014 and last amended by the
Circular on Further Deepening the Reform to Facilitate Cross-border Trade and Investment promulgated by
SAFE on December 4, 2023, 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 US$50,000 by a domestic institution. When
handling the outflow of profits exceeding the equivalent of US$50,000, the bank, in principle, is no longer
required to examine the financial audit report and capital verification report of the domestic institution,
provided that it must examine, according to the principle of transaction authenticity, the profit distribution
resolution of the board of directors (or the profit distribution resolution of the partners) relating to this profit
outflow and the original copy of its tax record-filing form. After each profit outflow, the bank must affix its
seal to and endorsements on the original copy of the relevant tax record-filing form to indicate the actual
amount of the profit outflow and the date of the outflow.
On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach
regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, 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 an FIE 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 FIE. 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 an FIE needs to make further payment from
such account, it still must provide supporting documents and go through the review process with the banks.
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Furthermore, SAFE Circular 19 stipulates that the use of capital by FIEs must adhere to the principles
of authenticity and self-use within the business scope of enterprises. The capital of an FIE and capital in
RMB obtained by the FIE from foreign exchange settlement must not be used for the following purposes:
● directly or indirectly used for the payment beyond the business scope of the enterprises or the
payment prohibited by relevant laws and regulations;
● directly or indirectly used for investment in securities, unless otherwise provided by relevant laws
and regulations;
● directly or indirectly used for granting the entrusted loans in RMB, unless permitted by the scope
of business, repaying the inter-enterprise borrowing (including advances by the third party), or
repaying the bank loans in RMB that have been sub-lent to the third party; and/or
● paying the expenses related to the purchase of real estate that is not for self-use, except for the
foreign-invested real estate enterprises.
On June 9, 2016, SAFE promulgated the Circular on Reforming and Regulation of Administrative Policy
on Settlement of Foreign Exchange of Capital Account, or SAFE Circular 16, which was last amended by the
Circular on Further Deepening the Reform to Facilitate Cross-border Trade and Investment promulgated by
SAFE on December 4, 2023. According to SAFE Circular 16, the foreign exchange capital of FIEs, foreign
debt and funds raised through offshore listing may be settled on a discretionary basis, and can be settled at
the banks. The proportion of such discretionary settlement is temporarily determined as 100%. The RMB
converted from relevant foreign exchange will be kept in a designated account, and if a domestic 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 16 reiterates that the use of capital by domestic enterprises must adhere
to the principles of authenticity and self-use within the business scope of enterprises. The foreign exchange
income of capital account and RMB obtained by domestic enterprise from foreign exchange settlement must
not be used for the following purposes:
● directly or indirectly used for the payment beyond the business scope of the enterprises or the
payment prohibited by relevant laws and regulations;
● directly or indirectly used for investment in securities and investment in wealth management
products except for wealth management products with a risk rating of level 2 or lower and
structured deposits, unless otherwise provided by relevant laws and regulations;
● directly or indirectly used for extending the entrusted loans to non-affiliate enterprises, unless
permitted by the scope of business; and/or
● used for purchase of real estate of residential nature that is not for self-use, except for the
enterprises engaging in real estate development and operation business or real estate leasing and
operation business.
On January 26, 2017, SAFE issued the Notice on Improving the Examination of Authenticity and
Compliance to Further Promote Foreign Exchange Administration, or the SAFE Circular 3, which stipulates
several capital control measures with respect to the outbound remittance of profit from domestic entities to
offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions
regarding profit distribution, the original version of tax filing records and audited financial statements; and
(ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits.
Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of
capital and utilization arrangements, and provide board resolutions, contracts and other proof when
completing the registration procedures in connection with an outbound remittance.
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On October 23, 2019, SAFE promulgated the Circular on Further Promoting the Facilitation of Cross-
border Trade and Investment, or SAFE Circular 28, last amended by the Circular on Further Deepening the
Reform to Facilitate Cross-border Trade and Investment promulgated by SAFE on December 4, 2023. On the
basis of continuing to allow investment FIEs (including foreign investment companies, foreign-funded
venture capital enterprises and foreign-funded equity investment enterprises) to use the registered capital
for domestic equity investment in accordance with the laws and regulations, SAFE Circular 28 cancelled the
restriction on the non-investment FIEs and allows the non-investment FIEs to use the registered capital for
domestic equity investment under the premise of not violating the existing “negative list” and the
authenticity and compliance of the domestic equity investment. SAFE Circular 28 further clarifies the two
ways of using the foreign currency registered capital of non-investment FIEs for domestic equity investment,
i.e., by way of transfer of the foreign currency registered capital in its original currency and by way of
foreign exchange settlement of the foreign currency registered capital. On October 23, 2019, SAFE
promulgated the Circular on Reducing Foreign Exchange Accounts, or SAFE Circular 29, which became
effective on March 2, 2020. The Appendix B of SAFE Circular 29 provides operational guidance for SAFE
Circular 28. SAFE Circular 29 further specifies that the domestic equity investment set forth in Circular 28 is
not limited to direct investment in a domestic enterprise but also includes equity investment conducted in
the form of “equity transfer.”
Our Chinese subsidiaries’ distributions to the offshore parent and carrying out cross-border foreign
exchange activities shall comply with the various SAFE registration requirements described above.
Share Option Rules
Under the Administration Measures on Individual Foreign Exchange Control issued by the People’s
Bank of China on December 25, 2006, all foreign exchange matters involved in employee share ownership
plans and share option plans in which Chinese citizens participate require approval from SAFE or its
authorized branch. In addition, under the Notices on Issues concerning the Foreign Exchange Administration
for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or
Share Option Rules, issued by the SAFE on February 15, 2012, Chinese residents who are granted shares or
share options by companies listed on overseas stock exchanges under share incentive plans are required to
(1) register with the SAFE or its local branches; (2) retain a qualified Chinese agent, which may be a Chinese
subsidiary of the overseas listed company or another qualified institution selected by the Chinese subsidiary,
to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of
the participants; and (3) retain an overseas institution to handle matters in connection with their exercise of
share options, purchase and sale of shares or interests and funds transfers.
SAFE Regulations on Offshore Special Purpose Companies Held by Chinese Residents or Citizens
SAFE promulgated SAFE Circular 37 on July 4, 2014. SAFE Circular 37 regulates foreign exchange
matters in relation to the use of special purpose vehicles, or SPVs, by Chinese residents to seek overseas
investment and financing and conduct round trip investment in China. Under SAFE Circular 37, an SPV
refers to an offshore entity established or controlled, directly or indirectly, by Chinese residents or entities
for the purpose of overseas investment and financing, with Chinese residents’ legally owned assets or equity
interests in domestic enterprises or offshore assets or interests, while “round trip investment” refers to the
direct investment in China by Chinese residents through SPVs, namely, establishing FIEs to obtain the
ownership, control rights and management rights. Pursuant to SAFE Circular 37, before making contribution
into an SPV, Chinese residents are required to complete foreign exchange registration with SAFE or its local
branch. 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. Failure to comply with
the registration procedures set forth in SAFE Circular 37, or making misrepresentation on or failure to
disclose controllers of an FIE that is established through round-trip investment, may result in restrictions on
the foreign exchange activities of the relevant FIE, including payment of dividends and other distributions,
such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or
affiliate, and the capital inflow from the offshore parent, and may also subject relevant Chinese residents to
penalties under PRC foreign exchange administration regulations.
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 SPV. For more information on compliance with SAFE Circular 37, please
see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Doing Business in China—Chinese
regulations relating to investments in offshore companies by Chinese residents may subject our future
Chinese resident beneficial owners or our Chinese subsidiaries to liability or penalties, limit our ability to
inject capital into our Chinese subsidiaries or limit our Chinese subsidiaries’ ability to increase their
registered capital or distribute profits.”
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We have completed the foreign exchange registration of PRC resident shareholders of Dr. Lan Huang
and Mr. Linqing Jia.
Regulation of Dividend Distribution
The principal laws, rules and regulations governing dividend distribution by FIEs in China are the
Company Law of the PRC, which was most recently amended on December 29, 2023 and will become
effective on July 1, 2024, the Foreign Investment Law, which took effect on January 1, 2020, and its
implementation regulations, which took effect on January 1, 2020. Under these laws and regulations, FIEs
may pay dividends only out of their accumulated profit, if any, as determined in accordance with Chinese
accounting standards and regulations. Both Chinese domestic companies and foreign-invested Chinese
enterprises are required to allocate 10% of their respective accumulated after-tax profits each year, if any, to
fund certain statutory common reserve funds until the aggregate amount of these reserve funds has reached
50% of the registered capital of the enterprises. At the discretion of the shareholders of an FIE, it may, after
accruing the statutory common reserve funds, allocate a portion of its after-tax profits, based on PRC
accounting standards, to discretionary common reserve funds. A Chinese company is not permitted to
distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior
fiscal years may be distributed together with distributable profits from the current fiscal year but the
statutory common reserve funds and the discretionary common reserve funds are not allowed to be
distributed as cash dividend.
Labor Laws and Social Insurance
Pursuant to the PRC Labor Law promulgated in July 1994 and amended in August 2009 and December
2018, and the PRC Labor Contract Law promulgated in June 2007 and amended in December 2012,
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 promulgated in October 2010, and amended on
December 29, 2018, and Administrative Regulations on the Housing Provident Fund promulgated in April
1999 and amended in March 2002 and March 2019, respectively, employers like our Chinese subsidiaries in
China must provide employees with welfare schemes covering pension insurance, unemployment insurance,
maternity insurance, work-related injury insurance, medical insurance, and housing provident fund.
Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took
effect on January 1, 2020 and replaced 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. On December 26, 2019, the State Council of the PRC passed the Regulation for
Implementing the Foreign Investment Law of the PRC, which took effect on January 1, 2020. The Foreign
Investment Law and its implementing regulations embody 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. According to the
Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted
by one or more natural persons, business entities or other organizations of a foreign country in China.
On December 27, 2021, according to the Foreign Investment Law, the Ministry of Commerce of PRC,
or the MOFCOM, and NDRC published the Special Administrative Measures (Negative List) for Foreign
Investment Access (Edition 2021), or the “Negative List”, which came into effect on January 1, 2022. The
Negative List provides the scope of “restricted” or “prohibited” industries that have certain restrictions on
foreign investment such as market entry clearance. Foreign investment in industries not included in the
“negative list” are granted national treatment.
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Regulations Relating to Overseas Listings
The relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities
Activities in accordance with the Law around July 2021. These opinions emphasized the need to strengthen
the administration over illegal securities activities and the supervision on overseas listings by China-based
companies and proposed to take effective measures, such as promoting the construction of relevant
regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas
Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures and relevant
five guidelines, which became effective on March 31, 2023. The Overseas Listing Trial Measures
comprehensively improves and reforms the existing regulatory regime for overseas offering and listing of
PRC domestic companies’ securities and regulates both direct and indirect overseas offering and listing of
PRC domestic companies’ securities by adopting a filing-based regulatory regime. According to the Overseas
Listing Trial Measures, any of our offering and listing in an overseas market in future may be subject to the
filing with the CSRC.
According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list
securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure
with the CSRC and report relevant information. The Overseas Listing Trial Measures provides that an
overseas listing or offering is explicitly prohibited, if any of the following: (i) such securities offering and
listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (ii)
the intended securities offering and listing may endanger national security as reviewed and determined by
competent authorities under the State Council in accordance with law; (iii) the domestic company intending
to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have
committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or
undermining the order of the socialist market economy during the latest three years; (iv) the domestic
company intending to make the securities offering and listing is currently under investigations for suspicion
of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made
thereof; or (v) there are material ownership disputes over equity held by the domestic company’s controlling
shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual
controller.
The Overseas Listing Trial Measures provides that if the issuer meets the following criteria, the
overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering
by PRC domestic companies: (i) 50% or more of any of the issuer’s operating revenue, total profit, total
assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal
year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are
conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority
of senior management staff in charge of its business operations and management are PRC citizens or have
their usual place(s) of residence located in mainland China. Where an issuer submits an application for initial
public offering to competent overseas regulators, such issuer must file with the CSRC within three business
days after such application is submitted. The Overseas Listing Trial Measures also requires subsequent
reports to be filed with the CSRC on material events, such as change of control or voluntary or forced
delisting of the issuer(s) who have completed overseas offerings and listings. Subsequent securities offerings
of an issuer in the same overseas market where it has previously offered and listed securities shall be filed
with the CSRC within three working days after offerings are completed.
Furthermore, according to the Overseas Listing Trial Measures, if a domestic company fails to
complete the filing procedure or conceals any material fact or falsifies any major content in its filing
documents, such domestic company may be subject to administrative penalties, such as order to rectify,
warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other
directly liable persons may also be subject to administrative penalties, such as warnings and fines. However,
since the Overseas Listing Trial Measures was newly promulgated, the interpretation, application and
enforcement of Overseas Listing Trial Measures remain unclear.
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On February 17, 2023, CSRC also issued the Notice on Administration for the Filing of Overseas
Offering and Listing by Domestic Companies, which, among others, provided that (1) the domestic
companies that have already been listed overseas on or before the effective date of the Overseas Listing Trial
Measures (i.e. March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers
are not required to complete the filling procedures immediately, and they shall be required to file with the
CSRC when subsequent matters such as refinancing are involved; (2) on or prior to the effective date of the
Overseas Listing Trial Measures, domestic companies that have already submitted valid applications for
overseas offering and listing but have not obtained approval from overseas regulatory authorities or stock
exchanges may reasonably arrange the timing for submitting their filing applications with the CSRC, and
must complete the filings before the completion of their overseas offering and listing; (3) a six-month
transition period will be granted to domestic companies which, prior to the effective date of the Trial
Measures, have already obtained the approval from overseas regulatory authorities or stock exchanges (such
as the completion of hearing in the market of Hong Kong or the completion of registration in the market of
the United States), but have not completed the indirect overseas listing; if domestic companies fail to
complete the overseas listing within such six-month transition period, they shall file with the CSRC according
to the requirements; and (4) the CSRC will solicit opinions from relevant regulatory authorities and complete
the filings of the overseas listing of companies with contractual arrangements which duly meet the
compliance requirements, and support the development and growth of these companies by enabling them to
utilize two markets and two kinds of resources.
On February 24, 2023, the CSRC, together with other authorities, jointly issued the Provisions on
Strengthening the Confidentiality and Archives Administration Related to the Overseas Securities Offering
and Listing by Domestic Enterprises, or the Confidentiality and Archives Administration Provisions, which
came into effect on March 31, 2023. The Confidentiality and Archives Administration Provisions requires
PRC domestic enterprises or its overseas listing vehicles, among others, seeking to offer or list its securities
in overseas markets either directly or indirectly, to establish and improve their confidentiality and archives
administration systems and take other necessary measures to prevent them from disclosing state secrets,
secrets related to state authorities’ affairs or undermining national or public interests. It further stipulates
that it shall be subject to approval or filing procedures of competent authorities in accordance with relevant
laws and regulations that PRC domestic enterprises or its overseas listing vehicles, among others, provide or
publicly disclose documents or materials involving state secrets or secrets of state authorities or causing
possible adverse effect on national security or public interests etc. to relevant securities companies,
securities service institutions, overseas regulatory agencies and other entities and individuals.
Furthermore, according to the Negative List promulgated by the MOFCOM and the NDRC that became
effective on January 1, 2022, domestic enterprises engaged in activities in any field prohibited from foreign
investment under the Negative List shall be subject to review and approval by the relevant authorities of the
PRC when listing and trading overseas. If it is determined that any approval, filing or other administrative
procedure from the CSRC or other PRC governmental authorities is required for any future offering or
listing, we cannot assure that we can obtain the required approval or accomplish the required filings or other
regulatory procedures in a timely manner, or at all. If we fail to obtain the relevant approval or complete the
filings and other relevant regulatory procedures, we may face sanctions by the CSRC or other PRC
regulatory agencies, which may include fines and penalties on our operations in China, limitations on our
operating privileges in China, restrictions on or prohibition of the payments or remittance of dividends by
our subsidiaries in China, or other actions that could have a material and adverse effect on our business,
financial condition, results of operations, reputation and prospects, as well as the trading price of our
ordinary shares. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making
it advisable for us, to halt our offerings before settlement and delivery of the shares offered. Consequently, if
investors engage in market trading or other activities in anticipation of and prior to settlement and delivery,
they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory
authorities later promulgate new rules or explanations requiring that we obtain their approvals or
accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be
unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain
such a waiver. Any uncertainties or negative publicity regarding such approval requirement could materially
and adversely affect our business, prospects, financial condition, reputation, and the trading price of our
ordinary shares.
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Rest of the World Regulation
For other countries outside of the U.S. and China, the requirements governing the conduct of clinical
trials, drug licensing, pricing and reimbursement vary from country to country. In all cases the clinical trials
must be conducted in accordance with GCP requirements and the applicable regulatory requirements and
the ethical principles having their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among
other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution.
Manufacturing and Supply
We outsource the production of the active pharmaceutical ingredient of Plinabulin to external service
providers, Johnson Matthey Pharma Services (JMPS) and Asymchem Laboratories (Asymchem), and the
production of the final drug formulation to Pharmaceutics International Inc. (Pii) and for contingency
planning purposes, we have also established relationships with other contract manufacturing organizations.
We expect to continue our outsourcing relationships with contract manufacturers to meet the ongoing
requirements for the development of Plinabulin. We have framework agreements with these external service
providers, under which they provide services to us on a short-term, project-by-project basis. We also have a
long-term Commercial Supply Agreement in place with Pii to prepare for the commercial supply if approved.
Currently, our contract manufacturers obtain materials for the manufacturing activities they perform
for us 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 materials and services on a purchase order
basis and do not enter into long-term dedicated capacity or minimum supply arrangements.
We rely on BASF SE as the sole supplier of the stabilizing agent, Kolliphor HS15, used in Plinabulin’s
current formulation. If BASF SE becomes unable or unwilling to supply Kolliphor HS15, we will not be able
to replace BASF SE and we would be required to reformulate Plinabulin. We will seek to find another
formulation while continuing to use Kolliphor HS15, in accordance with our discussions with the FDA.
Manufacturing of pharmaceuticals 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. The contract manufacturing organizations
we plan to use to manufacture our current product candidates, or any future product candidates we may
develop, will be required to operate under cGMP conditions. These cGMP conditions are regulatory
requirements for the production of pharmaceuticals that will be used in humans.
Legal Proceedings
We were party to an arbitration proceeding initiated by Hengrui with respect to a commercialization
and co-development agreement with Hengrui. As an interim and conservatory measure for the arbitration,
approximately RMB 70 million (est. $9.6 million) of Wanchunbulin’s assets were seized and frozen on a
temporary basis, pending a decision on the merits by the arbitral tribunal. On January 10, 2024, the arbitral
tribunal at CIETAC issued a final award, denying all claims made by Hengrui. As a result, all of
Wanchunbulin’s assets that have been seized and frozen pending a decision by the arbitral tribunal were
returned to Wanchunbulin in February 2024. See “Risk Factors—Risks Related to our Industry, Business and
Operation—We and our major shareholders have been, and may in the future become, subject to claims,
litigation, arbitration and investigations, any of which may require significant management attention, could
result in significant legal expenses and may result in unfavorable outcomes, all or any of which could have a
material adverse impact on our financial condition and results of operations, harm our reputation or
otherwise negatively impact our business.”
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.
C. Organizational Structure
The diagram below depicts our current organizational structure.
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D. Property, Plants and Equipment
We currently lease office space in New Jersey, with total space of 9,727 square feet. The lease expires
in February 2027. Our current rent is $25,533 per month. Starting in August 2024, our annual rent will
increase by $0.50 per square foot leased. We additionally pay for the cost of utilities, as well as our share of
building real estate taxes and building operating expenses. Payments under the lease are expensed on a
straight-line basis over the period of the lease.
We currently lease office space of 860.12 square meters in Dalian, China, under an ongoing rent-free
arrangement with the local government. Our application for rent exemption has been formally submitted to
the local authorities. As of April 1, 2024, the local government is actively engaged in evaluating our
application.
Our subsidiary, SEED, has completed the build-out of a wet lab in Pennsylvania to support research
and development efforts for the Ubiquitin Platform Technology. SEED currently leases permanent office
space and lab space in Pennsylvania, with a total space of approximately 10,086 square feet. Our current
rent is $38,957 per month. Starting in June 2024, SEED’s annual rent will increase by 3%. SEED additionally
pays for the cost of its utilities, as well as its proportionate share of building real estate taxes, and building
operating expenses, and has paid approximately $0.9 million for improvements to the leased property on
behalf of the lessor. Payments under the lease are expensed on a straight-line basis over the period of the
lease. Additionally, SEED has also purchased lab equipment of approximately $1.7 million as of December
31, 2023.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations should be
read in conjunction with our audited consolidated financial statements and the related notes included
elsewhere in this annual report on Form 20-F. This discussion contains forward-looking statements based
upon current expectations that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of various factors, including those
discussed in the section titled “Item 3. Key Information—D. Risk Factors” and in other parts of this annual
report on Form 20-F. Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, or U.S. GAAP. The functional
currency of BeyondSpring Inc. is the U.S. dollar.
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A. Operating Results
Overview
We are a clinical stage global biopharmaceutical company focused on developing innovative therapies
to improve clinical outcomes for patients with high unmet medical needs. Our first-in-class lead asset,
Plinabulin, which has been administered to over 700 cancer patients with generally good tolerability, is being
developed as a potential “pipeline in a drug” in various cancer indications as a direct anti-cancer agent and
to prevent CIN. We own global rights to Plinabulin in all countries except China. We own a 57.97% interest
in our Chinese subsidiary, which owns 100% of the rights to Plinabulin in China. We are also developing
three small molecule immune agents, currently in preclinical stages. Our subsidiary SEED is utilizing a
proprietary TPD drug discovery platform, or “molecular glue” technology, to develop innovative therapeutic
agents from internal research and development efforts and from collaboration. SEED is collaborating with Eli
Lilly to discover and develop new chemical entities through this proprietary TPD platform that could produce
therapeutic benefits. Additionally, our subsidiary Wanchunbulin has entered into an exclusive
commercialization and co-development agreement with Hengrui to develop additional indications for
Plinabulin.
Through our 15-year research efforts in our lead asset Plinabulin, we discovered that Plinabulin has
the potent effect of maturing immune dendritic cells, which leads to T-cell activation for potential durable
anti-cancer benefit. Therefore, we believe Plinabulin’s mechanism in innate and adaptive immunity could be
applied in clinical studies for both anti-cancer and CIN indications for unmet medical needs.
First, Plinabulin is being studied as an anti-cancer agent in a number of company-sponsored studies
and investigator-initiated studies. We completed a randomized global Phase 3 study of Plinabulin in
combination with docetaxel vs. docetaxel alone for second- and third- line treatment of NSCLC, EGFR wild
type (DUBLIN-3 Phase 3 registration study). The DUBLIN-3 study has completed global enrollment of 559
patients and final positive topline results from the study with significant overall survival benefit were
reported in August 2021 and at ESMO in September 2021. We plan to use our best efforts to file an NDA
with the NMPA as soon as possible.
In addition, Plinabulin is being studied in investigator-initiated trials for its therapeutic potential in
combination with various immuno-oncology agents and chemotherapy or radiation, in patients who
progressed on PD-1/PD-L1 antibodies, which we believe represent severe unmet medical needs, and in first-
line treatment of patients with ES-SCLC who currently have limited median PFS. These studies include 1) in
combination with nivolumab, a PD-1 antibody, for the treatment of NSCLC at UCSD and the University of
Washington (Phase 1 completed); 2) in combination with nivolumab, a PD-1 antibody, and ipilimumab, a
CTLA-4 antibody, for the treatment of ES-SCLC at the Rutgers University and other U.S. clinical centers
(Phase 1 completed, Phase 2 completed for patients who progressed on PD-1/PD-L1 antibodies); 3) in
combination with PD-1 or PD-L1 antibodies and radiation for the treatment of patients with various cancers
who progressed from PD-1/PD-L1 antibodies at MD Anderson Cancer Center; 4) in combination with
Keytruda® (pembrolizumab), a PD-1 antibody, and docetaxel for the treatment of NSCLC patients who
progressed from PD-1/PD-L1 antibodies at Peking Union Medical College Hospital in China; and 5) in
combination with Keytruda® (pembrolizumab), a PD-1 antibody, and etoposide and platinum for the first-line
treatment of ES-SCLC patients at Wuhan Union Hospital in China.
Second, we are studying Plinabulin alone or in combination with G-CSF, including pegfilgrastim, for its
potential benefit in the prevention of CIN, which has the potential to provide improved tolerability to
chemotherapy. In September 2020, the combination received Breakthrough Therapy Designation from both
the FDA and the NMPA. Based on the PROTECTIVE-2 Phase 3 registration study results, we filed an NDA
with the FDA and the NMPA for the use of Plinabulin in combination with G-CSF for the prevention of CIN in
March 2021. In November 2021, the FDA issued a Complete Response Letter for Plinabulin in combination
with G-CSF for the prevention of CIN. We expect to work closely with the FDA to consider the possible future
clinical and regulatory pathway for the CIN prevention indication. In March 2023, we withdrew the NDA
submission for the indication of Plinabulin in combination of pegfilgrastim agents to treat CIN in adult non-
myeloid cancer from the NMPA. We continue to communicate with the NMPA regarding the re-filing of the
NDA for the CIN indication and plan to use our best efforts to re-file the NDA as soon as possible. In
addition, Plinabulin in combination with pegfilgrastim is being studied in a Phase 1 investigator-initiated trial
for the reduction of neutropenia burden in multiple myeloma patients who have undergone AHCT at
Memorial Sloan Kettering Cancer Center.
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Our strategy is to develop a pipeline of product candidates that apply Plinabulin to multiple indications
and other product candidates with the potential for Plinabulin to be an important component of the multiple-
agent combination with immune checkpoint inhibitor regimes to elevate the anti-cancer benefit for cancer
patients, supported by Plinabulin’s potent dendritic cell maturation mechanism. To implement our strategy,
we use a novel, highly efficient business model that integrates clinical resources in the U.S. and China. We
work with global CRO companies, such as ICON and Covance (now Labcorp), to ensure data quality with
studies conducted under U.S. GCP. Our drug development capabilities are facilitated by strong interest from
clinical investigators in the U.S. as well as by our understanding of the pharmaceutical industry, clinical
resources and regulatory system in China. This model has been underscored by the receipt of Breakthrough
Therapy Designation for Plinabulin in the CIN prevention indication from both the FDA and the NMPA. In
addition, this model represents significant commercial opportunity for Plinabulin, as the U.S. and China are
the two largest pharmaceutical markets in the world.
In addition to the clinical development programs in NSCLC and CIN for Plinabulin, we are utilizing our
research collaborations to advance Plinabulin in clinical trials to investigate its therapeutic potential as an
immune-oncology agent. We provide financial support for these various investigator-initiated clinical trials as
well as the drug supply of Plinabulin. In addition to exploring Plinabulin’s therapeutic potential in
combination with immune-oncology agents, we have a pipeline of preclinical immune-oncology product
candidates and de novo drug discovery with our proprietary “molecular glue” TPD drug discovery platform in
our subsidiary SEED. We believe the collaboration with Eli Lilly serves to validate this TPD platform and the
future potential. We have utilized our research collaborations effectively and efficiently to advance these
programs.
We have partnered with Hengrui to commercialize Plinabulin, if approved, in China through our
subsidiary, Wanchunbulin. China recognized Plinabulin as a National Science and Technology Major Project
for “essential new drug research and development.” Also, with receipt of the 2017 Grant, Plinabulin has been
included in the National Drug Priority Review List. We believe that, pending drug approval and successful
pricing negotiations with the Chinese government, the 2017 Grant could help position Plinabulin for
inclusion in the National Insurance System, which would allow for faster access to patients and
reimbursement. In the U.S. and for the rest of the world, we currently plan to prioritize seeking a
commercialization partner to maximize Plinabulin’s potential in multiple cancer indications.
Since the inception of Wanchun Biotech, the former holding company of our U.S. subsidiary, in 2010,
our operations have focused on organizing and staffing our company, business planning, raising capital,
establishing our intellectual property portfolio, including protecting the rights to Plinabulin, and conducting
studies in animals and clinical trials of Plinabulin. We do not have any product candidates approved for sale
and have not generated any revenue from product sales. We have financed our operations with a
combination of equity financings, shareholder and third-party loans, including bank loans, and collaboration
arrangements.
Through December 31, 2023, we have raised approximately $296.0 million in equity financings, $10.2
million of issuance of non-controlling interests, $10.0 million of issuance of preferred shares of SEED, $2.1
million from bank loans, of which $0.6 million has been forgiven in July 2021 and $1.5 million has been
repaid in March 2022, $2.5 million in third party loans, of which $1.0 million has since been converted into
an equity investment and $1.5 million has been repaid, and $14.4 million in shareholder loans, of which $6.0
million has been repaid and $8.4 million was assumed by Wanchun Biotech, the former holding company of
our U.S. subsidiary, on July 20, 2015 pursuant to our internal restructuring, $10.0 million upfront payment to
SEED from Eli Lilly, and approximately $31.0 million upfront payment to Wanchunbulin from Hengrui. As of
December 31, 2023, we had cash, cash equivalents and restricted cash of $17.8 million.
Since inception we have incurred operating losses. Our net losses were $68.2 million, $36.3 million and
$21.9 million for the years ended December 31, 2021, 2022 and 2023, respectively. As of December 31, 2022
and 2023, we had an accumulated deficit of $375.3 million and $396.3 million, respectively. Substantially all
of our losses have resulted from funding our clinical trials, manufacturing our drug product, our research
and development programs and from 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 may increase in connection with our ongoing activities, as we:
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● continue preclinical studies and clinical development of our programs including in connection
with the clinical development programs for Plinabulin in NSCLC, CIN and combination studies
with immune agents;
● hire additional personnel;
● maintain, expand and protect our intellectual property portfolio;
● launch and commercialize Plinabulin in the U.S., if we do not have a partnership;
● fund the discovery and development of new product candidates; and
● incur additional costs associated with operating as a public company.
We will need substantial additional funding to support our operating activities as we advance our
product candidates through clinical development, seek regulatory approval and prepare for and, if any of our
product candidates are approved, proceed to commercialization. Adequate funding may not be available to
us on acceptable terms, or at all. In particular, inflation and rising interest rates across the global economy,
governments’ monetary policy in response to inflation concerns, the ongoing hostilities between Russia and
Ukraine and the current war between Israel and Hamas have caused, and may continue to cause, market
volatility, and under such market conditions, we may not be able to complete financing on reasonable terms
or at all.
In January 2022, we announced an organizational streamlining initiative to re-focus certain of our
resources on extending our cash runway and preserving long-term sustainability in light of the recent
Complete Response Letter from the FDA for the NDA seeking approval of Plinabulin in combination with G-
CSF for the prevention of CIN. This streamlining initiative included a reduction in force program impacting a
number of employees. We reduced our U.S. workforce by approximately 35% to preserve cash resources. All
employees affected by the workforce reduction were eligible to receive severance payments based on the
applicable employee’s years of service with us and had the ability to elect, at their own cost, continuation of
group health insurance coverage for 18 months post-termination. Each affected employee’s eligibility for the
severance benefits was contingent upon such employee’s execution of a separation agreement, which
included a general release of claims against us. The one-time severance-related charge, which represents the
cash expenditures we incurred, associated with the workforce reduction was $0.9 million, all of which have
been paid in 2022. We may also incur other charges or costs not currently contemplated due to events that
may occur as a result of, or associated with, the workforce reduction.
Realignment of Segments
Starting from 2022, we have reorganized our segments from one reportable segment into two
reportable segments, namely Plinabulin pipeline and TPD platform. The primary reason for such
reorganization is that our chief operating decision maker, the Chief Executive Officer, increasingly manages
and assesses the Company’s performance and operating results in respect of the allocation of resources by
analyzing the operational results of these two reportable segments separately.
Components of Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any
revenue from the sale of products in the foreseeable future. In 2023, we generated $1.8 million of revenue
through SEED’s research collaboration and license agreement with Eli Lilly and nil of revenue through
Wanchunbulin’s exclusive commercialization and co-development agreement with Hengrui. The RMB 200
million (approximately $31 million) upfront payment received by Wanchunbulin from Hengrui is recorded as
deferred revenue and will be recognized as revenue over time after product approval using unit of delivery
measure of progress. In the future, we may generate revenue from a combination of product sales,
reimbursements, upfront payments, milestone payments and royalties in connection with existing and future
collaborations. If we fail to complete the development of our product candidates in a timely manner or fail to
obtain their regulatory approval, we will not generate revenue in the future.
124
Operating Expenses
Research and Development Expenses
The largest component of our total operating expenses has historically been our investment in research
and development activities. Research and development expenses consist of costs associated with our
research and development activities, including the purchase of the Plinabulin global rights from Nereus,
conducting preclinical studies and clinical trials of Plinabulin and development of our pipeline of immune-
oncology product candidates and de novo drug discovery using our ubiquitin-mediated degradation platform.
Research and development expenses also include activities related to:
● employee-related expenses, including salaries, benefits, share-based compensation and travel
expense for research and development personnel;
● expenses incurred under agreements with CROs, contract manufacturing organizations, and
consultants that conduct and support clinical trials and preclinical studies;
● costs associated with preclinical studies and development activities;
● costs associated with regulatory operations;
● costs associated with protecting intellectual property;
● share-based compensation to employees, directors and non-employee consultants; and
● other expenses, which include direct and allocated expenses for rent, insurance and other
supplies used in research and development activities.
Research and development activities are central to our business model. Product candidates in later
stages of clinical development generally have higher development costs than those in earlier stages of
clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect
our research and development expenses to continue to be significant over the next several years as we
continue to develop our product pipeline through additional preclinical studies and clinical trials, and incur
costs for the commercial manufacturing batches of Plinabulin to build up inventories before approval.
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.
There are numerous factors that will impact research and development costs, including future clinical
trials and various regulatory requirements, many of which cannot be determined with accuracy at this time
based on our stage of development. Additionally, future commercial requirements and regulatory factors
beyond our control will impact our clinical development programs and plans. The successful development of
our product candidates is highly uncertain. Due to the inherently unpredictable nature of preclinical studies
and clinical development and commercialization of product candidates, we cannot reasonably estimate or
know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the
development of, or when, if ever, material net cash inflows may commence from, any of our other product
candidates. This unpredictability is due to the numerous risks and uncertainties associated with the duration
and cost of clinical trials and commercialization of product candidates, which vary significantly over the life
of a project as a result of many factors, including:
● the number of clinical sites included in the trials;
● the design of the trial and changes to the design of the trial;
● establishing an appropriate safety profile;
● the length of time required to enroll suitable patients;
125
● the number of patients that ultimately participate in the trials;
● the number of doses patients receive;
● the duration of patient follow-up;
● the results of our clinical trials;
● making arrangements with third-party manufacturers;
● receipt of marketing approvals from applicable regulatory authorities;
● commercializing the product candidates, if and when approved, whether alone or in collaboration
with others;
● obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our
product candidates;
● continued acceptable safety profiles of the products following approval; and
● 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
product candidates would significantly change the costs, timing and viability associated with the
development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including executive, finance
and human resource functions, and information technology, and share-based compensation costs. Other
general and administrative expenses include professional fees for legal, consulting, auditing and tax services
as well as other direct expenses for rent, insurance and supplies used in general and administrative
activities. In January 2022, we announced an organizational streamlining initiative which includes a
reduction-in-force program impacting a number of employees in an effort to reduce compensation costs, and
a reduction in other operating costs. We currently do not expect to incur significant pre-commercialization
costs in the near future. We also incur legal, compliance, accounting, directors and officers insurance, and
investor and public relations expenses associated with being a public company.
Other Income (Expenses)
Other income consists primarily of government grants received, interest income earned on our cash,
foreign exchange gains, gain on loan forgiveness and gains on short-term investments.
Other expenses consist primarily of interest expenses.
126
Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
The following table summarizes the results of our operations for the years ended December 31, 2023
and 2022, respectively, together with the percentage changes in those items:
Years Ended December 31,
2022
2023
Change
Revenue
Operating expenses
Research and development
General and administrative
Loss from operations
Other (expense) income
Foreign exchange gain, net
Interest expenses
Interest income
Other income, net
Total other income
Net loss before income tax
Income tax expenses
Net loss
Revenue
(in thousands of U.S. Dollars
(“$”))
%
1,751
1,351
(14,635)
(10,230)
(23,114)
(123)
—
421
974
1,272
(21,842)
(106)
(21,948)
(25,582)
(13,008)
(37,239)
(429)
(17)
195
1,373
1,122
(36,117)
(163)
(36,280)
30%
-43%
-21%
-38%
-71%
-100%
116%
-29%
13%
-40%
-35%
-40%
Revenues were $1.8 million for the year ended December 31, 2023 compared to $1.4 million for the
year ended December 31, 2022. The increase was primarily due to a milestone payment received from Eli
Lilly for pre-clinical developments. See Note 4 to our consolidated financial statements included in this
Annual Report for more details related to our revenues.
Research and Development Expenses
Research and development (R&D) expenses were $14.6 million for the year ended December 31, 2023
compared to $25.6 million for the year ended December 31, 2022. The $11.0 million decrease was primarily
due to lower clinical development expense, lower professional services expenses to support NDA submission,
and lower personnel costs.
R&D activities(1)
DUBLIN-3
PROTECTIVE-1
PROTECTIVE-2
Preclinical
Other clinical trials
Employee-related expenses
Share-based compensation
Consultant and other
Total research and development
Year Ended December 31,
2022
2023
Change
(in thousands of U.S. Dollars
(“$”))
%
1,559
42
586
4,987
852
5,107
(93)
1,594
14,635
2,973
993
1,664
5,128
1,535
7,966
931
4,392
25,582
-48%
-96%
-65%
-3%
-44%
-36%
-110%
-64%
-43%
(1) Due to the inherently unpredictable nature of preclinical and clinical development, we do not track all of
our internal research and development expenses on a program-by-program basis as they primarily relate to
personnel, early research, manufacturing and development, which are deployed across multiple projects
under development. These costs are therefore shown separately.
127
General and Administrative Expenses
General and administrative (G&A) expenses were $10.2 million for the year ended December 31, 2023,
compared to $13.0 million for the year ended December 31, 2022. The $2.8 million decrease was primarily
due to lower personnel costs. There were also decreases in professional services expenses.
Other Income (Expenses)
Other income for the year ended December 31, 2023 consisted primarily of $0.8 million of cash
government grants received for R&D expenses incurred in the past and $0.4 million of interest income.
Other income for the year ended December 31, 2022 consisted primarily of $1.0 million of realized gain on
forward contract, $0.4 million of foreign exchange loss, $0.3 million of investment income, $0.2 million of
interest income and $0.1 million of unrealized gain on short-term investments.
Comparison of Years Ended December 31, 2022 and 2021
The following table summarizes the results of our operations for the years ended December 31, 2022
and 2021, respectively, together with the percentage changes in those items:
Years Ended December 31,
2021
2022
Change
Revenue
Operating expenses
Research and development
General and administrative
Loss from operations
Other (expense) income
Foreign exchange gain, net
Interest expenses
Interest income
Other income, net
Total other income
Net loss before income tax
Income tax expenses
Net loss
(in thousands of U.S. Dollars
(“$”))
%
1,351
1,351
(25,582)
(13,008)
(37,239)
(429)
(17)
195
1,373
1,122
(36,117)
(163)
(36,280)
(36,888)
(30,703)
(66,240)
231
(87)
98
1,360
1,602
(64,638)
(3,570)
(68,208)
0%
-31%
-58%
-44%
-286%
-80%
99%
1%
-30%
-44%
-95%
-47%
Research and Development Expenses
Research and development (R&D) expenses were $25.6 million for the year ended December 31, 2022
compared to $36.9 million for the year ended December 31, 2021. The $11.3 million decrease was primarily
due to lower clinical development expense, lower regulatory fees and professional services expenses to
support NDA submission, and lower personnel costs as a result of the organizational streamlining announced
in January 2022.
R&D activities(1)
Year Ended December 31,
2021
2022
Change
DUBLIN-3
PROTECTIVE-1
PROTECTIVE-2
Preclinical
Other clinical trials
Employee-related expenses
Share-based compensation
Consultant and other
Total research and development
(in thousands of U.S. Dollars
(“$”))
%
2,973
993
1,664
5,128
1,535
7,966
931
4,392
25,582
3,987
1,953
1,969
3,517
826
8,287
901
15,448
36,888
-25%
-49%
-15%
46%
86%
-4%
3%
-72%
-31%
(1) Due to the inherently unpredictable nature of preclinical and clinical development, we do not track all of
our internal research and development expenses on a program-by-program basis as they primarily relate to
personnel, early research, manufacturing and development, which are deployed across multiple projects
under development. These costs are therefore shown separately.
128
General and Administrative Expenses
General and administrative (G&A) expenses were $13.0 million for the year ended December 31, 2022,
compared to $30.7 million for the year ended December 31, 2021. The majority of the $17.7 million decrease
was due to lower pre-commercialization expenses for Plinabulin and lower personnel costs, as a result of the
organizational streamlining announced in January 2022. There were also decreases in professional services
expenses.
Other Income (Expenses)
Other income for the year ended December 31, 2022 consisted primarily of $1.0 million of realized gain
on forward contract, $0.4 million of foreign exchange loss, $0.3 million of investment income and $0.2
million of interest income and $0.1 million of unrealized gain on short-term investments. Other income for
the year ended December 31, 2021 consisted primarily of $0.6 million of gain on loan forgiveness, $0.4
million of unrealized gain on change in fair value in forward contract, $0.2 million of foreign exchange gain,
$0.1 million of unrealized gain on short-term investments, $0.1 million of investment income and $0.1 million
of interest income.
Segment Revenue
The following table presents our revenues by segment for the years ended December 31, 2023, 2022
and 2021, respectively, together with the year-over-year percentage changes. There were no inter-segment
revenues in each of the years presented.
Years Ended December 31,
2023
(in thousands of U.S. Dollars (“$”), except percentages)
YoY%
2022
2021
YoY%
Revenue
Plinabulin pipeline
TPD platform
—
1,751
—
1,351
—
30%
—
1,351
—
0%
In November 2020, SEED entered into a research collaboration and license agreement with Eli Lilly to
discover and develop new chemical entities that could produce therapeutic benefit through TPD, where
SEED received an upfront cash payment.
To date, all of our revenues have been generated through SEED’s research collaboration and license
agreement with Eli Lilly. Under ASC 606, we recognize the collaboration revenue over time on a straight-line
basis. See Note 4 to our consolidated financial statements included in this Annual Report for more details
related to the collaboration revenue.
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Segment Operating Expenses
The following table presents our operating expenses by segment for the years ended December 31,
2023, 2022 and 2021, respectively, together with the year-over-year percentage changes. Each segment’s
operating expenses include inter-segment expenses.
Years Ended December 31,
2023
(in thousands of U.S. Dollars (“$”), except percentages)
YoY%
2021
2022
YoY%
Operating Expenses
Plinabulin pipeline
Research and development
General and administrative
TPD platform
Research and development
General and administrative
Intersegment eliminations
Total Operating Expenses
Plinabulin pipeline
7,312
8,009
18,180
11,346
-60%
-29%
32,077
29,737
7,363
2,421
(240)
24,865
7,442
1,862
(240)
38,590
-1%
30%
0%
-36%
4,851
1,166
(240)
67,591
-43%
-62%
53%
60%
0%
-43%
Research and development (R&D) expenses were $7.3 million for the year ended December 31, 2023,
compared to $18.2 million for the year ended December 31, 2022. The $10.9 million decrease was primarily
due to lower clinical development expense, lower professional services expenses to support NDA submission,
and lower personnel costs.
Research and development (R&D) expenses were $18.2 million for the year ended December 31, 2022,
compared to $32.1 million for the year ended December 31, 2021. The $13.9 million decrease was primarily
due to lower clinical development expense, lower regulatory fees and professional services expenses to
support NDA submission, and lower personnel costs as a result of the organizational streamlining announced
in January 2022.
General and administrative (G&A) expenses were $8.0 million for the year ended December 31, 2023,
compared to $11.3 million for the year ended December 31, 2022. The $3.3 million decrease was primarily
due to lower personnel costs. There were also decreases in professional services expenses.
General and administrative (G&A) expenses were $11.3 million for the year ended December 31, 2022,
compared to $29.7 million for the year ended December 31, 2021. The majority of the $18.4 million decrease
was due to lower pre-commercialization expenses for Plinabulin and lower personnel costs, both resulting
from the organizational streamlining announced in January 2022. There were also decreases in professional
services expenses.
TPD platform
Due to the inherently unpredictable nature of preclinical development, we do not track all of TPD
platform’s research and development expenses on a program-by-program basis as they primarily relate to
personnel, early research and development, which are deployed across multiple projects.
Research and development (R&D) expenses were $7.4 million for the year ended December 31, 2023,
roughly equal to that for the year ended December 31, 2022. There were no major changes to the scale of
R&D activities currently ongoing.
Research and development (R&D) expenses were $7.4 million for the year ended December 31, 2022,
compared to $4.9 million for the year ended December 31, 2021. The $2.5 million increase was primarily due
to higher in-house personnel costs and higher overhead costs including the rent of wet lab, the depreciation
expenses for lab equipment, and the costs of lab consumables. There were also increases in costs related to
outsourced research and development activities.
130
General and administrative (G&A) expenses were $2.4 million for the year ended December 31, 2023,
compared to $1.9 million for the year ended December 31, 2022. The $0.5 million increase was mainly due to
higher personnel costs.
General and administrative (G&A) expenses were $1.9 million for the year ended December 31, 2022,
compared to $1.2 million for the year ended December 31, 2021. The $0.7 million increase was mainly due to
higher personnel costs and higher overhead costs including office rent and utilities, partially offset by lower
professional services expenses.
Non-Accelerated Filer and Foreign Private Issuer
As a non-accelerated filer, we intend to 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 potential exemptions from 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 comply with the reporting requirements under the Exchange Act as a non-U.S. company with
foreign private issuer status, and as such, we are exempt from certain provisions of the Exchange Act that
are applicable to U.S. domestic public companies, including:
● the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations
in respect of a security registered under the Exchange Act;
● the sections of the Exchange Act requiring insiders to file public reports of their stock ownership
and trading activities and liability for insiders who profit from trades made in a short period of
time;
● the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form
10-Q containing unaudited financial and other specified information, or current reports on Form
8-K, upon the occurrence of specified significant events; and
● Regulation FD, which regulates selective disclosures of material information by issuers.
B. Liquidity and Capital Resources
Since inception, we have incurred net losses and negative cash flows from our operations.
Substantially all of our negative cash flows have resulted from funding our research and development
programs and general and administrative costs associated with our operations. We incurred consolidated net
losses of $21.9 million, $36.3 million and $68.2 million for the years ended December 31, 2023, 2022 and
2021, respectively. As of December 31, 2023 and 2022, we had an accumulated deficit of $396.3 million and
$375.3 million, respectively. Our primary use of cash is to fund research and development costs and for
general and administrative costs. Our operating activities used $16.5 million, $28.2 million and $47.2 million
of cash during the years ended December 2023, 2022 and 2021, respectively. We have financed our
operations with a combination of equity offerings, shareholder and third-party loans, including bank loans,
and collaboration arrangements. For the year ended December 31, 2023, we have received aggregate net
cash proceeds of nil from the sales of our equity securities.
Our liquidity is affected by financing activities, our clinical trials, and research and development and
general and administrative expenses. In order to operate as a going concern in the foreseeable future, we
will need, among other things, additional capital resources. We are evaluating various financing alternatives
to fund our operations, including equity and debt financings, potential licensing and partnership
arrangements, and potential sales of products after obtaining regulatory approvals. There can be no
assurance that capital will be available as necessary to meet our working capital requirements or, if the
capital is available, that it will be on terms acceptable to us. The issuances of additional equity securities by
us may result in dilution in the equity interests of our current shareholders. Obtaining commercial loans,
assuming those loans will be available, will increase our liabilities and future cash commitments and may
include financial covenants and restrictions. If we are unable to obtain financing in the amounts and on
terms deemed acceptable, our business and future success will be materially and adversely affected. These
factors raise substantial doubt regarding our ability to continue as a going concern.
131
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31,
2023, 2022 and 2021:
Net cash used in operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Net effect of foreign exchange rate changes
Net decrease in cash, cash equivalents and restricted cash
Net Cash Used in Operating Activities
Year Ended December 31,
2021
2022
2023
(in thousands of U.S. Dollars (“$”))
(16,474)
(100)
4
(76)
(16,646)
(28,151)
18,247
3,431
(756)
(7,229)
(47,242)
(20,413)
1
(258)
(67,912)
The cash used in operating activities for the years ended December 31, 2023, 2022 and 2021 resulted
primarily from our net losses of $21.9 million, $36.3 million and $68.2 million, respectively, adjusted for non-
cash charges and changes in components of working capital. During 2023, these non-cash charges mainly
consisted of $0.8 million of non-cash share-based compensation and $1.1 million of non-cash operating lease
expenses. Net cash used in operating activities was $16.5 million for the year ended December 31, 2023,
compared to $28.2 million for the year ended December 31, 2022. The $11.7 million decrease was primarily
due to a decrease of operating cash expenditures during the year, partially offset by $2.7 million of cash
proceeds from short-term investments classified as trading securities. Net cash used in operating activities
was $28.2 million for the year ended December 31, 2022, compared to $47.2 million for the year ended
December 31, 2021. The $19.0 million decrease was primarily due to a decrease of operating cash
expenditures during the year, partially offset by $10.2 million of cash proceeds from short-term investments
classified as trading securities.
The primary use of our cash in the periods presented was to fund the development of our research and
development, regulatory and other clinical trial costs and related administrative costs. Our advances to
suppliers and other current assets, accounts payable and accrued expense balances in all periods presented
were affected by the timing of vendor invoicing and payments.
Net Cash Used in Investing Activities
Net cash used in investing activities for the year ended December 31, 2023 was $0.1 million, net cash
provided by investing activities for the year ended December 31, 2022 was $18.2 million, and net cash used
in investing activities for the year ended December 31, 2021 was $20.4 million. During 2023, net cash was
primarily used for acquiring long-lived assets. During 2022, net cash was primarily provided by maturity of
short-term investments classified as available-for-sale securities. During 2021, net cash was primarily used
for purchasing short-term investments and acquiring long-lived assets, including equipment and leasehold
improvements.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 decreased to $4.0
thousand, from $3.4 million for the year ended December 31, 2022. During 2023, net cash was primarily
provided by exercise of subsidiary share options. Net cash provided by financing activities for the year ended
December 31, 2022 increased to $3.4 million, from nil for the year ended December 31, 2021. The increase
was primarily attributable to the net proceeds of $5.0 million we received from the issuance of contingently
redeemable noncontrolling interests, which is the issuance of SEED’s Series A-2 Preferred Shares.
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Liquidity and Material Cash Requirements
We do not expect to generate significant revenue unless and until we obtain regulatory approval of and
commercialize any of our current product 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 current product candidates. Accordingly, we anticipate that we will need
additional funding in connection with our future operations.
Our liquidity is affected by financing activities, our clinical trials, and research and development and
general and administrative expenses. In order to operate as a going concern in the foreseeable future, we
will need, among other things, additional capital resources. There can be no assurance that capital will be
available as necessary to meet our working capital requirements or, if the capital is available, that it will be
on terms acceptable to us. The issuances of additional equity securities by us may result in dilution in the
equity interests of its current shareholders. Obtaining commercial loans, assuming those loans will be
available, will increase our liabilities and future cash commitments and may include financial covenants and
restrictions. If we are unable to obtain financing in the amounts and on terms deemed acceptable, our
business and future success will be materially and adversely affected. These factors raise substantial doubt
regarding the our ability to continue as a going concern. 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 product candidates, we are unable to estimate the amounts of increased capital outlays and operating
expenditures necessary to complete the development and commercialization of our product candidates.
Our future capital requirements will depend on many factors, including:
● the costs, timing and outcome of regulatory reviews and approvals;
● the ability of our product candidates to progress through clinical development successfully;
● the initiation, progress, timings, costs and results of studies in animals and clinical trials for our
other programs and potential product candidates;
● the number and characteristics of the product candidates we pursue;
● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending intellectual property-related claims;
● the extent to which we acquire or in-license other products and technologies;
● our ability to establish and maintain arrangements partnership with other pharmaceutical
companies for the development, licensing and commercialization of our assets; and
● our ability to maintain and establish collaboration arrangements on favorable terms, if at all.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash
needs through a combination of equity and debt financing, potential licensing and partnership arrangements,
and sale of products after obtaining regulatory approvals. 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
the rights of our shareholders. 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
the ownership interest of our shareholders. If we raise additional funds through collaborations, strategic
alliances, marketing or distribution arrangements 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 product
candidates that we would otherwise prefer to develop and market ourselves.
133
Contractual Obligations and Commitments
Lease commitments
Our principal commitments consist of obligations under our operating leases for office space and lab
space.
We lease all of our facilities and believe our current facilities are sufficient to meet our needs. Our
principal executive offices are located in New Jersey, and we also have offices in Pennsylvania, Beijing and
Dalian, China.
We currently lease office space in New Jersey, with total space of 9,727 square feet. The lease expires
in February 2027. Our current rent is $25,533 per month. Starting in August 2024, our annual rent will
increase by $0.50 per square foot leased. We additionally pay for the cost of utilities, as well as our share of
building real estate taxes and building operating expenses. Payments under the lease are expensed on a
straight-line basis over the period of the lease.
We currently lease office space of 860.12 square meters of in Dalian, China, under an ongoing rent-free
arrangement with the local government. Our application for rent exemption has been formally submitted to
the local authorities. As of April 1, 2024, the local government is actively engaged in evaluating our
application.
Our subsidiary, SEED, has completed the build-out of a wet lab in Pennsylvania to support research
and development efforts for the Ubiquitin Platform Technology. SEED currently leases permanent office
space and lab space in Pennsylvania, with a total space of approximately 10,086 rentable square feet. Our
current rent is $38,957 per month. Starting in June 2024, SEED’s annual rent will increase by 3%. SEED
additionally pays for the cost of its utilities, as well as its proportionate share of building real estate taxes,
and building operating expenses, and has paid approximately $0.9 million for improvements to the leased
property on behalf of the lessor. Payments under the lease are expensed on a straight-line basis over the
period of the lease.
Loan agreements
In March 2019, our subsidiary Wanchun Biotechnology (Dalian) Ltd. (formerly known as Wanchun
Biotechnology (Shenzhen) Ltd.) entered into a three-year RMB 10.0 million ($1.5 million) loan agreement
with China Construction Bank which bore floating interest rate benchmarking RMB loan interest rate of
financial institution in the PRC. The loan interest rate was 5.25% as of December 31, 2021. The loan was
guaranteed by our shareholders, Shenzhen Sangel Capital Management Limited Company and Mulong Liu.
The loan was repaid in March 2022.
Other contractual obligations
We enter into agreements in the normal course of business with CROs and institutions to license
intellectual property. These contracts are cancelable at any time by us with prior written notice.
Our subsidiary Wanchunbulin has entered into a government grant agreement with specific local
authorities in the PRC. Wanchunbulin commits to staying within designated districts, maintaining current tax
jurisdictions, and retaining its registered capital, until 2033. Wanchunbulin also undertakes not to establish
additional entities in other jurisdictions within Greater China for the purposes of conducting research,
development, and commercialization activities related to Plinabulin, provided such activities fall within the
scope of the government grant agreement. Otherwise, Wanchunbulin may be required to refund the grants.
C. Research and Development, Patents and Licenses, etc.
Research and Development
Our research and development expenses primarily are comprised of costs incurred in performing research
and development activities, including related personnel salaries and benefits, consultant fees and related
costs, raw materials and supplies to develop product candidates, patent-related costs incurred in connection
with filing patent applications and external costs of outside vendors engaged to conduct clinical development
activities and trials. See “—A. Operating Results—Components of Results of
Operations—Expenses—Research and Development Expenses.”
134
Intellectual Property
As of April 10, 2024, we owned or co-owned 150 patents, in 32 jurisdictions, including 21 issued U.S.
patents. We also owned 12 pending U.S. non-provisional patent applications as well as corresponding patent
applications pending in other jurisdictions and five pending U.S. provisional patent applications. In addition,
we owned three pending international patent applications related to Plinabulin filed under the PCT, which
we plan to file nationally in the U.S. and in other jurisdictions directed to kits and methods for providing and
administering plinabulin, use of Plinabulin in combination with a PARP inhibitor, and Plinabulin micelle
compositions. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D. Trend Information
We are a clinical stage company and cannot predict with any degree of accuracy the outcome of our
research and development efforts. As such, we cannot predict with any degree of accuracy any significant
trends, uncertainties or events that are reasonably likely to have a material effect on our net loss, liquidity or
capital resources, or cause financial information to not be indicative of future operating results or financial
condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events
are described in this “Item 5. Operating and Financial Review and Prospects.”
E. Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations is based on our
financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires us to make estimates, assumptions and judgments that affect the reported
amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and judgments on an
ongoing basis, and our actual results may differ from these estimates. We base our estimates on historical
experience, known trends and events, contractual milestones and other various factors that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources.
Certain of these estimates are considered critical as they involve a significant level of estimation
uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial
statements. Our critical accounting estimates are summarized below. See Note 2 to our consolidated
financial statements included in this Annual Report for a description of our significant accounting policies.
Research Contract Costs and Accruals
We have entered into various research and development contracts with research institutions and other
companies in China, the U.S., and Europe. Related payments are recorded as research and development
expenses as incurred. We record accruals for estimated ongoing research costs. When evaluating the
adequacy of the accrued liabilities, we analyze progress of the studies, including the phase or completion of
events, invoices received and contracted costs. Significant judgments and estimates are made in determining
the accrued balances at the end of any reporting period. Actual results could differ from our estimates. Our
historical accrual estimates have not been materially different from the actual costs.
Income Taxes
Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in
future years. Such assets arise because of temporary differences between the financial reporting and tax
basis of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate
the recoverability of these future tax deductions and credits by assessing the adequacy of future expected
taxable income from all sources, including reversal of temporary differences, forecasted operating earnings
and available tax planning strategies. These sources of income rely heavily on estimates that are based on a
number of factors, including historical experience and short-range and long-range business forecasts. A
valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax
asset will not be realized.
135
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report for recent
accounting pronouncements.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Below is a list of the names and ages of our co-founder, directors and executive officers (including
officers of BeyondSpring Pharmaceuticals, Inc., or BeyondSpring U.S.) as of April 1, 2024, and a brief
account of the business experience of each of them. The business address for our directors and officers and
the officers of BeyondSpring U.S. is c/o BeyondSpring Inc., 100 Campus Drive, West Side, 4th Floor, Suite
410, Florham Park, NJ 07932.
Name
Executive Officers
Lan Huang, Ph.D.
June Lu, Ph.D.
Non-Employee Directors
Brendan Delaney, MBA
Patrick Fabbio, MBA
Matthew Kirkby, M.A.
Jiangwen Majeti, Ph.D., MBA
Sihai Xu, MBA
Executive Officers
Age
Position(s)
53
58
49
56
55
56
52
Co-Founder, Chairperson and Chief
Executive Officer
Chief Scientific Officer
Director
Director
Director
Director
Director
Lan Huang, Ph.D. is our co-founder, Chairperson and Chief Executive Officer and has been a member
of our board of directors since November 2014. Dr. Huang brings over 15 years of entrepreneurial
experience in the Chinese and U.S. biotechnology industries. In 2010, Dr. Huang co-founded Wanchun
Biotech, the former holding company of our U.S. subsidiary. In 2007, Dr. Huang co-founded Wuxi MTLH
Biotechnology Co. Ltd, where she served as Chief Executive Officer in 2010 and continues to hold a
directorship. The rights related to the development and marketing of the peptide drug in China, which drug
Dr. Huang designed while at Wuxi MTLH Biotechnology Co. Ltd, were sold to Shanghai Pharmaceutical
Group in 2010. Additionally, in 2008, Dr. Huang co-founded Paramax International Inc., a CRO that conducts
clinical trials for global biopharmaceutical and medical device companies. Paramax International Inc. was
acquired by ReSearch Pharmaceutical Services, Inc. in 2009. Currently, Dr. Huang serves on the board of
directors of Sincere Efforts Foundations Inc., a non-profit organization. Dr. Huang was trained at Memorial
Sloan Kettering Cancer Center from 1998 to 2002, where her research in cancer signaling pathways
involving P53 degradation was published in Science. Her translational research in cancer signaling pathways
involving RAS was published in two Nature papers. She has invented and holds patents for a number of
biotech products for oncology and dermatology indications. Dr. Huang received her B.A., magna cum laude
and Phi Beta Kappa, from Lawrence University, where she served as a trustee from 2012 to 2015. She
received her Ph.D. in chemistry from the University of California at Berkeley, where she won the
international-level Women’s Opportunity Award given by Soroptimist International. She also studied at
Fudan University in Shanghai, China.
June Lu, Ph.D. is our Chief Scientific Officer, effective April 1, 2024. Prior to this appointment, she
served as our Executive Director of Transitional Medicine. Dr. Lu has nearly 25 years of industry experience
in innovative drug research and development and is an accomplished professional in scientific, translational
and strategic analysis aspects of R&D projects and pipeline assets. Her special expertise is in
multidisciplinary, collaborative leadership experiences in the biotech and pharmaceutical industry. Prior to
BeyondSpring, Dr. Lu worked at Endocyte, which developed 177Lu-PSMA-617, now approved drug
Pluvicto®, and at Advanced Accelerator Applications, a Novartis company, and Novartis Institute for
Biomedical Research. Dr. Lu has led cross-functional project teams to develop small molecule-based
strategies for cancer (FolateImmune; bispecific CAR-T cell therapy) and autoimmunity (DHFR/mTOR
inhibitors). In addition, Dr. Lu has spearheaded deep-dive scientific efforts in macrophage-targeting, drug
resistance & IO (PD-1/CTLA-4) combinations, target ID/pre-validation and indication selections. Dr. Lu has
authored about 30 peer-reviewed publications and is an inventor for multiple patents. She received her
Ph.D. in chemistry (biochemistry division) from Purdue University and B.S. degree in analytical chemistry
from Zhejiang University of Technology.
136
Non-Employee Directors
Brendan Delaney, MBA has served on our board since July 2021. Mr. Delaney brings more than 25
years of global product strategy and launch experience to his role leading commercial organizations. He
currently serves as an independent consultant to emerging biotech companies. He was previously the Chief
Operating Officer and Chief Executive Officer of Aadi Bioscience. Prior to joining Aadi Bioscience, he served
as the Chief Commercial Officer of Constellation Pharmaceuticals before it was acquired by MorphoSys for
$1.4B in June 2021. Prior to joining Constellation, Mr. Delaney was the Chief Commercial Officer at
Immunomedics, where he led the buildout of the marketing, sales, market access and commercial operations
teams. He was instrumental in successfully launching Trodelvy, the first TROP-2 directed antibody-drug
conjugate for the treatment of triple-negative breast cancer. Immunomedics was acquired by Gilead Sciences
for $21B in September 2020. Previously, he served as Vice President of U.S. Hematology-Oncology at
Celgene Corporation. Prior to joining Celgene, he held various commercial roles at both Novartis Oncology
and Genentech, where he led several successful product launches for blockbuster brands. Mr. Delaney also
serves on the Board of Directors of MJH Life Sciences, one of the leading medical-media companies in the
United States. He received an MBA from the Stern School of Business at the New York University and a B.A.
in biology from Rutgers University.
Patrick Fabbio, MBA has served on our board since January 2018. Mr. Fabbio is currently the Chief
Financial Officer of Protara Therapeutics, Inc. Mr. Fabbio has more than 30 years of financial, operational
and transactional leadership experience in both publicly-traded and privately-held life science and
pharmaceutical companies. Prior to joining Protara Therapeutics, Inc., Mr. Fabbio was Chief Financial
Officer of Rafael Holdings, Inc. Previously he served as the Chief Financial Officer of WindMIL Therapeutics
Inc., Progenics Pharmaceuticals, Inc., electroCore Medical, LLC; Vice President of Finance at NPS
Pharmaceuticals, Inc.; Vice President of Finance, Innovation and Growth at Catalent Pharma Solutions Inc.;
and Chief Financial Officer at Ikano Therapeutics. His other prior financial positions include roles at Sanofi,
UniPath Diagnostics, BioMatrix and Coopers & Lybrand. He received his B.B.A. in accounting at Pace
University and MBA from the Stern School of Business at New York University.
Matthew Kirkby, M.A. has served on our board since October 2016. Mr. Kirkby brings over 20 years
of banking experience to our board. He has held senior management positions in London, Hong Kong and
Singapore. From 2015 to 2016 Mr. Kirkby served as Head of Corporate Banking Asia Pacific for HSBC in
Hong Kong. From 2012 to 2015, Mr. Kirkby was the Chief Executive Officer North Asia and Co-Head of
Investment Banking for CIMB in Hong Kong. He served as Managing Director, Global Head of ECM and
Corporate Finance from 2008 to 2010 and Managing Director, Head of Global Banking Asia Pacific from
2010 to 2012 at the Royal Bank of Scotland. Between 1999 and 2007 Mr. Kirkby held various positions at
ABN AMRO. He is currently a director or adviser to a number of privately-held companies. He received his
M.A. in jurisprudence at Pembroke College, University of Oxford in the United Kingdom.
Jiangwen (Jen) Majeti, Ph.D., MBA has served on our board since August 2022. Dr. Majeti is an
investor, biotech company advisor, and executive with more than 20 years of experience in the biotech and
pharmaceutical industry. She carried out diverse roles with increasing responsibilities in both biotech and
large multinational companies, encompassing cross-functional experiences in R&D, business development,
supplier management, and outsourcing in the biopharmaceutical industry. Most recently, she was the Head
of Global Collaborations and General Manager, China of Erasca, a NASDAQ traded company, managing
global collaboration, and overseeing CROs to increase productivity and minimize costs. Prior to that, she was
Global Category Leader for Roche External Alliance, Senior Director of Business Development for BioDuro,
and Senior Scientist at Amgen. Dr. Majeti is the past president and currently serving on the board of
directors of the Chinese-American Biopharmaceutical Society, a non-profit organization with more than
3,000 members focused on building a stronger community among biopharmaceutical professionals in the
U.S. and China. She is also a member of the BayHelix Group, a non-profit professional organization of
business leaders with a mission to shape the growth of the life sciences and healthcare industry globally with
a strong presence in China and the U.S. Dr. Majeti received her Ph.D. in molecular genetics from the
University of Wisconsin at Madison, and obtained her postdoctoral training at the Howard Hughes Medical
Institute of the University of California, San Francisco. She also earned an MBA from the Leavey School of
Business at Santa Clara University, graduating as a member of the Beta Gamma Sigma Honor Society. She
completed her undergraduate studies in biochemistry at Fudan University in China.
137
Sihai Xu, MBA has served on our board since August 2022. Mr. Xu was previously our employee and
served as International Business Coordinator from November 2016 to January 2022. Mr. Xu has been an
accomplished financial executive for almost 30 years in China. His most recent role since 2014 is the CFO
and board member of BOJI Health Investment Management (Shanghai) Co., Ltd. Prior engagements include
CFO of Henan Plastic Surgery Hospital, CFO of Shanghai BOJI Hospital Investment Management Co., Ltd.,
CFO of Henan Zhiyi Investment Management Co., Ltd., and Director of Finance of Luoyang Chundu Group.
As a financial advisor and strategic investor, Mr. Xu has participated in pre-IPO, IPO, and major asset
restructuring for dozens of public companies in China and Hong Kong, such as Henan Taloph Pharmaceutical
Stock Co., Ltd., and Henan Lingrui Pharmaceutical Co., Ltd., Xinxiang Chemical Fiber Co. Ltd., Central
China Land Media Co. Ltd., and China Molybdenum Co., Ltd.. Mr. Xu received his MBA from Renmin
University in China and his bachelor’s degree from Henan University of Economics and Law in China, with a
major in Financial Accounting. He is experienced with China GAAP.
Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the
date of this annual report.
Board Diversity Matrix
Country of Principle Executive Offices:
Foreign Private Issuer
Disclosure Prohibited under Home Country Law
Total Number of Directors
U.S.
Yes
No
6
Female
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Home Country
Jurisdiction
LGBTQ+
Did Not Disclose Demographic Background
2
3
0
0
B. Compensation
Male
Non-Binary Did Not
Disclose
Gender
4
0
0
Compensation of Executive Officers and Directors in 2023
With respect to the year ended December 31, 2023, the aggregate cash compensation, including
benefits in kind, accrued or paid by us and our subsidiaries to our directors and executive officers who
served during the year ended December 31, 2023, was $1.3 million, and the aggregate equity compensation
by us and our subsidiaries to our directors and executive officers was $120 thousand (including stock options
exercised and restricted shares vested), as described in “—2017 Omnibus Incentive Plan” below). This
amount does not include business travel, relocation, professional and business association dues and expenses
reimbursed to such persons, and other benefits commonly reimbursed or paid by companies in our industry.
In respect of the year ended December 31, 2023, this amount includes approximately $21 thousand set aside
or accrued to provide pension, severance, retirement or similar benefits or expenses in the form of matching
employer contributions to a U.S. 401(k) retirement plan. Executive officers, as applicable, participate in the
401 (k) retirement plan on the same basis as other full-time employees generally.
138
Director Compensation
Director Agreements
We have entered into a director agreement, or the Director Agreement, with each of our non-employee
directors. Under the terms of each Director Agreement (as amended effective July 1, 2020), the
compensation payable to our non-employee directors consists of:
● an annual cash retainer fee equal to $40,000 (pro-rated for any partial year of service);
● an additional cash retainer fee (pro-rated for any partial year of service) for service on a
committee, as follows: Compensation Committee: $6,000 ($12,000 if chair); the Nominating and
Corporate Governance Committee, $4,000 ($8,000 if chair); and the Audit Committee, $8,000
($16,000 if chair);
● an initial grant of a non-qualified stock option to purchase 20,000 ordinary shares in respect of
the director’s first 12 months’ of service; and
● an annual grant of a non-qualified stock option to purchase 10,000 ordinary shares at the start of
each fiscal year.
Such options are granted under the BeyondSpring Inc. 2017 Omnibus Incentive Plan as amended and
restated as of September 18, 2020, referred to herein as the 2017 Omnibus Incentive Plan, with a per share
exercise price equal to the fair market value per share as of the date of grant. The initial option grant for a
new director (made in respect of the director’s first 12 months of service) is issued on or around the date of
commencement of service, and vests in three equal installments on the first three anniversaries of the grant
date, subject to the director’s continued service as our director through the applicable vesting date. The
annual director grants are made on a fiscal year basis at the start of the applicable fiscal year (with the
annual grant made in respect of the first full fiscal year beginning during the director’s term to be pro-rated
for the length of service from the first anniversary of the director’s start date through the end of such fiscal
year), and vest on the first anniversary of the grant date, subject to the director’s continued service as our
director through the vesting date. All director option grants are subject to the terms and conditions of the
2017 Omnibus Incentive Plan and the applicable option award agreement memorializing such grant.
Jeffrey Vacirca Consulting Agreement
Jeffrey Vacirca, M.D., F.A.C.P. served on our board from December 2020 to June 2022. In addition to
his director agreement as described above, Dr. Vacirca was also party to a consulting agreement, entered
into with us on January 26, 2021 and terminated on January 25, 2023. Under his consulting agreement, Dr.
Vacirca provided general consulting services of a clinical, regulatory or commercial nature with respect to
Plinabulin and other pipeline programs. As consulting fees, Dr. Vacirca received options with a Black Scholes
value of $120,000 annually. All of these options were forfeited in April 2023 when they expired unexercised
at the end of the applicable exercise period.
Brendan Delaney Consulting Agreement
In addition to his director agreement as described above, Mr. Delaney was also party to a consulting
agreement, entered into with us on November 6, 2021 and terminated on November 6, 2022. Under his
consulting agreement, Mr. Delaney provided general consulting services of commercial nature on Plinabulin
and other pipeline programs. He received an annual consulting fee of $120,000, which he was entitled to
elect (no later than December 31 of the prior year) to receive in cash or in the form of nonqualified stock
options, valued using Black-Scholes option pricing model. Mr. Delaney elected to receive payment of his pro-
rated 2021 consulting fee in options and his 2022 consulting fee in the form of cash. Mr. Delaney’s
nonqualified stock options in respect of 2021 were granted on November 6, 2021, consisting of 2,673 options
with a per share exercise price of $15.18. These 2,673 options were forfeited in February 2023 because they
were not exercised within the applicable exercise period.
139
Outstanding Director Equity Awards
On December 18, 2023, we granted Mr. Fabbio 14,141 fully vested ordinary shares of the Company, in
respect of his partial 2023 cash compensation.
We also made the following grants of options to our non-employee directors during 2023:
● On February 10, 2023, we made the following grants of nonqualified share options to our non-
employee directors in respect of their annual option grant entitlements for fiscal year 2023 under
their Director Agreements (subject to the one-year vesting as described above): Mr. Delaney,
15,000 options; Mr. Fabbio, 15,000 options; Mr. Kirkby, 15,000 options; Dr. Majeti, 5,625 options
(reflecting pro-ration based on August 2022 start date); Dr. Xie, 15,000 options; and Mr. Xu, 5,625
options (reflecting pro-ration based on August 2022 start date). Grants to Dr. Xie were forfeited in
connection with her retirement in July 2023.
● On May 8, 2023, we made the following one-time grants of nonqualified share options to our non-
employee directors: Mr. Delaney, 25,000 options, Mr. Fabbio, 25,000 options; Mr. Kirkby, 25,000
options; Dr. Majeti, 10,000 options; Dr. Xie, 25,000 options and Mr. Xu, 10,000 options. Grants to
Dr. Xie were forfeited in October 2023 because they were not exercised within the applicable
exercise period.
● On December 18, 2023, we made the following grants of nonqualified share options to our non-
employee directors in respect of their partial 2023 cash compensation: Mr. Delaney, 19,875
options; Mr. Kirkby, 14,906 options; Dr. Majeti, 16,770 options; and Mr. Xu, 12,422 options.
In addition, on January 1, 2024, we made the following grants of nonqualified share options to our non-
employee directors in respect of their annual option grant entitlements for fiscal year 2024 under their
Director Agreements (subject to the one-year vesting as described above): Mr. Delaney, 10,000; Mr. Fabbio,
10,000 options; Mr. Kirkby, 10,000 options; Dr. Majeti 10,000 options; and Mr. Xu, 10,000 options.
The following table sets forth the number of options held by our non-employee directors as of April 1,
2024. None of our non-employee directors held unvested restricted shares as of April 1, 2024.
Non-Employee
Director
Brendan Delaney
Patrick Fabbio
Options
Vested
Unvested
13,333
5,000
10,000
15,000
25,000
—
—
5,000
10,000
10,000
10,000
15,000
25,000
6,667
—
—
—
—
14,906
10,000
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
Exercise
Price
9.62
4.53
1.99
2.68
0.9835
0.99
0.90
11.03
12.20
4.53
1.99
2.68
0.9835
Expiration
Date
07/07/2031
01/01/2032
03/07/2032
02/10/2033
05/08/2033
12/18/2033
01/01/2034
08/01/2030
01/01/2031
01/01/2032
03/07/2032
02/10/2033
05/08/2033
Matthew Kirkby
Jiangwen Majeti
Sihai Xu
10,000
—
—
—
—
—
—
19,875
10,000
13,334
—
—
16,770
10,000
13,334
—
—
12,422
10,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.90
11.03
12.20
4.53
1.99
2.68
0.9835
0.99
0.90
1.50
2.68
0.9835
0.99
0.90
1.50
2.68
0.9835
0.99
0.90
01/01/2034
08/01/2030
01/01/2031
01/01/2032
03/07/2032
02/10/2033
05/08/2033
12/18/2033
01/01/2034
08/23/2032
02/10/2033
05/08/2033
12/18/2033
01/01/2034
08/23/2032
02/10/2033
05/08/2033
12/18/2033
01/01/2034
—
5,000
10,000
10,000
10,000
15,000
25,000
—
—
6,666
5,625
10,000
—
—
6,666
5,625
10,000
—
—
140
For additional information regarding equity-based grants under our 2017 Omnibus Incentive Plan, see
“—2017 Omnibus Incentive Plan.”
Employment Agreements (Fiscal Year 2023 Executive Officers)
Lan Huang, Chief Executive Officer
Dr. Lan Huang, our Co-founder, Chairperson, Chief Executive Officer and Principal Financial Officer, is
party to an amended and restated employment agreement with BeyondSpring U.S. dated as of November 10,
2016, as amended by those letter amendments effective January 1, 2020, January 19, 2021, January 11, 2022,
April 1, 2023, and November 1, 2023. Beginning in fiscal year 2020, Dr. Huang’s employment agreement
provides for an annual base salary of $520,000, which is subject to review and adjustment in accordance
with company policy. Beginning in fiscal year 2022, Dr. Huang’s annual base salary increased to $540,800
representing a 4% cost of living adjustment or COLA. Starting from April 1, 2023, Dr. Huang’s annual base
salary, except for the amount of base salary Dr. Huang received from SEED as described below, is reduced
by 25% to $263,640. The amount of base salary Dr. Huang receives from SEED reduces the amount of base
salary payable by us, as described below.
Dr. Huang is eligible to participate in any bonus program, on a basis consistent with that applicable to
other employees at her level, in accordance with company policy, with a target annual merit bonus of 50% of
base salary for fiscal year 2023. As approved by the Compensation Committee, half of Dr. Huang’s 2023
bonus award will be paid in mid-2024, with the other half to be paid after we raise new funds. Dr. Huang is
also eligible to receive payment for the full cost of her medical insurance. Dr. Huang’s employment is at will,
and can be terminated by us at any time or by Dr. Huang upon three months’ notice. Dr. Huang’s
employment agreement contains a two year non-solicit of employees, a confidentiality provision and an
assignment of intellectual property provision. Pursuant to the employment agreement. Effective with the
January 11, 2022 amendment, in the event that Dr. Huang’s employment is terminated by the Company
without “cause” or by Dr. Huang with “good reason” (as each such term is defined in the employment
agreement), Dr. Huang would become entitled (subject to her execution and nonrevocation of a release of
claims) to the payment of (i) her then base salary for the nine (9) month period commencing on the date of
termination, or the Severance Period, payable over the Severance Period in regular installments in
accordance with the Company’s normal payroll practices and (ii) a pro-rated portion of any bonus earned for
the year in which the date of termination occurs, based on actual performance results, and paid at the same
time as other senior executives.
141
Dr. Huang is also party to a separate employment agreement with a subsidiary of SEED, pursuant to
which Dr. Huang is assigned to SEED on a part-time basis (approximately 12% of her work time prior to July
1, 2021, 20% of her work time effective as of July 1, 2021, 35% of her work time effective as of January 12,
2022, and 15% of her work time effective November 1, 2023) and receives a base salary from SEED of
$67,938, which reduces her base salary from us. Prior to July 1, 2021, Dr. Huang’s base salary from SEED
was set at $62,400. From July 1, 2021 to January 11, 2022, this amount was $104,000. From January 11,
2022 to November 1, 2023, this amount was $189,280. If Dr. Huang’s employment with SEED terminates
other than for cause, Dr. Huang will resume full time employment with us and her base salary from us will be
restored.
Ramon Mohanlal, M.D., Former Chief Medical Officer, EVP, R&D
Prior to the employment termination on February 16, 2023, Dr. Ramon Mohanlal, our former Chief
Medical Officer, was party to an amended and restated employment agreement with BeyondSpring U.S.,
dated as of November 10, 2016, as amended by that letter amendment effective July 1, 2019 and that letter
agreement dated January 11, 2022. Dr. Mohanlal’s employment agreement provides for an annual base
salary of $430,000, which is subject to review and adjustment in accordance with company policy. Beginning
in fiscal year 2022, Dr. Mohanlal’s annual base salary was increased to $447,200 representing a 4% cost of
living adjustment or COLA. Due to his departure from the Company, Dr. Mohanlal was ineligible for, and did
not receive, an annual merit bonus in accordance with company policy for 2023.
In connection with the termination of Dr. Mohanlal’s employment, Dr. Mohanlal became entitled to
(subject to his execution and compliance with the separation and release agreement dated February 28,
2023) (i) 9 months of salary continuation payable in accordance with the Company’s payroll practices, (ii)
$75,465, less applicable tax withholdings, in a single lump sum, which amount represents the full and final
settlement of the bonus to which he was entitled for the fiscal year 2022, and (iii) 86,957 fully vested
ordinary shares of the Company, granted under the 2017 Omnibus Incentive Plan, subject to applicable tax
withholdings. All outstanding unvested equity awards and cash long-term incentive award held by Dr.
Mohanlal as of February 16, 2023 were forfeited in connection with his termination.
Retention Arrangements
On January 13, 2022, we entered into retention agreements with each of Dr. Huang and Dr. Mohanlal,
pursuant to which the executive officer may earn the following retention payments subject to satisfactory
performance, with 50% vesting based on continued employment through December 31, 2022 and 50%
vesting based on continued employment through December 31, 2023: Dr. Huang, $520,000; and Dr.
Mohanlal, $387,000. To the extent earned, the retention payments are payable 40% in cash and 60% in
options in the case of Dr. Huang, and 100% in the form of options in the case of Dr. Mohanlal. As a result of
his termination of employment with us, Dr. Mohanlal forfeited his unvested retention options representing
the remaining 50% of his retention amount.
Consulting Arrangements
G. Kenneth Lloyd, Ph.D.
Prior to his retirement effective March 31, 2024, Dr. G. Kenneth Lloyd, our former Chief Scientific
Officer, provided consulting services to BeyondSpring U.S., and prior to the formation of BeyondSpring U.S.,
to our subsidiary Wanchun Pharma, since December 16, 2012. Dr. Lloyd served as our Chief Scientific
Officer through December 31, 2019, and resumed the position effective March 15, 2021. Pursuant to the
consulting service contracts entered into with Dr. Lloyd, as amended from time to time, the consulting fees
for his services provided during the year ended December 31, 2023 were $141,833. For service as Chief
Scientific Officer from January 1, 2024 to March 31, 2024, Dr. Lloyd received $18,000 in consulting fees and
was reimbursed $1,500 for the cost of health insurance for him.
Effective April 1, 2024, Dr. Lloyd will continue to serve BeyondSpring U.S. in an advisory role through
September 30, 2024. He will receive $350 per hour of his services up to 10 hours per month.
142
2017 Omnibus Incentive Plan
In connection with our initial public offering, we adopted the 2017 Omnibus Incentive Plan to provide
additional incentives to selected directors, officers, employees and consultants, and to enable our company
to obtain and retain the services of these individuals. The 2017 Omnibus Incentive Plan as amended from
time to time enables us to grant restricted shares, nonqualified stock options, incentive stock options and
other awards to our directors, employees and consultants. Up to 5,277,197 ordinary shares are authorized to
be granted pursuant to awards under the 2017 Omnibus Incentive Plan, with 2,126,762 ordinary shares
remaining available for grant of awards as of April 1, 2024. Awards are made pursuant to award agreements
and may be subject to vesting and other restrictions as determined by the board of directors. As of April 1,
2024, there were 864,484 restricted shares outstanding and 2,103,998 options outstanding, in addition to
the other share-based awards described in “—Other Share-Based Awards” below.
Restricted Share Awards
We have granted restricted share awards under the 2017 Omnibus Incentive Plan to our directors
(please see “—Director Agreements” above) and certain of our employees and consultants, including certain
of our executive officers. Under the terms of the restricted share award agreements, if an executive officer is
terminated without “cause” within 12 months of a “change in control” (each as defined in the 2017 Omnibus
Incentive Plan), then any unvested time-based restricted shares will become fully vested on the termination
date. If the executive officer’s employment or engagement terminates due to death or disability, the next
tranche of time-based restricted shares that would have vested had the executive officer remained in service
with us through the applicable vesting date will become fully vested on the termination date, and any
remaining unvested time-based restricted shares as of the termination date will be forfeited. Upon any other
termination of employment or engagement, all unvested time-based restricted shares as of the termination
date will be forfeited. Upon any termination of service for any reason, all unvested performance-based
restricted shares as of the termination date will be forfeited.
We did not grant any restricted share awards to our executive officers in fiscal year 2023.
For the total number of restricted shares held by our executive officers as of April 1, 2024, please see
“—Outstanding Restricted Shares and Options” below.
Option Awards
We have granted both ISOs and non-qualified stock options to purchase our ordinary shares under the
2017 Omnibus Incentive Plan, or “options,” to certain of our employees, including certain of our executive
officers. The options granted to our executive officers are subject to a combination of individualized time-
based vesting and performance-based vesting (as provided for in the applicable option award agreement),
subject to the executive officer’s continued service with us through the applicable vesting date. The options
have an exercise price per share of no less than the fair market value of one ordinary share of us as of the
date of grant, and expire on the tenth anniversary of the date of grant (if not earlier exercised or forfeited).
Under the terms of the 2017 Omnibus Incentive Plan and option agreements, (i) if the options are
assumed or substituted for in the change in control, if the executive officer is terminated without cause
within 12 months of such change in control, then any unvested options will become vested and will remain
exercisable for the 90-day period following the termination date, and (ii) if the options are not assumed or
substituted for in the change of control, then any unvested options will become vested upon such change of
control and otherwise be treated as determined by the plan administrator.
If the executive officer’s employment or engagement terminates due to death or disability, the next
tranche of time-based options that would have vested had the executive officer remained employed or
engaged through the applicable vesting date will become fully vested on the termination date (and will
remain exercisable for one year following such termination), and any remaining unvested time-based options
will be forfeited. On a termination by us for cause, all vested and unvested options are forfeited. On a
termination for any other reason, vested options remain exercisable for three months following such
termination date. Upon any termination of employment, any unvested performance-based options as of the
termination date will be forfeited.
143
We granted the following options to our executive officers in fiscal year 2023:
● Dr. Huang: 400,000 non-qualified stock options, granted on May 8, 2023, at an exercise price of
$0.9835 per share.
● Dr. Lu: 5,000 incentive stock options, granted on September 1, 2023, at an exercise price of $0.90
per share.
For the total number of options held by our executive officers as of April 1, 2024, please see
“—Outstanding Restricted Shares and Options” below.
Outstanding Restricted Shares and Options
The following table sets forth the number of restricted shares and options held by our executive
officers as of April 1, 2024. None of our executive officers held unvested restricted shares as of April 1, 2024.
Executive
Officer(1)
Lan Huang(2)
Options
Vested Unvested Exercised
Exercise
Price
388,000 332,000
— $
11.03
90,343
—
— $
4.69
— 400,000
— $
0.9835
—
33,663
— $
3.168
June Lu(3)
5,000
5,000
— $
16.55
2,003
—
1,666
3,334
—
19,180
—
50,000
— $
— $
— $
— $
4.26
0.90
1.33
3.57
Expirati
on
Date
08/01/20
30
01/11/20
32
05/08/20
33
03/19/20
34
10/18/20
31
01/11/20
32
09/01/20
33
03/01/20
34
04/01/20
34
(1) Dr. Mohanlal’s employment was terminated on February 16, 2023, at which time his unvested options and
unvested restricted shares were forfeited. His 319,188 vested options were forfeited on May 16, 2023
because they were not exercised within the applicable exercise period.
(2) In addition, on December 1, 2022, our majority-owned subsidiary, SEED Therapeutics Inc. ("SEED”),
granted to Dr. Huang a non-qualified share option to purchase 500,000 ordinary shares of SEED, under
SEED’s 2022 Share Incentive Plan (“SEED Incentive Plan”) with an exercise price of $0.50 per share. As of
April 1, 2024, 250,000 of these options were vested. The expiration date of the SEED option is December
1, 2032. Further, on February 15, 2024, SEED granted to Dr. Huang an incentive share option to purchase
250,000 ordinary shares of SEED under SEED Incentive Plan with an exercise price of $0.50 per share and
an expiration date of February 15, 2029. As of April 1, 2024, none of these options were vested.
(3) Dr. Lloyd retired from his role as Chief Scientific Officer of the Company, effective as of March 31, 2024.
Dr. Lloyd will continue to provide services in an advisory role to the Company as requested through
September 30, 2024. Effective immediately upon Dr. Llyod’s retirement, Dr. Lu was appointed as the
Company’s Chief Scientific Officer.
Cash Long-Term Incentive Awards (“Cash LTI”)
We have granted cash long-term incentive awards under the 2017 Omnibus Incentive Plan to certain of
our executives. The Cash LTIs granted to our executive officers are subject to the attainment of various
component milestones in the research, development, testing and realization in CIN and NSCLC indication
drug programs (as provided for in the applicable cash long-term incentive award agreements), subject to the
executive officer’s continued service with us through the applicable attainment date.
Under the terms of the cash long-term incentive award agreements, if an executive officer is
terminated for any reason, then the award agreement shall terminate as of the date of such termination and
shall no longer be of any force and effect. Any and all rights to any milestone payments for which the
applicable milestone has not been attained shall be forfeited, and any unpaid milestone payment for which
the applicable milestone has been attained shall be paid as of the date of such termination.
144
We did not grant any Cash LTIs to our executive officers in fiscal year 2023. As of April 1, 2024, the
following grant of Cash LTIs to our executive officers remain outstanding (all granted in fiscal year 2021):
● Dr. Huang: a maximum of $2,575,000
Under Dr. Huang’s agreement, 25% of any earned milestone payments shall be paid in fully vested
ordinary shares and the remaining 75% shall be paid in either cash or fully vested ordinary shares, at Dr.
Huang’s election. No milestone payments were earned in 2023 by any of our executives.
Other Share-Based Awards
We have granted other share-based awards under the 2017 Omnibus Incentive Plan to certain of our
employees and consultants, including Dr. Mohanlal. Share-based awards may be denominated in a number of
shares or in a dollar amount, and are earned and paid in ordinary shares upon reaching certain service-based
and/or performance-based milestones. Dr. Mohanlal’s other share-based award is described below.
On April 11, 2017, we granted a stock bonus award opportunity to Dr. Mohanlal under the 2017
Omnibus Incentive Plan. Pursuant to the terms of the award, Dr. Mohanlal was eligible to receive up to a
maximum of 300,000 ordinary shares payable in installments upon our recognition of specified amounts of
cumulative net income in connection with the attainment of various component milestones in the research,
development, testing and realization of the drug BPI-002, subject to his continued employment through the
attainment of each applicable milestone. Dr. Mohanlal was also eligible to receive up to a maximum of
300,000 additional ordinary shares payable in installments upon our recognition of specified amounts of
cumulative net income in connection with the attainment of various component milestones in the research,
development, testing and realization of the drug BPI-004, subject to his continued employment through the
attainment of each applicable milestone. As a result of the termination of Dr, Mohanlal’s employment on
February 16, 2023, and as reflected in the separation agreement with Dr. Mohanlal, the performance-based
stock bonus award was forfeited as none of the aforementioned milestones were achieved.
C. Board Practices
Board of Directors
Our board of directors currently consists of six members, all of whom were elected pursuant to our
current articles of association. Our nominating and governance committee and board of directors 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 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 expertise relevant to our growth strategy.
There is no Cayman Islands law requirement that a director must hold office for a certain term and
stand for re-election unless the resolutions appointing the director impose a term on the appointment. Our
amended and restated articles of association provide that our directors shall hold office until the expiration
of his or her term and until his or her successor shall have been elected and qualified.
A director may be elected by ordinary resolution either to fill a casual vacancy on the board of
directors or as an addition to the existing board of directors. In addition, the directors by the affirmative vote
of a simple majority of the remaining directors present and voting at a board meeting shall have the power
from time to time and at any time to appoint any person as a director to fill a casual vacancy on the board of
directors or as an addition to the existing board of directors, subject to our compliance with director
nomination procedures required under applicable corporate governance rules of the Nasdaq Capital Market,
as long as our company’s securities are traded on the Nasdaq Capital Market. A director may be removed
from office by ordinary resolution at any time before the expiration of his or her term. The Director
Agreement does not provide for any benefits upon termination of service to our directors.
145
Director Independence
Our board of directors has determined that Brendan Delaney, Patrick Fabbio, Matthew Kirkby and
Jiangwen Majeti are independent, as determined in accordance with the rules of the Nasdaq Capital 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 and the transactions involving them described in “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions.” The composition and functioning of our
board of directors and each of our committees comply with all applicable requirements of the Nasdaq Capital
Market and the rules and regulations of the SEC. There are no family relationships among any of our
directors or executive officers.
Board Committees
Our board of directors has established an audit committee, a compensation committee and a
nominating and corporate governance committee, each of which operates pursuant to a separate charter
adopted by our board of directors. The composition and functioning of all of our committees comply with all
applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the Nasdaq Capital Market and SEC rules and regulations, with an exception as noted below.
Audit Committee
Patrick Fabbio, Matthew Kirkby and Brendan Delaney currently serve on the audit committee, which is
chaired by Mr. Fabbio. Our board of directors has determined that each member of the audit committee is
“independent” for audit committee purposes as required by the Nasdaq Capital Market listing standards
relating to audit committees and as contained in Rule 10A-3 under the Exchange Act, except from November
6, 2021 to November 6, 2022, during which period Mr. Delaney was party to a consulting agreement with the
Company (as described in “B. Compensation—Director Compensation—Brendan Delaney Consulting
Agreement”). The audit committee’s responsibilities include:
● selecting and appointing our independent registered public accounting firm, and approving the
audit and permitted non-audit services to be provided by our independent registered public
accounting firm;
● evaluating the performance and independence of our independent registered public accounting
firm;
● monitoring the integrity of our financial statements and our compliance with legal and regulatory
requirements as they relate to our financial statements or accounting matters;
● reviewing the adequacy and effectiveness of our accounting and internal control policies and
procedures;
● establishing procedures for the receipt, retention and treatment of accounting-related complaints
and concerns;
● reviewing and discussing with the independent registered public accounting firm the results of
our year-end audit, and recommending to our board of directors, based upon such review and
discussions, whether our financial statements shall be included in our annual report on Form 20-
F;
● reviewing all related party transactions for potential conflict of interest situations and approving
all such transactions; and
● reviewing the type and presentation of information to be included in our earnings press releases,
as well as financial information and earnings guidance provided by us to analysts and rating
agencies.
Compensation Committee
Matthew Kirkby and Jiangwen Majeti currently serve on the compensation committee, which is chaired
by Mr. Kirkby. Our board of directors has determined that each member of the compensation committee is
“independent” as that term is defined in the applicable rules of the Nasdaq Capital Market. The
compensation committee’s responsibilities include:
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● reviewing the goals and objectives of our executive compensation plans, as well as our executive
compensation plans in light of such goals and objectives;
● evaluating the performance of our executive officers in light of the goals and objectives of our
executive compensation plans and recommending to our board of directors with respect to the
compensation of our executive officers;
● reviewing the goals and objectives of our general compensation plans and other employee benefit
plans, as well as our general compensation plans and other employee benefit plans in light of such
goals and objectives;
● retaining and approving the compensation of any compensation advisors;
● reviewing all equity-compensation plans to be submitted for shareholder approval under the
Nasdaq listing rules, and reviewing and approving all equity-compensation plans that are exempt
from such shareholder approval requirement;
● evaluating the appropriate level of compensation for board and board committee service by non-
employee directors; and
● reviewing and approving description of executive compensation included in our annual report on
Form 20-F.
Nominating and Corporate Governance Committee
Matthew Kirkby and Jiangwen Majeti currently serve on the nominating and corporate governance
committee, which is chaired by Dr. Majeti. Our board of directors has determined that each member of the
nominating and corporate governance committee is “independent” as that term is defined in the applicable
rules of the Nasdaq Capital Market. The nominating and corporate governance committee’s responsibilities
include:
● assisting our board of directors in identifying prospective director nominees and recommending
nominees for election by the shareholders or appointment by our board of directors;
● advising the board of directors periodically with respect to significant developments in the law
and practice of corporate governance as well as our compliance with applicable laws and
regulations, and making recommendations to our board of directors on all matters of corporate
governance and on any corrective action to be taken;
● overseeing the evaluation of our board of directors; and
● recommending members for each board committee of our board of directors.
Our board of directors may establish other committees from time to time.
D. Employees
As of December 31, 2023, we had 36 full-time employees. Of these, 20 were engaged in full-time
research and development and laboratory operations and 16 were engaged in full-time general and
administrative functions. As of December 31, 2023, 12 of our employees were located in China and 24 were
located in the U.S. We have also engaged and may continue to engage independent contractors who are not
full-time employees, to assist us with our operations. None of our employees are represented by a labor
union or covered by a collective bargaining agreement. We have never experienced any employment related
work stoppages, and we consider our relations with our employees to be good. The following table sets out
our total number of employees by function for the last three years.
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Research and Development and Laboratory Operations
General and Administrative Functions
58
45
44
29
20
16
2021
2022
2023
Human Capital Resources
We are a research and development-focused biotechnology organization that is planning for the
potential launch of its first product through collaboration with third parties. Our research and development
employees perform diverse responsibilities including managing clinical research studies, analyzing clinical
trial data, preparing regulatory documents, and scaling up manufacturing processes. Our general and
administrative employees focus on support functions such as finance, accounting and HR.
We place a premium on hiring employees with experience in both large, established pharmaceutical
organizations and smaller emerging biotech companies. We offer employees a breadth of responsibilities and
upper-level management positions that would not usually be afforded to them in larger organizations. We
encourage a participatory culture built around our passion for working on breakthrough therapies in an
agile, team-based organization. Our compensation and benefits offerings are designed to attract and retain
top talent through the use of short-term (i.e., competitive base salaries and bonuses) and long-term
incentives (i.e., stock-based compensation).
We offer employees 80% paid premium healthcare coverage benefits and up to 6% match for our
401(k) savings plan. We offer employees company paid major holidays as well as paid personal and sick time.
We also have a mentorship program where employees may benefit from career guidance.
E. Share Ownership
For information regarding the share ownership of our directors and executive officers, see “Item 7.
Major Shareholders and Related Party Transactions—A. Major Shareholders.” For information regarding
equity-based grants to our directors, executive officers and other employees, see “Item 6. Directors, Senior
Management and Employees—B. Compensation—Director Compensation—Director Agreements” and “Item
6. Directors, Senior Management and Employees—B. Compensation—2017 Omnibus Incentive Plan.”
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our ordinary
shares as of April 1, 2024 by:
● each person or group of affiliated persons known by us to own beneficially 5% or more of our
outstanding ordinary shares;
● each of our directors and executive officers individually; and
● all of our executive officers and directors as a group.
The beneficial ownership of our ordinary shares is determined in accordance with the rules of the SEC
and generally includes any shares over which a person exercises sole or shared voting or investment power,
and includes the ordinary shares issuable pursuant to stock options that are exercisable within 60 days of
April 1, 2024. Ordinary shares issuable pursuant to stock options are deemed outstanding for computing the
percentage of the person holding such options but are not outstanding for computing the percentage of any
other person. As of April 1, 2024, there were 883,260 ordinary shares issuable pursuant to stock options
exercisable within 60 days thereof.
The calculation of percentage of ordinary shares beneficially owned in the table below is based on
39,029,163 ordinary shares outstanding as of April 1, 2024. Except where otherwise indicated, we believe,
based on information furnished to us by such owners, that the beneficial owners of the ordinary shares listed
below have sole investment and voting power with respect to such shares.
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Unless otherwise noted below, each shareholder’s address is c/o BeyondSpring Inc., 100 Campus
Drive, West Side, 4th Floor, Suite 410, Florham Park, NJ 07932.
Name of Beneficial Owner
5% Shareholders
Entities affiliated with Decheng Capital(1)
Executive Officers and Directors**
Lan Huang(2)
June Lu(3)
Brendan Delaney(4)
Patrick Fabbio(5)
Matthew Kirkby(6)
Jiangwen Majeti(7)
Sihai Xu(8)
All Directors and Executive Officers as a group (7 people)
Number of
Ordinary
Shares
Beneficially
Owned
4,958,142
10,822,199
8,769
68,333
99,592
81,297
73,205
22,291
11,175,686
%
12.70
27.30
*
*
*
*
*
*
28.20
* Amounts represent less than 1% of outstanding ordinary shares.
** Effective February 16, 2023, Dr. Ramon W. Mohanlal has stopped serving as our Chief Medical Officer and
Executive Vice President of Research and Development and on our Board of Directors. Effective January 1,
2023, Ms. Christine Ying Zhao resigned from our Board of Directors. Effective July 7, 2023, Ms. Yanbin Xie
retired from our Board of Directors. Effective March 31, 2024, Dr. Lloyd retired from his role as our Chief
Scientific Officer.
(1) Based on a Schedule 13G filed by Decheng Capital Management III (Cayman), LLC, consisting of 4,958,142
ordinary shares owned by Decheng Capital Management III (Cayman), LLC.
(2) Consisting of (i) 1,431,686 ordinary shares owned directly by Ever Regal Group Limited, (ii) 175,000
ordinary shares owned directly by Fairy Eagle Investments Limited, (iii) 100,000 ordinary shares owned
directly by Rosy Time Holdings Limited, (iv) 73,837 ordinary shares owned directly by the Lan Huang 2021
Grantor Retained Annuity Trust (“2021 Trust”)”, (v) 450,000 ordinary shares owned directly by the Lan
Huang 2022 Grantor Retained Annuity Trust (“2022 Trust”), (vi) 277,963 ordinary shares owned directly
by Dr. Lan Huang (vii) 137,037 restricted shares, all of which have been vested, held of record by Mr.
Linqing Jia, (viii) 230,000 ordinary shares held by Sincere Efforts Foundation Inc. (“Sincere Efforts”), (ix)
1,800,000 ordinary shares directly held by three irrevocable trusts for the benefit of Dr. Huang’s children,
over which Dr. Huang has been granted a proxy with voting power, (x) 5,535,000 ordinary shares directly
held by certain unaffiliated third-parties, over which Mr. Jia has been granted a proxy with voting power,
and (xi) vested options to purchase 611,676 ordinary shares granted under the 2017 Omnibus Incentive
Plan. Dr. Huang is the sole owner of Ever Regal Group Limited. Mr. Jia, Dr. Huang’s spouse, is the sole
owner of Fairy Eagle Investments Limited and Rosy Time Holdings Limited. Dr. Huang is the trustee of
2021 Trust and 2022 Trust. Dr. Huang serves on the board of Sincere Efforts, a charitable foundation, and
in such capacity may be deemed to exercise shared voting and dispositive power over such ordinary
shares. Dr. Huang disclaims beneficial ownership of the ordinary shares held by Sincere Efforts and
nothing herein shall be construed as an admission that Dr. Huang is the beneficial owner of such ordinary
shares. Dr. Huang and Mr. Jia share voting and dispositive power for all of the foregoing shares, except for
the shares over which they have been granted proxies with voting power. Dr. Huang and Mr. Jia share
voting power over those shares.
(3) Consisting of (i) 100 ordinary shares purchased by Dr. June Lu before joining the Company and (ii) vested
options to purchase 8,669 ordinary shares granted under the 2017 Omnibus Incentive Plan.
(4) Consisting of vested options to purchase 68,333 ordinary shares granted under the 2017 Omnibus
Incentive Plan.
(5) Consisting of (i) 19,592 restricted shares, 19,592 of which have been vested, held of record by Mr. Patrick
Fabbio, granted under the 2017 Omnibus Incentive Plan, (ii) vested options to purchase 75,000 ordinary
shares granted under the 2017 Omnibus Incentive Plan and (iii) 5,000 ordinary shares purchased by Mr.
Patrick Fabbio from the public market during the open window.
(6) Consisting of (i) 6,297 restricted shares, 6,297 of which have been vested, held of record by Mr. Matthew
Kirkby, granted under the 2017 Omnibus Incentive Plan and (ii) vested options to purchase 75,000
ordinary shares granted under the 2017 Omnibus Incentive Plan.
(7) Consisting of (i) 50,914 ordinary shares purchased by Dr. Majeti before joining our board of directors and
(ii) vested options to purchase 22,291 ordinary shares granted under the 2017 Omnibus Incentive Plan.
(8) Consisting of vested options to purchase 22,291 ordinary shares granted under the 2017 Omnibus
Incentive Plan.
We have one class of ordinary shares, and each holder of our ordinary shares is entitled to one vote per
share. None of our shareholders has different voting rights from other shareholders.
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As of April 1, 2024, approximately 29,716,734 of our outstanding ordinary shares were held by 54
record holders in the U.S.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of
our company.
B. Related Party Transactions
Since January 1, 2023, there has not been, nor is there currently proposed, any material transaction or
series of similar material transactions to which we were or are a party to and in which any of the members of
our board of directors or senior management, holders of more than 10% of ordinary shares, or any member
of the immediate family of any of the foregoing persons, had or will have a direct or indirect material
interest, other than the transactions we describe below.
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment
Agreements (Fiscal Year 2023 Executive Officers).”
Consulting Arrangements
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Consulting
Arrangements.”
Director Agreement
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Director
Compensation—Director Agreements.”
2017 Omnibus Incentive Plan
See “Item 6. Directors, Senior Management and Employees—B. Compensation—2017 Omnibus
Incentive Plan.”
Indemnification Agreements
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of
association may provide for 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 to provide indemnification
against civil fraud or the consequences of committing a crime. Our amended and restated memorandum and
articles of association require us to indemnify every director, alternate director, secretary, assistant
secretary, or other officer for the time being and from time to time of our company (but not including our
auditors) and the personal representatives of the same against all actions, proceedings, costs, charges,
expenses, losses, damages or liabilities incurred or sustained by such indemnified person, other than by
reason of such indemnified person’s own 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 indemnified person in defending
(whether successfully or otherwise) any civil proceedings concerning us or our affairs in any court whether
in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the
Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with each of our directors and executive
officers that provide such persons with additional indemnification beyond that provided in our amended and
restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our
directors, officers or persons controlling us under the foregoing provisions, we have been informed that in
the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
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C.
Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Financial Statements and Other Financial Information
See “Item 18. Financial Statements.”
Legal Proceedings
See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.”
Dividend Policy
We have never declared or paid cash dividends to our shareholders, and we do not intend to pay cash
dividends in the foreseeable future. We intend to reinvest any earnings in developing and expanding our
business. Any future determination relating to our dividend policy will be at the discretion of our board of
directors and will depend on a number of factors, including future earnings, our financial condition,
operating results, contractual restrictions, capital requirements, business prospects, our strategic goals and
plans to expand our business, applicable law and other factors that our board of directors may deem
relevant.
See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Ordinary Shares—Because we do
not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ordinary
shares for return on your investment” and “Item 10. Additional Information—B. Memorandum and Articles of
Association—Dividends.”
We are a holding company incorporated in the Cayman Islands. We will rely to some extent on
dividends from our U.S. and PRC subsidiaries for payment of any dividends to our shareholders. PRC
regulations may restrict the ability of our PRC subsidiaries to make such dividend payments to us. See “Item
3. Key Information—D. Risk Factors—Risks Related to Our Doing Business in China—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” and “Item 4. Information on the Company—B. Business
Overview—Government Regulation—Chinese Regulation—Regulations Relating to Foreign Exchange and
Dividend Distribution—Regulation of Dividend Distribution.”
B. Significant Changes
Except as disclosed elsewhere in this annual report on Form 20-F, we have not experienced any
significant changes since the date of our audited consolidated financial statements included in this annual
report on Form 20-F.
Item 9. Offer and Listing
A. Offer and Listing Details
Our ordinary shares have been listed on the Nasdaq Capital Market since March 9, 2017 under the
symbol “BYSI.”
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares have been listed on the Nasdaq Capital Market since March 9, 2017 under the
symbol “BYSI.”
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D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We are a Cayman Islands exempted company with limited liability and our affairs are governed by,
among other things, our memorandum and articles of association, as amended and restated from time to
time, and the Companies Act (As Revised) of the Cayman Islands, which is referred to as the Companies Act
below, and the common law of the Cayman Islands.
The following are summaries of material provisions of our current amended and restated memorandum
and articles of association that became effective immediately prior to the completion of our initial public
offering in March 2017, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company
Under our amended and restated memorandum and articles of association, the objects of our company
are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of
the Cayman Islands.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Ordinary Shares
Our ordinary shares are issued in registered form and are issued when registered in our register of
members. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their
shares.
Dividends
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of
directors. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may
exceed the amount recommended by our directors. Under Cayman Islands law, dividends may be declared
and paid only out of funds legally available therefor, namely out of either profit or our share premium
account, provided that in no circumstances may a dividend be paid if this would result in our company being
unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights
Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be
demanded by the chairman of such meeting or any one or more shareholders who together hold not less than
10% of the voting share capital of our company present in person or by proxy.
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A quorum required for a meeting of shareholders consists of one or more shareholders present in
person or by proxy holding not less than an aggregate of a majority of all voting share capital of our company
in issue. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly
authorized representative. Shareholders’ meetings may be convened by our board of directors on its own
initiative or upon a request to the directors by shareholders holding at the date of deposit of the requisition
not less than 10% of our voting share capital in issue. Advance notice of at least seven calendar days is
required for the convening of our annual general shareholders’ meeting and any other general shareholders’
meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a
simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution
requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast at a
meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written
resolution signed by all the shareholders of our company, as permitted by the Companies Act and our
amended and restated memorandum and articles of association. A special resolution will be required for
important matters such as a change of name or making changes to our amended and restated memorandum
and articles of association. Holders of the ordinary shares may, among other things, divide or combine their
shares by ordinary resolution.
Transfer of Ordinary Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her
ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our
board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary
share which is not fully paid up or on which we have a lien. Our board of directors may also decline to
register any transfer of any ordinary share unless:
● the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary
shares to which it relates and such other evidence as our board of directors may reasonably
require to show the right of the transferor to make the transfer;
● the instrument of transfer is in respect of only one class of shares;
● the instrument of transfer is properly stamped, if required;
● in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is
to be transferred does not exceed four; and
● a fee of such maximum sum as the Nasdaq Capital Market may determine to be payable or such
lesser sum as our directors may from time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within two months after the date on which the
instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the Nasdaq Capital
Market, be suspended and the register closed at such times and for such periods as our board of directors
may from time to time determine, provided, however, that the registration of transfers shall not be
suspended nor the register closed for more than 30 days in any year as our board may determine.
Liquidation
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase
of shares), assets available for distribution among the holders of ordinary shares shall be distributed among
the holders of our ordinary shares on a pro rata basis. If our assets available for distribution are insufficient
to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our
shareholders proportionately.
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Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on
their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time or
times of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Ordinary Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the
option of the holders thereof, on such terms and in such manner as may be determined, before the issue of
such shares, by our board of directors. Our company may also repurchase any of our shares (including any
redeemable shares) provided that the manner and terms of such purchase have been approved by our board
of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our amended and
restated memorandum and articles of association. Under the Companies Act, the redemption or repurchase
of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue of shares made
for the purpose of such redemption or repurchase, or out of capital (including share premium account and
capital redemption reserve) if the company can, immediately following such payment, pay its debts as they
fall due in the ordinary course of business. In addition, under the Companies Act no such share may be
redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in
there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, our
company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares
The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of
the shares of that class or series) may, subject to our amended and restated memorandum and articles of
association, be varied with the consent in writing of the holders of not less than two-thirds of the issued
shares of that class or series or with the sanction of a special resolution passed at a general meeting of the
holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class
issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be
deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of
shares.
Issuance of Additional Shares
Our amended and restated memorandum and articles of association authorize our board of directors to
issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of
available authorized but unissued shares.
Our amended and restated memorandum and articles of association also authorize our board of
directors to establish from time to time one or more series of preferred shares and to determine, with
respect to any series of preferred shares, the terms and rights of that series, including:
● the designation of the series;
● the number of shares of the series;
● the dividend rights, dividend rates, conversion rights, voting rights; and
● the rights and terms of redemption and liquidation preferences.
Our board of directors may issue preferred shares without action by our shareholders to the extent
authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or
obtain copies of our list of shareholders or our corporate records (save for our memorandum and articles of
association, our register of mortgages and charges and special resolutions of our shareholders). However,
we will provide our shareholders with annual audited financial statements. See “—H. Documents on Display.”
154
Anti-Takeover Provisions
Some provisions of our amended and restated memorandum and articles of association may
discourage, delay or prevent a change of control of our company or management that shareholders may
consider favorable, including provisions that:
● authorize our board of directors to issue preferred shares in one or more series and to designate
the price, rights, preferences, privileges and restrictions of such preferred shares without any
further vote or action by our shareholders; and
● limit the ability of shareholders to requisition and convene general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to
them under our memorandum and articles of association for a proper purpose and for what they believe in
good faith to be in the best interests of our company.
General Meetings of Shareholders and Shareholder Proposals
Our shareholders’ general meetings may be held in such place within or outside the Cayman Islands as
our board of directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call
shareholders’ annual general meetings. Our amended and restated memorandum and articles of association
provide that we may (but are not obliged to) hold a general meeting in each year as our annual general
meeting.
Shareholders’ annual general meetings and any other general meetings of our shareholders may be
convened by a majority of our board of directors. Our board of directors shall give not less than seven
calendar days’ written notice of a shareholders’ meeting to those persons whose names appear as members
in our register of members on the date the notice is given (or on any other date determined by our directors
to be the record date for such meeting) and who are entitled to vote at the meeting.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting,
and does not provide shareholders with any right to put any proposal before a general meeting. However,
these rights may be provided in a company’s articles of association. Our amended and restated memorandum
and articles of association allow our shareholders holding shares representing in aggregate not less than
10% of our voting share capital in issue, to requisition an extraordinary general meeting of our shareholders,
in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a
vote at such meeting; however, our amended and restated memorandum and articles of association do not
provide our shareholders with any right to put any proposals before annual general meetings or
extraordinary general meetings not called by such shareholders.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act
distinguishes between ordinary resident companies and exempted companies. 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 requirements for an exempted company are essentially the same
as for an ordinary company except that an exempted company:
● does not have to file an annual return of its shareholders with the Registrar of Companies;
● is not required to open its register of members for inspection;
● does not have to hold an annual general meeting;
● may obtain an undertaking against the imposition of any future taxation (such undertakings are
given for a period of up to 30 years);
● may register by way of continuation in another jurisdiction and be deregistered in the Cayman
Islands;
155
● may register as a limited duration company; and
● may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the
shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the
establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a
court may be prepared to pierce or lift the corporate veil).
Register of Members
Under Cayman Islands law, we must keep a register of members and there should be entered therein:
● the names and addresses of the members, together with a statement of the shares held by each
member and such statement shall confirm (i) the amount paid, or agreed to be considered as paid,
on the shares of each member, (ii) the number and category of shares held by each member and
(iii) whether each relevant category of shares held by a member carries voting rights under the
articles of association of the company, and if so, whether such voting rights are conditional;
● the date on which the name of any person was entered on the register as a member; and
● the date on which any person ceased to be a member.
Under Cayman Islands law, the register of members of our company is prima facie evidence of the
matters set out therein (i.e. the register of members will raise a presumption of fact on the matters referred
to above unless rebutted) and a member registered in the register of members should be deemed as a matter
of Cayman Islands law to have legal title to the shares as set against its name in the register of members.
Once our register of members has been updated, the shareholders recorded in the register of members
should be deemed to have legal title to the shares set against their name.
If the name of any person is incorrectly entered in, or omitted from, our register of members, or if
there is any default or unnecessary delay in entering on the register the fact of any person having ceased to
be a member of our company, the person or member aggrieved (or any member of our company or our
company itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and
the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order
for the rectification of the register.
C. Material Contracts
On November 12, 2020, our subsidiary, SEED, entered into a Collaboration Agreement with Eli Lilly to
discover and develop new chemical entities that could produce therapeutic benefit through TPD. Under the
terms of the Collaboration Agreement, SEED received a $10 million upfront cash payment. SEED will also be
eligible to receive up to approximately $780 million in potential pre-clinical and clinical development,
regulatory and commercial milestones, as well as tiered royalties on net sales of products that result from
the collaboration. As of the date of this annual report, SEED has received $3 million of these milestone
payment for pre-clinical development.
We and Eli Lilly also entered into share purchase agreements with SEED to purchase preferred shares
of SEED. SEED sold an aggregate of 1,194,030 shares of its Series A-1 Preferred Shares to us and SEED
Technology and 1,990,000 shares of its Series A-2 Preferred Shares to Eli Lilly, each at a cash purchase price
of $2.5125 per share.
In June 2022, upon the achievement of certain milestones as described in the share purchase
agreement, the BYSI Entities collectively purchased an additional 1,194,028 Series A-1 Preferred Shares for
an aggregate purchase price of $3.0 million and Eli Lilly purchased an additional 1,990,000 Series A-2
Preferred Shares for an aggregate purchase price of $5.0 million, each at a cash purchase price of $2.5125
per share, or $5 million. Following the closing of these transactions, and after taking into account shares
already held by the BYSI Entities, the BYSI Entities hold approximately 60.1% of the outstanding equity
interest in SEED, calculated on an as-converted basis (excluding any shares that may be reserved under an
employee stock ownership plan, or similar arrangement).
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On August 25, 2021, Wanchunbulin, our partially owned Chinese subsidiary, entered into an exclusive
commercialization and co-development agreement with Hengrui to further develop and commercialize
Plinabulin in Greater China. Under the terms of the agreement, Wanchunbulin granted Hengrui exclusive
rights to commercialize and co-develop Plinabulin in the Greater China markets, including mainland China,
Hong Kong, Macau and Taiwan. Wanchunbulin retains the manufacturing rights of Plinabulin in the Greater
China markets and will receive all Plinabulin net sales proceeds in such markets. Hengrui will receive a pre-
determined percentage of the net sales in each quarter. Wanchunbulin received an upfront payment of RMB
200 million (approximately $31 million), and will receive regulatory and sales milestones of up to RMB 1.1
billion (approximately $171 million). Hengrui will be responsible for all costs associated with
commercialization of Plinabulin in the Greater China markets. Pursuant to the terms of the agreement,
Wanchunbulin will be responsible for 100% of the clinical and regulatory costs for the first two indications
for Plinabulin: prevention of CIN and second/third- line treatment of NSCLC (EGFR wild type). Hengrui will
fund 50% of the clinical development costs for additional indications for Plinabulin in the Greater China
markets, with a Joint Steering Committee overseeing the clinical strategy and priorities. See “Item 4.
Information on the Company—B. Business Overview—Commercialization.”
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Chinese Regulation—Regulations
Relating to Foreign Exchange and Dividend Distribution.”
E. Taxation
The following is a summary of the Cayman Islands, Chinese and U.S. federal income tax considerations
relevant to the ownership and disposition of our ordinary shares. This summary is not intended to be, nor
should it be construed as, legal or tax advice to any particular prospective investor. This summary is based
on laws and relevant interpretations thereof as of the date of this Form 20-F, all of which are subject to
change or different interpretations, possibly with retroactive effect. This summary does not address all
possible tax considerations relating to an investment in our ordinary shares, such as the considerations
under U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, China and the
United States. Potential investors should consult their tax advisors with respect to the considerations
relevant to the ownership and disposition of our ordinary shares. To the extent that the discussion relates to
matters of Cayman Islands tax law, it represents the opinion of Maples and Calder (Hong Kong) LLP, our
Cayman Islands counsel; to the extent the discussion relates to PRC tax law, it is the opinion of Jingtian &
Gongcheng, our special PRC counsel.
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. 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. 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 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 ordinary shares, as the case may be, nor will gains derived from the disposal of the 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 and is generally subject to a uniform 25% enterprise
income tax rate on its worldwide income. 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 Circular 82, issued by the SAT, 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 Chinese enterprise or enterprise group as its primary controlling shareholder. Although
BeyondSpring Inc. does not have a Chinese 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 BeyondSpring Inc. and its subsidiaries organized
outside China.
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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 Chinese
enterprise income tax on its worldwide income only if all of the following criteria are met:
● 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 China;
● decisions relating to the enterprise’s financial and human resource matters are made or are
subject to approval by organizations or personnel in China;
● the enterprise’s primary assets, accounting books and records, company seals, and board and
shareholder meeting minutes are located or maintained in China; and
● 50% or more of voting board members or senior executives habitually reside in China.
Currently, none of our executive officers are located in China, and almost all of our board members are
located outside of China. BeyondSpring Inc. and its offshore subsidiaries are incorporated outside China. 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 China. Moreover, we are not aware of any offshore holding companies with a corporate structure
similar to ours that has been deemed a Chinese “resident enterprise” by the Chinese tax authorities.
Accordingly, we believe that BeyondSpring Inc. and its offshore subsidiaries should not be treated as a
“resident enterprise” for Chinese 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 China or (2) if gains are realized from transferring equity interests of enterprises domiciled in
China, 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 Chinese tax resident enterprise for Chinese
tax purposes, any dividends we pay to our overseas shareholders as well as gains realized by such
shareholders from the transfer of our shares may be regarded as China-sourced income. If we are considered
a “non-resident enterprise” by the PRC tax authorities, the dividends paid to us by our PRC subsidiaries will
be subject to a 10% withholding tax. The EIT Law also imposes a withholding income tax of 10% on dividends
distributed by an foreign-invested enterprise to its immediate holding company outside of China, if such
immediate holding company is considered as a non-resident enterprise without any establishment or place
within China or if the received dividends have no connection with the establishment or place of such
immediate holding company within China, unless such immediate holding company’s jurisdiction of
incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman
Islands, where we are incorporated does not have such tax treaty with China. Under the Hong Kong Tax
Treaty, the dividend withholding tax rate may be reduced to 5%, if a Hong Kong resident enterprise that
receives a dividend is considered a non-PRC tax resident enterprise and directly holds at least 25% of the
equity interests in the PRC enterprise distributing the dividends as the beneficial owner, subject to approval
of the PRC local tax authority. However, if the Hong Kong resident enterprise is not considered to be the
beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remain subject
to withholding tax at a rate of 10%. In February, 2018, the SAT promulgated the Announcement on Issues
relating to “Beneficial Owner” in Tax Agreements, which provides the criteria of determination of “Beneficial
Owner.” For determination of “Beneficial Owner”, actual conditions of the specific case shall be taken into
account to conduct a comprehensive analysis. Accordingly, BeyondSpring HK may be able to enjoy the 5%
withholding tax rate for the dividends it receives from its PRC subsidiaries if it satisfies the relevant
conditions under tax rules and regulations and obtains the approvals as required.
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U.S. Federal Income Tax Considerations
The following is a summary of U.S. federal income tax considerations generally applicable to the
ownership and disposition of our ordinary shares by U.S. Holders (as defined below). Unless otherwise
noted, this summary addresses only U.S. Holders that hold our ordinary shares as “capital assets” (generally,
property held for investment) for U.S. federal income tax purposes. This summary is based on the Code, U.S.
Treasury regulations promulgated thereunder, or the Regulations, judicial decisions, administrative
pronouncements, the income tax treaty between the United States and China, or the Treaty, and other
relevant authorities, all as in effect as of the date hereof and all of which are subject to change or differing
interpretations (possibly with retroactive effect).
This summary does not address U.S. federal estate, gift or other non-income tax considerations, the
alternative minimum tax, the Medicare tax on certain net investment income, or any state, local or non-U.S.
tax considerations, relating to the ownership or disposition of our ordinary shares, nor does it address all
aspects of U.S. federal income taxation that may be relevant to a particular U.S. Holder in light of that U.S.
Holder’s particular circumstances or that may be relevant to certain types of U.S. Holders subject to special
treatment under U.S. federal income tax law, such as:
● banks and other financial institutions;
● insurance companies;
● pension plans;
● cooperatives;
● regulated investment companies;
● real estate investment trusts;
● broker-dealers;
● traders that elect to use a mark-to-market method of accounting;
● certain former citizens or long-term residents of the United States;
● tax-exempt entities (including private foundations);
● persons that acquire our ordinary shares pursuant to any employee share option or otherwise as
compensation;
● persons that hold our ordinary shares as part of a straddle, hedge, conversion, constructive sale or
other integrated transaction for U.S. federal income tax purposes;
● persons whose functional currency is not the U.S. Dollar;
● persons that actually or constructively own 10% or more of our stock (by vote or value); and
● partnerships or other entities or arrangements subject to tax as partnerships for U.S. federal income tax
purposes.
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The information set forth below is of a general nature only and is not intended to be tax advice. Each
prospective investor should consult its tax advisor with respect to the U.S. federal, state, local and non-U.S.
income and other tax considerations relevant to the ownership and disposition of our ordinary shares in light
of its particular circumstances.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for
U.S. federal income tax purposes:
● an individual who is a citizen or resident of the United States;
● a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in,
or organized in or under the laws of, the United States or any political subdivision thereof;
● an estate the income of which is includible in gross income for U.S. federal income tax purposes
regardless of its source; or
● a trust if (i) a court within the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to control all of the trust’s
substantial decisions, or (ii) that has validly elected to be treated as a domestic trust for U.S. federal
income tax purposes.
If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax
purposes) owns our ordinary shares, the U.S. federal income tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the activities of the partnership. Partnerships
holding our ordinary shares and their partners should consult their tax advisors regarding an investment in
our ordinary shares.
Tax Residence of BeyondSpring Inc. for U.S. Federal Income Tax Purposes
Under current U.S. federal income tax law, a corporation is generally considered a tax resident in the
jurisdiction of its organization or incorporation. Thus, as a corporation incorporated under the laws of the
Cayman Islands, we should generally be classified as a non-U.S. corporation (and therefore as a non-U.S. tax
resident) for U.S. federal income tax purposes. In certain circumstances, however, under section 7874 of the
Code a corporation organized outside the United States will be treated as a U.S. corporation (and, therefore,
as a U.S. tax resident).
In July of 2015, we completed our internal restructuring. Based on the rules in effect at the time of the
internal restructuring, we expect that the internal restructuring did not result in us being treated as a U.S.
corporation for U.S. federal income tax purposes by virtue of section 7874 of the Code. Nevertheless,
because the section 7874 rules and exceptions are complex and subject to factual and legal uncertainties,
there can be no assurance that we will not be treated as a U.S. corporation for U.S. federal income tax
purposes.
The remainder of this discussion assumes that we are not treated as a U.S. corporation for U.S. federal
income tax purposes.
Distributions
The gross amount of any distributions received by a U.S. Holder on our ordinary shares (including any
amounts withheld in respect of PRC withholding taxes) will generally be subject to tax as dividends to the
extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income
tax purposes, and will be includible in the gross income of such U.S. Holder on the day actually or
constructively received. Such dividends will not be eligible for the dividends received deduction generally
allowed to U.S. corporations under the Code. The following discussion assumes that any dividends will be
paid in U.S. dollars. Distributions in excess of our current and accumulated earnings and profits will be
treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in our ordinary
shares and thereafter generally as capital gain. We do not intend to determine our earnings and profits in
accordance with U.S. federal income tax principles. Therefore, U.S. Holders should expect that the full
amount of any distribution we pay will be treated as a dividend for U.S. federal income tax purposes even if
that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the
rules described above.
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An individual or other non-corporate U.S. Holder of our ordinary shares may be eligible for reduced
rates of taxation on dividends: (i) received from a qualified foreign corporation if such qualified foreign
corporation is neither a PFIC nor treated as such with respect to such U.S. Holder for the taxable year in
which the dividend is paid or for the preceding taxable year, and (ii) provided that certain holding period and
other requirements are met. A foreign corporation that is not classified as a PFIC is generally treated as a
qualified foreign corporation with respect to dividends paid on ordinary shares if such ordinary shares are
“readily tradable” on an “established securities market” in the United States. Although our ordinary shares
are listed on the Nasdaq Capital Market, our ordinary shares may not be considered readily tradable on an
established securities market in the current year or subsequent years. As discussed below under “—Passive
Foreign Investment Company,” although there can be no assurances regarding our PFIC status for any
taxable year, we believe that we were not a PFIC for our 2023 taxable year. Thus, dividends paid on our
ordinary shares to individuals and other non-corporate U.S. Holders may constitute “qualified dividend
income” eligible for reduced rates of taxation if we are a qualified foreign corporation and we are not a PFIC
with respect to such U.S. Holders for the taxable year in which the dividend is paid or in the preceding
taxable year.
For U.S. foreign tax credit purposes, dividends received on our ordinary shares will generally be
treated as income from sources outside the United States and will generally constitute passive category
income. If we are deemed to be a PRC resident enterprise under the PRC EIT Law (see “―People’s Republic
of China Taxation”), a U.S. Holder may be subject to PRC withholding taxes on such dividends. Subject to
certain conditions and limitations and depending on the individual facts and circumstances, a Treaty-eligible
U.S. Holder may be entitled to claim a foreign tax credit in respect of any PRC income taxes paid or withheld
with respect to dividends on our ordinary shares to the extent such taxes are nonrefundable under the
Treaty. A U.S. Holder that does not elect to claim a foreign tax credit for foreign taxes withheld may instead
elect to deduct such taxes in computing its taxable income for U.S. federal income tax purposes. A U.S.
Holder’s election to deduct foreign taxes instead of claiming foreign tax credits applies to all creditable
foreign income taxes paid or accrued in the relevant taxable year. The rules regarding foreign tax credits
and the deductibility of foreign taxes are complex and the application thereof depends in large part on the
U.S. Holder’s individual facts and circumstances. All U.S. Holders, whether or not they are Treaty-eligible,
should consult their tax advisors regarding the availability of foreign tax credits and the deductibility of
foreign taxes in light of their particular circumstances.
Sale or Other Disposition of Our Ordinary Shares
A U.S. Holder will generally recognize gain or loss on the sale or other disposition of our ordinary
shares in an amount equal to the difference between the amount realized on the disposition and the U.S.
Holder’s adjusted tax basis in our ordinary shares. Any such gain or loss will generally be long-term capital
gain or loss if the U.S. Holder’s holding period in our ordinary shares exceeds one year at the time of
disposition and will generally be U.S. source gain or loss for U.S. foreign tax credit purposes. Long-term
capital gains of individuals and certain other non-corporate U.S. Holders are generally eligible for a reduced
rate of taxation relative to the rate applicable to ordinary income. The deductibility of capital losses may be
subject to limitations.
Any gain or loss on the sale or other disposition of our ordinary shares will generally be treated as U.S.
source income or loss for U.S. foreign tax credit purposes. However, if as described in “—People’s Republic
of China Taxation,” gains from the sale or other disposition of our ordinary shares may be subject to PRC
income tax, a Treaty-eligible U.S. Holder may apply the Treaty to treat such gains as foreign source-gains for
U.S. foreign tax credit purposes. Treaty-eligible U.S. Holders that do not apply the Treaty and U.S. Holders
that are not Treaty-eligible may not be able to claim a foreign tax credit for any PRC tax imposed on a sale or
other disposition of our ordinary shares. Any such U.S. Holder may instead elect to deduct such taxes in
computing its taxable income for U.S. federal income tax purposes, but only for a year in which such U.S.
Holder elects to do so for all foreign taxes paid or accrued during such year. The rules regarding foreign tax
credits and the deductibility of foreign taxes are complex and the application thereof depends in large part
on the U.S. Holder’s individual facts and circumstances.
U.S. Holders should consult their tax advisors regarding the tax consequences if a foreign tax is
imposed on their disposition of our ordinary shares, including with respect to the availability of the foreign
tax credit or deduction in lieu thereof in light of their particular circumstances.
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Passive Foreign Investment Company
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax
purposes for any taxable year in which either (i) 75% or more of its gross income for such year consists of
certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a
quarterly average) during such year is attributable to assets that produce or are held for the production of
passive income.
Passive income generally includes dividends, interest, royalties, rents, annuities, net gains from the
sale or exchange of property producing such income and net foreign currency gains. Passive assets are those
which give rise to passive income and include assets held for investment, as well as cash, assets readily
convertible into cash, and (subject to certain exceptions) working capital. Our company’s goodwill and other
unbooked intangibles are taken into account and may be classified as active or passive depending on the
income such assets generate or are held to generate. We will be treated as owning a proportionate share of
the assets and earning a proportionate share of the income of any other corporation in which we own,
directly, indirectly or constructively, 25% or more (by value) of its stock.
Based on an analysis of our income and the value of our assets, we believe that we were not a PFIC for
the taxable year ended December 31, 2023, although no assurance can be given due to the highly factual
nature of such analysis. Our PFIC status for the current taxable year ending December 31, 2024, will not be
determinable until after the close of the year, and it is possible that we may be classified as a PFIC for the
current taxable year and for future taxable years. We believe we were a PFIC for each of the 2016–2020
taxable years, and we may have been a PFIC in prior taxable years as well. No assurance can be given with
respect to our PFIC status for the current taxable year or any future taxable year, however. The
determination of whether we are or will become a PFIC is uncertain, because it is a fact-intensive inquiry
made on an annual basis that depends, in part, on the composition of our income and assets. Fluctuations in
the market price of our ordinary shares may influence whether we are classified as a PFIC for the current or
subsequent taxable years because the value of our assets for the purpose of the asset test may be determined
by reference to the market price of our ordinary shares from time to time (which may be volatile for
biopharmaceutical companies, such as ours, that have not yet achieved commercialization with respect to
any of their products). The composition of our income and assets may also be affected by how, and how
quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce
passive income increases relative to our revenue from activities that produce non-passive income, or where
we determine not to deploy cash for active purposes, our risk of being classified as a PFIC will substantially
increase. Furthermore, prior to the commercialization of any of our drug candidates, interest and other
passive income could constitute more than 75% of our gross income for any taxable year.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, the U.S.
Holder will be subject to special tax rules with respect to any “excess distribution” that the holder receives
on our ordinary shares and any gain the U.S. Holder recognizes from a sale or other disposition (including a
pledge) of our ordinary shares, unless the U.S. Holder makes a “mark-to-market” election as discussed
below. Distributions received by a U.S. Holder on our ordinary shares in a taxable year that are greater than
125% of the average annual distributions the U.S. Holder received in the three preceding taxable years or, if
shorter, such U.S. Holder’s holding period for our ordinary shares will be treated as an excess distribution.
Under these special tax rules:
● the excess distribution or gain will be allocated pro rata over the U.S. Holder’s holding period for our
ordinary shares;
● amounts allocated to the current taxable year and to any taxable years in the U.S. Holder’s holding period
prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”) will be subject
to tax as ordinary income;
● amounts allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the
highest marginal tax rate in effect applicable to the U.S. Holder for that year; and
● an additional tax equal to the interest charge generally applicable to underpayments of tax will be
imposed on the tax attributable to each prior taxable year, other than a pre-PFIC year.
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If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, we will
continue to be treated as a PFIC with respect to such U.S. Holder’s ordinary shares in future taxable years
unless (i) we cease to be a PFIC and (ii) the U.S. Holder has made a “deemed sale” election under the PFIC
rules. If a U.S. Holder makes a deemed sale election, the U.S. Holder will be deemed to have sold our
ordinary shares at their fair market value as of the last day of the last year for which we were a PFIC. Any
gain from such deemed sale would be treated as an excess distribution subject to the excess distribution
rules described above.
Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-
market election for such stock of a PFIC to elect out of the excess distribution tax treatment discussed in the
second preceding paragraph. If a U.S. Holder makes a valid mark-to-market election for our ordinary shares,
the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market
value of our ordinary shares as of the close of such U.S. Holder’s taxable year over such U.S. Holder’s
adjusted basis in such ordinary shares. The U.S. Holder is allowed a deduction for the excess, if any, of such
U.S. Holder’s adjusted basis in our ordinary shares over their fair market value as of the close of the taxable
year. Deductions are allowable, however, only to the extent of any net mark-to-market gains on our ordinary
shares included in the U.S. Holder’s income for prior taxable years. Amounts included in the U.S. Holder’s
income under a mark-to-market election, as well as gain on the actual sale or other disposition of our
ordinary shares, will be treated as ordinary income. Ordinary loss treatment also applies to the deductible
portion of any mark-to-market loss on our ordinary shares, as well as to any loss realized on the actual sale
or disposition of our ordinary shares, to the extent that the amount of such loss does not exceed the net
mark-to-market gains previously included in income with respect to such ordinary shares. The U.S. Holder’s
basis in our ordinary shares will be adjusted to reflect any such income or loss amounts. If a U.S. Holder
makes such a mark-to-market election, then, in any taxable year for which we are a PFIC, tax rules that apply
to distributions by corporations which are not PFICs would apply to distributions by us (except that the lower
applicable capital gains rate for qualified dividend income would not apply). If a U.S. Holder makes a valid
mark-to-market election, and we subsequently cease to be classified as a PFIC, such U.S. Holder will not be
required to take into account the mark-to-market income or loss described above during any period that we
are not classified as a PFIC.
The mark-to-market election is available only for “marketable stock” which is stock that is traded in
other than de minimis quantities on at least 15 days during each calendar quarter(“regularly traded”) on a
qualified exchange or other market, as defined in applicable regulations. We expect that our ordinary shares
will continue to be listed on the Nasdaq Capital Market, which is a qualified exchange for these purposes,
and, consequently, assuming that our ordinary shares are regularly traded, if a U.S. Holder holds our
ordinary shares, it is expected that the mark-to-market election would be available to such U.S. Holder were
we to be or become a PFIC.
In addition, because, as a technical matter, a mark-to-market election cannot be made for any lower-
tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such
U.S. Holder’s indirect interest in any such lower-tier PFICs.
We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund
elections, which, if available, would result in tax treatment different from the general tax treatment for
PFICs described above.
A U.S. Holder that owns our ordinary shares during any taxable year that we are a PFIC must generally
file an annual report with the IRS regarding their ownership of such shares. U.S. Holders should consult
their tax advisors concerning the U.S. federal income tax considerations with respect to holding and
disposing of our ordinary shares if we were, are, or become a PFIC, including the availability and possibility
of making a mark-to-market election and the annual PFIC filing requirements, if any.
THE PRECEDING SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS
INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE. U.S.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL,
AND NON-U.S. TAX CONSIDERATIONS GENERALLY APPLICABLE TO THE OWNERSHIP AND
DISPOSITION OF OUR ORDINARY SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
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F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have previously filed with the SEC a registration statement on Form F-1 (File No. 333-214610), as
amended, with respect to our ordinary shares. As allowed by the SEC, in Item 19 of this annual report on
Form 20-F, we incorporate by reference certain information we previously filed with the SEC. This means
that we can disclose important information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of this annual report on Form
20-F.
We are subject to the periodic reporting and other informational requirements of the Exchange Act.
Under the Exchange Act, we are required to file reports and other information with the SEC. The SEC
maintains a website at www.sec.gov that contains reports and other information regarding registrants that
file electronically with the SEC. Our annual report on Form 20-F and other information submitted by us to
the SEC may be accessed through this website.
As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the
furnishing and content of proxy statements, and our officers, directors and principal shareholders will be
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and
current reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act. However, we are required to file with the SEC, within four
months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on
Form 20-F containing financial statements audited by an independent registered public accounting firm.
We maintain a corporate website at www.beyondspringpharma.com. In accordance with Nasdaq Stock
Market Rule 5250(d), we will post this annual report on Form 20-F on our website. Information contained on
our website is not incorporated by reference into this annual report on Form 20-F. In addition, we will
provide hardcopies of our annual report on Form 20-F free of charge to shareholders upon request.
I.
Subsidiary Information
Not applicable.
J. Annual Report to Securityholders
Not applicable.
Item 11. Qualitative and Quantitative Disclosures About Market Risk
Interest and Credit Risk
We are not exposed to typical interest rate risk, which is the impact of interest rates on the cost of
servicing and repaying debt. Our exposure to interest rate risk arises through movements in regard to
interest income we earn on our deposits. We had cash, cash equivalents and restricted cash in the amount of
$17.8 million and $34.4 million at December 31, 2023 and December 31, 2022, respectively. We had short-
term investments in the amount of $0.2 million and $2.9 million at December 31, 2023 and 2022,
respectively. Our cash and short-term investments were held at financial institutions that we believe to be of
high credit quality. We have not used derivative financial instruments in our investment portfolio. Interest-
earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate
being exposed to material risks due to changes in market interest rates. However, our future interest income
may fall short of expectations due to changes in market interest rates.
164
Foreign Currency Exchange Rate Risk
We are exposed to foreign exchange risk arising from various currency exposures. Our functional
currency is primarily U.S. dollars, but a portion of our operating transactions and assets and liabilities are in
other currencies, such as RMB. 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. To the extent that we need to convert
U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an
adverse effect on the RMB amount we 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 or for other
business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S.
dollar amounts available to us.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
165
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of
the rights of holders of our ordinary shares, which remain unchanged.
Item 15. Controls and Procedures
(a) Disclosure Controls and Procedures
Our management has evaluated, with the participation of our Chief Executive Officer, who performs
the functions of Principal Executive and Financial Officer under Rule 13a-15 under the Exchange Act, the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, our Principal Executive
and Financial Officer concluded that, as a result of the material weaknesses in our internal control over
financial reporting described below, the design and operation of our disclosure controls and procedures were
not effective as of December 31, 2023.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as 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
our financial reporting and the preparation of financial statements for external purposes in accordance with
the U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and
expenditures of our company are being made only in accordance with authorizations of our management and
directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized
acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC,
our management including our Principal Executive and Financial Officer assessed the effectiveness of
internal control over financial reporting as of December 31, 2023 using the criteria set forth in the report
“Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this evaluation, management concluded that our internal control over
financial reporting was not effective as of December 31, 2023, due to the presence of two material
weaknesses related to lack of adequate and timely review of reconciliations and consolidations, resulting in
material adjustments, and significant post-closing adjustments; and lack of adequate review of journal
entries, resulting in material post-closing adjustments.
Our independent registered public accounting firm, Marcum, was not required to perform an
evaluation of our internal control over financial reporting as of December 31, 2023.
(c) Attestation Report of the Registered Public Accounting Firm
See statement in Section (b) above. As a non-accelerated filer, we may take advantage of certain
temporary exemptions from various reporting requirements, including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (and the SEC
rules and regulations thereunder). When these exemptions cease to apply, we expect to incur additional
expenses and devote increased management effort toward ensuring compliance with them.
166
(d) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the period covered by
this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Patrick Fabbio, an independent director and a member of our audit committee, is an audit committee
financial expert.
Item 16B. Code of Ethics
In connection with our initial public offering, we have adopted a written code of ethics that applies to
all of our directors, executive officers and employees. The code of ethics is available in the investors section
of our website (www.beyondspringpharma.com/corporate-governance).
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate fees by categories specified below in connection with
certain professional services rendered by Marcum, our principal external accountant, and Ernst & Young
Hua Ming LLP, our former principal external accountant, for the periods indicated.
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees(4)
Total
Year Ended December 31,
2022
2023
(in thousands of U.S.
Dollars (“$”))
$
$
423 $
-
-
-
423 $
420
20
-
-
440
(1) “Audit Fees” represents the aggregate fees for the interim reviews and annual audit of our financial
statements for 2022 and 2023 as well as other assurance service.
(2) “Audit-Related Fees” represents the aggregate fees billed for each of the fiscal years listed for the
assurance and related services rendered by our principal auditors that are reasonably related to the
performance of the audit or review of our financial statements and not reported under “Audit Fees.”
(3) “Tax Fees” represents the aggregate fees billed for each of the fiscal years listed for the professional tax
services rendered by our principal auditors.
(4) “All Other Fees” represents the aggregate fees for services rendered by our principal auditors other than
services reported under “Audit Fees,” “Audit-related Fees” and “Tax Fees.”
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee has adopted a policy pursuant to which we will not engage our auditors to
perform any non-audit services unless the audit committee pre-approves the service.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
167
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 16F. Change in Registrant’s Certifying Accountant
On November 14, 2023, our audit committee and board of directors dismissed Ernst & Young Hua
Ming LLP, or EY, as our independent registered public accounting firm. Effective January 5, 2024, our audit
committee and board of directors appointed Marcum as our independent registered public accounting firm
for the fiscal year ended December 31, 2023.
EY’s audit report on the Company’s consolidated financial statements as of and for the years ended
December 31, 2022 and 2021 did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles, except that the audit report on
the consolidated financial statements of the Company for the year ended December 31, 2022 contained an
explanatory paragraph regarding the Company stating that there was substantial doubt about the Company’s
ability to continue as a going concern.
During the audit for the fiscal years ended December 31, 2022 and 2021 and the subsequent interim
period through November 14, 2023, there were no (i) disagreements, as defined in Item 16F(a)(1)(iv) of
Form 20-F and the related instructions, between the Company and EY on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of EY, would have caused EY to make reference to the subject matter of the
disagreements in connection with its report on the consolidated financial statements for the years ended
December 31, 2022 and 2021, or (ii) reportable events as defined in Item 16F(a)(1)(v) of Form 20-F.
During the Company’s two most recent fiscal years ended December 31, 2022 and 2021 and any
subsequent interim period prior to the engagement of Marcum on January 5, 2024, neither the Company nor
anyone on its behalf has consulted with Marcum on either (a) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on
the Company’s consolidated financial statements, and neither a written report nor oral advice was provided
to the Company by Marcum that Marcum concluded was an important factor considered by the Company in
reaching a decision as to any accounting, auditing or financial reporting issue, or (b) any matter that was the
subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F (and the related
instructions thereto) or a reportable event as set forth in Item 16F(a)(1)(v) of Form 20-F.
We provided a copy of this disclosure to EY and requested that EY furnish us with a letter addressed to
the SEC stating whether it agrees with the statements made above, and if not, stating the respects in which
it does not agree. A copy of EY’s letter dated April 29, 2024 is attached herewith as Exhibit 16.1.
Item 16G. Corporate Governance
As a Cayman Islands exempted company listed on the Nasdaq Capital Market, we are subject to the
Nasdaq corporate governance listing standards. However, the Nasdaq rules permit a foreign private issuer
like us to follow the corporate governance practices of its home country. Certain corporate governance
practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq
corporate governance listing standards. Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel,
has provided a letter to the Nasdaq Stock Market certifying that under Cayman Islands law, we are not
required to hold annual shareholders meetings every year. We generally follow home country practice with
respect to annual meetings and did not hold an annual meeting of shareholders in 2023. We expect to hold
annual shareholders meetings in the future only if there are matters that require shareholders’ approval. In
addition, we may elect in the future not to comply with the Nasdaq requirement that we obtain shareholder
approval for material amendments of equity compensation plans (including amendments relating to a
material change to permit a repricing of outstanding stock options).
Other than the annual meeting practice described above, there are no significant differences between
our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Stock
Market Rules.
168
However, if we choose to follow other home country practice in the future, our shareholders may be
afforded less protection than they otherwise would under the Nasdaq corporate governance listing standards
applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Ordinary Shares—As a foreign private issuer, we are permitted to adopt certain home country practices in
relation to corporate governance matters that differ significantly from the Nasdaq Capital Market corporate
governance listing standards. These practices may afford less protection to shareholders than they would
enjoy if we complied fully with corporate governance listing standards.”
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider Trading Policies
Not applicable.
Item 16K. Cybersecurity
Risk Management and Strategy
As an active participant in the biopharmaceutical industry, our company operates within a landscape
fraught with diverse cybersecurity risks. These risks have the potential to significantly impact our business,
financial standing, and operational outcomes.
Our partnership with a trusted third-party service provider stands as a pivotal pillar in our
cybersecurity strategy. Leveraging their expertise, they have crafted and implemented 58 automated
lockdown policies, each strategically designed to create safeguards around our digital infrastructure. These
policies serve as a sophisticated array of safeguards, actively working to thwart potential breaches before
they can even manifest. Moreover, their commitment to our security extends to continuous monitoring
measures that operate round-the-clock. This proactive surveillance ensures that any anomalies or suspicious
activities are swiftly identified and addressed, minimizing the window of vulnerability.
Complementing this arsenal is the deployment of an EDR (Endpoint Detection and Response) agent, a
cutting-edge technology that places us at the forefront of cybersecurity innovation. This agent is not merely a
passive observer; it is our vigilant sentinel, constantly scanning and analyzing our network for any
aberrations or patterns indicative of cyber threats. Through real-time monitoring, it provides us with
invaluable insights into our system's health, promptly flagging any deviations from the norm.
Within our own operations, we uphold a culture of uncompromising security standards. To enhance
access controls, we have implemented robust multifactor authentication methods for all personnel accessing
our SharePoint and Outlook software. This additional layer of authentication not only bolsters our defenses
but also ensures that only authorized individuals can gain entry to sensitive information. Moreover, our
stringent email sign-in blocking policy exemplifies our proactive stance towards security. This policy is
particularly pivotal during employee transitions, where the potential for security lapses is heightened. Upon
an employee’s departure, our Outlook administrators promptly deactivate their email sign-in functionalities,
mitigating any risks associated with unauthorized access. These measures collectively form a cohesive and
dynamic security framework, safeguarding our assets and ensuring the integrity of our operations in an
increasingly digital landscape.
Governance
The Board of Directors oversees risks stemming from cybersecurity threats. Their strategic guidance
and informed decisions serve as the cornerstone of our cybersecurity framework. Complementing this
oversight, our third-party IT vendor plays a pivotal role in the implementation of comprehensive company-
wide cybersecurity policies. Beyond this, they are entrusted with the deployment and management of critical
protective software, serving as our frontline defenders against evolving cyber threats. To ensure seamless
communication and swift action, they maintain a direct reporting line to the company's IT administrator. This
structured reporting mechanism enables prompt notification and collaborative response to any detections or
anomalies, fostering a proactive and vigilant stance towards safeguarding our digital assets and operations.
169
PART III
Item 17. Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18. Financial Statements
The consolidated financial statements of BeyondSpring Inc. are included at the end of this annual report on
Form 20-F.
Item 19. Exhibits
1.1(1) Amended and Restated Memorandum and Articles of Association of BeyondSpring Inc.
2.1(1) Specimen Certificate for Ordinary Shares of BeyondSpring Inc.
2.2(2) Description of Securities Registered under Section 12 of the Exchange Act
4.1(1) Consulting Agreement, dated as of June 18, 2013, between Wanchun Pharma and GKOL Inc.
4.2(1) First Amendment to the Consulting Agreement, dated as of March 30, 2014, among Wanchun Pharma,
BeyondSpring U.S. and GKOL Inc.
4.3(11) Fifteenth Amendment to the Consulting Agreement, dated as of January 1, 2023, between BeyondSpring
U.S. and GKOL Inc.
4.4(2) Sixteenth Amendment to the Consulting Agreement, dated as of July 1, 2023, between BeyondSpring
U.S. and GKOL Inc.
4.5(2) Seventeenth Amendment to the Consulting Agreement, dated as of January 1, 2024, between
BeyondSpring U.S. and GKOL Inc.
4.6(2) Eighteenth Amendment to the Consulting Agreement, dated as of April 1, 2024, between BeyondSpring
U.S. and GKOL Inc.
4.7(10) Second Amended and Restated Employment Agreement, dated as of January 11, 2022, between
BeyondSpring U.S. and Lan Huang
4.8(10) Second Amended and Restated Employment Agreement, dated as of January 11, 2022, between
BeyondSpring U.S. and Ramon Mohanlal
4.9(1) Form of Director and Executive Officer Indemnification Agreement
4.10(1) BeyondSpring Inc. 2017 Omnibus Incentive Plan and related form agreements
4.11(9) Amendment to the BeyondSpring Inc. 2017 Omnibus Incentive Plan, effective September 18, 2020
4.12(8) Form of Director Agreement
4.13(8) Form of Amendment to Director Agreement
4.14(4) Letter Agreement with respect to BPI-002 Milestone Stock Bonus Award, dated as of April 11, 2017,
between BeyondSpring Inc. and Ramon Mohanlal
4.15(4) Letter Agreement with respect to BPI-004 Milestone Stock Bonus Award, dated as of April 11, 2017,
between BeyondSpring Inc. and Ramon Mohanlal
4.16(5) Open Market Sale Agreement, dated as of May 21, 2019, between BeyondSpring Inc. and Jefferies LLC
4.17(6) Amendment No. 1 to the Open Market Sale Agreement, dated as of February 7, 2020, between
BeyondSpring Inc. and Jefferies LLC
4.18(7) English Translation of the Capital Increase Agreement, dated as of June 14, 2019, among Dalian
Wanchunbulin Pharmaceuticals Ltd., Wanchun Biotech Ltd. and Shenzhen Efung 9th Venture
Investment Center (Limited Partnership)
4.19(7) English Translation of the Capital Increase Agreement, dated as of July 3, 2019, among Dalian
Wanchunbulin Pharmaceuticals Ltd., Wanchun Biotech Ltd. and Nanjing TEEWIN Investment
Partnership (Limited Partnership)
4.20(10)Letter Agreement, dated as of January 13, 2022, between BeyondSpring U.S. and Lan Huang
4.21(10)Letter Agreement, dated as of January 13, 2022, between BeyondSpring U.S. and Ramon W. Mohanlal
4.22(11)Letter Agreement, dated as of March 23, 2023, between BeyondSpring U.S. and Lan Huang
4.23(2) Letter Agreement, dated as of October 11, 2023, between BeyondSpring U.S. and Lan Huang
4.24(9) Consulting Agreement, dated as of January 26, 2021, between BeyondSpring Inc. and Jeffrey Vacirca
170
4.25(10) Consulting Agreement, dated as of November 6, 2021, between BeyondSpring Inc. and Brendan
Delaney
4.26(11) Separation Agreement, dated as of February 28, 2023, between BeyondSpring U.S. and Ramon W.
Mohanlal
4.27(2) Letter Agreement, dated as of September 17, 2021, between BeyondSpring U.S. and Yingjuan (June) Lu
4.28(2) Letter Agreement, dated as of March 20, 2024, between BeyondSpring U.S. and Yingjuan (June) Lu
8.1(2)
12.1(2) Certification by Principal Executive and Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
List of Subsidiaries of BeyondSpring Inc.
Act of 2002
13.1(3) Certification by Principal Executive and Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
15.1(2) Consent of Ernst & Young Hua Ming LLP
15.2(2) Consent of Marcum LLP
15.3(2) Consent of Maples and Calder (Hong Kong) LLP
15.4(2) Consent of Jingtian & Gongcheng
16.1(2) Letter from Ernst & Young Hua Ming LLP to the Securities and Exchange Commission
97.1(2) Clawback Policy of BeyondSpring Inc.
101.INS XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1) Previously filed with the Registration Statement on Form F-1 (File No. 333-214610), as amended, initially
filed on November 15, 2016, and incorporated herein by reference.
(2) Filed with this annual report on Form 20-F.
(3) Furnished with this annual report on Form 20-F.
(4) Incorporated by reference to the 2016 annual report on Form 20-F of BeyondSpring Inc. filed with the SEC
on April 28, 2017.
(5) Previously filed with Form 6-K of BeyondSpring Inc., filed with the SEC on May 22, 2019, and incorporated
by reference herein.
(6) Previously filed with Form 6-K of BeyondSpring Inc., filed with the SEC on February 7, 2020, and
incorporated by reference herein.
(7) Previously filed with Form 6-K of BeyondSpring Inc., filed with the SEC on July 10, 2019, and incorporated
by reference herein.
(8) Previously filed with Form 6-K of BeyondSpring Inc., filed with the SEC on July 24, 2020, and incorporated
by reference herein.
(9) Incorporated by reference to the 2020 annual report on Form 20-F of BeyondSpring Inc. filed with the SEC
on April 30, 2021.
(10)Incorporated by reference to the 2021 annual report on Form 20-F of BeyondSpring Inc. filed with the SEC
on April 14, 2022.
(11)Incorporated by reference to the 2022 annual report on Form 20-F of BeyondSpring Inc. filed with the SEC
on April 18, 2023.
In reviewing the agreements included as exhibits to this annual report on Form 20-F, please remember
they are included to provide you with information regarding their terms and are not intended to provide any
other factual or disclosure information about us or the other parties to the agreements.
The agreements may contain representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the benefit of the other parties
to the applicable agreement and:
● should not in all instances be treated as categorical statements of fact, but rather as a way of
allocating the risk to one of the parties if those statements prove to be inaccurate;
● have been qualified by disclosures that were made to the other party in connection with the
negotiation of the applicable agreement, which disclosures are not necessarily reflected in the
agreement;
● may apply standards of materiality in a way that is different from what may be viewed as material
to you or other investors; and
● were made only as of the date of the applicable agreement or such other date or dates as may be
specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the
date they were made or at any other time.
171
SIGNATURES
BeyondSpring Inc. hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F on its behalf.
BeyondSpring Inc.
By:/s/ Lan Huang
Name: Lan Huang
Title: Chief Executive Officer
Date: April 29, 2024
172
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of BeyondSpring Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 688)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1408)
Consolidated balance sheets as of December 31, 2023 and 2022
Consolidated statements of comprehensive loss for the years ended December 31, 2023, 2022 and
2021
Consolidated statements of shareholders’ equity (deficit) for the years ended December 31, 2023,
2022 and 2021
Consolidated statements of cash flows for the years ended December 31, 2023, 2022 and 2021
Notes to consolidated financial statements
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
BeyondSpring Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of BeyondSpring Inc. (the “Company”) as of
December 31, 2023, the related consolidated statements of comprehensive loss, shareholders’ deficit and cash
flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2023, and the results of its operations and its cash flows for year
ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of
America.
Explanatory Paragraph – Going Concern
The financial statements have been prepared assuming that the Company will continue as a going concern. As
more fully described in Note 2 to the financial statements, the Company has incurred significant losses, has
negative cash flow from operations and needs to raise additional funds to meet its obligations and sustain its
operations. These conditions raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in Note 2 to the financial
statements. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audit. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are
required to obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audit provides a reasonable basis for our opinion.
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Accrual for research contract costs
As described in Note 2 to the financial statements, the Company has entered into various research and
development contracts with research institutions and other companies primarily in China, U.S., Ukraine and
Australia. Related payments are recorded as research and development expenses, and accruals are recorded
for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company
analyzes progress of the studies, including the phase or completion of events, invoices received and contracted
costs. Significant judgments and estimates are made in determining the accrued balances at the end of the
reporting period and actual results could differ from the Company’s estimates.
The principal consideration for our determination that performing procedures related to the accrual for
research contract costs is a critical audit matter is that there was judgment by management in determining the
achievement of milestones, patient enrollments and occurrence of other events that creates a present
obligation for the Company to pay the research institutions for their services.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the financial statements. These procedures included, among others, (i)
obtaining an understanding of the design and implementation of certain key controls and how management
estimates and records the accrued research contract costs; (ii) inspecting clinical trial related contract terms
and conditions, and assessing the status of contracts with research institutions through corroborative inquiries
with the in-house research personnel; (iii) reviewing subsequent disbursements to determine whether any
invoices belong to the period under audit were properly accrued for to identify any unrecorded accrued
expenses at year end; (iv) evaluating management’s estimate by retrospectively reviewing the beginning
balance of accrued research contract costs and tested the activities of the expenses and payments recorded in
the current period; (v) comparing and reconciling the confirmation responses from the research institutions
with the accrual balances.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2023.
Costa Mesa, CA
April 29, 2024
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BeyondSpring Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of BeyondSpring Inc. (the Company) as of
December 31, 2022, the related consolidated statements of comprehensive loss, shareholders’ equity (deficit)
and cash flows for each of the two years in the period ended December 31, 2022, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2022,
and the results of its operations and its cash flows for each of the two years in the period ended December 31,
2022, in conformity with U.S. generally accepted accounting principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has
incurred recurring losses from operations, has negative cash flow from operations, and has stated that
substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation
of the events and conditions and management’s plans regarding these matters are also described in Note 2.
The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Hua Ming LLP
We served as the Company’s auditor from 2015 to 2023.
Beijing, the People’s Republic of China
April 18, 2023
F-4
BEYONDSPRING INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
Note
As of December 31,
2022
$
2023
$
Assets
Current assets:
Cash and cash equivalents
Restricted Cash
Short-term investments
Advances to suppliers
Prepaid expenses and other current assets
Total current assets
Noncurrent assets:
Property and equipment, net
Operating right-of-use assets
Other noncurrent assets
Total noncurrent assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable
Accrued expenses
Current portion of operating lease liabilities
Deferred revenue
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Operating lease liabilities
Deferred revenue
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
Commitments and contingencies
Mezzanine equity
Contingently redeemable noncontrolling interests
Shareholders’ deficit
Ordinary shares ($0.0001 par value; 500,000,000 shares
authorized; 38,999,597 and 39,029,163 shares issued and
outstanding as of December 31, 2022 and 2023,
respectively)
Additional paid-in capital
34,396
-
2,872
492
763
38,523
1,868
5,484
347
7,699
7,809
9,941
193
306
170
18,419
1,628
4,397
364
6,389
46,222
24,808
1,081
2,470
966
1,351
1,484
7,352
3,995
34,221
3,661
41,877
1,407
2,581
631
1,751
1,588
7,958
3,364
33,242
3,705
40,311
49,229
48,269
2
3
5
13
12
4
13
12
4
13
17
14
11,074
11,874
4
4
368,857
368,599
Accumulated deficit
Accumulated other comprehensive income
16
(375,276)
436
(396,302)
894
Total BeyondSpring Inc.’s shareholders’ deficit
Noncontrolling interests
Total shareholders’ deficit
Total liabilities, mezzanine equity and shareholders’
deficit
(5,979)
(8,102)
(14,081)
(26,805)
(8,530)
(35,335)
46,222
24,808
The accompanying notes are an integral part of these consolidated financial statements.
F-5
BEYONDSPRING INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
Revenue
Operating expenses
Research and development
General and administrative
Loss from operations
Foreign exchange gain (loss), net
Interest income
Interest expenses
Other income, net
Loss before income tax
Income tax expenses
Net loss
Less: Net loss attributable to noncontrolling interests
Net loss attributable to BeyondSpring Inc.
Net loss per share
Basic and diluted
Weighted-average shares outstanding
Basic and diluted
Note
Year ended December 31,
2021
$
2022
$
2023
$
4
1,351
1,351
1,751
(36,888)
(30,703)
(25,582)
(13,008)
(14,635)
(10,230)
(66,240)
231
98
(87)
1,360
(37,239)
(429)
195
(17)
1,373
(23,114)
(123)
421
-
974
(64,638)
(3,570)
(36,117)
(163)
(21,842)
(106)
7
(68,208)
(4,029)
(64,179)
(36,280)
(3,001)
(33,279)
(21,948)
(922)
(21,026)
8
(1.64)
(0.85)
(0.54)
8
39,023,64
3
39,093,24
6
38,996,46
3
Other comprehensive loss, net of tax of nil:
Foreign currency translation adjustment (loss) gain
Unrealized holding gain (loss)
Comprehensive loss
Less: Comprehensive loss attributable to noncontrolling
interests
Comprehensive loss attributable to BeyondSpring Inc.
16
16
(296)
5
(68,499)
1,483
(5)
(34,802)
725
-
(21,223)
(4,094)
(2,482)
(655)
(64,405)
(32,320)
(20,568)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
BEYONDSPRING INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
BeyondSpring Inc.’s shareholders
Accumu
lated
Addition
al
other
Non Total
Ordinary share paid-in
Accumu
lated
Shares Amount
capital
deficit
compre
hensive
(loss)
gain
$
$
$
$
Subtota
l
$
controlli
ng
interest
s
$
equity
(deficit)
$
Balances at January
1, 2021
Share-based
compensation (Note 9)
Forfeited restricted
shares and cancellation
of ordinary shares
Exercise of share
options
Accretion of
contingently
redeemable
noncontrolling interest
Other comprehensive
loss
Net loss
Balances at
December 31, 2021
Share-based
compensation (Note 9)
Forfeited restricted
shares and cancellation
of ordinary shares
Accretion of
contingently
redeemable
noncontrolling interest
Other comprehensive
loss
Net loss
39,141,
913
4 366,451
(277,81
8
)
(297) 88,340
(1,715) 86,625
19,287
-
3,234
(262,40
8
)
-
(310)
28,771
-
83
-
-
-
-
3,234
48
3,282
-
(310)
-
(310)
-
83
-
83
-
-
(258)
-
-
(258)
-
(258)
-
-
-
-
-
-
(226)
(226)
(65)
(291)
- (64,179)
- (64,179)
(4,029) (68,208)
38,927,
563
4 369,200
(341,99
7
)
(523) 26,684
(5,761) 20,923
72,941
-
1,521
(907)
-
(7)
-
-
-
1,521
141
1,662
-
(7)
-
(7)
-
-
(1,857)
-
-
(1,857)
-
(1,857)
-
-
-
-
-
-
959
959
519
1,478
- (33,279)
- (33,279)
(3,001) (36,280)
Balances at
December 31, 2022
38,999,
597
4 368,857
(375,27
6
)
436
(5,979)
(8,102) (14,081)
Share-based
compensation (Note 9)
Forfeited restricted
shares
Exercise of share
options
Accretion of
contingently
redeemable
noncontrolling interest
Other comprehensive
income
Net loss
105,530
(75,964)
-
-
-
-
547
(9)
4
-
-
-
-
547
227
774
-
-
(9)
4
-
-
(9)
4
-
-
(800)
-
-
(800)
-
(800)
-
-
-
-
-
-
458
458
267
725
- (21,026)
- (21,026)
(922) (21,948)
Balances at
December 31, 2023
39,029,
163
4 368,599
(396,30
2
)
894 (26,805)
(8,530) (35,335)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
BEYONDSPRING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. Dollars (“$”))
Note
5
9
6
3
15
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation expenses
Share-based compensation
Non-cash operating lease expenses
Loss on derecognition of operating right-of-use assets
Paycheck Protection Program Loan Forgiveness
Disposal of property and equipment
Unrealized gain on short-term investments
Change in fair value in forward contract
Changes in assets and liabilities:
Short-term investments
Advances to suppliers
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable
Accrued expenses
Operating lease liabilities
Other current liabilities
Deferred revenue
Other noncurrent liabilities
Net cash used in operating activities
Year ended December 31,
2021
$
2022
$
2023
$
(68,208)
(36,280)
(21,948)
61
3,152
546
22
(635)
-
(144)
(444)
(13,025)
1,770
(496)
(294)
(560)
(1,711)
(518)
2,535
30,033
674
(47,242)
232
1,666
912
-
-
-
(19)
(1,071)
10,172
1,243
91
1,411
(575)
(1,388)
(1,455)
(4,669)
(1,351)
2,930
(28,151)
302
770
1,086
-
-
37
(4)
-
2,658
186
593
(17)
326
111
(966)
113
249
30
(16,474)
Cash flows from investing activities:
Acquisitions of property and equipment
Refund from return of property and equipment
Purchase of short-term available-for-sale investments
Sales of short-term investments
Proceeds from maturity of short-term available-for-sale
investments
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of contingently redeemable
noncontrolling interests, net of issuance cost
Proceeds from exercise of share options
Payments of offering costs
Payments of issuance costs of contingently redeemable
noncontrolling interests
Repayments of loans
Net cash provided by financing activities
Effect of foreign exchange rate changes
Net increase (decrease) in cash, cash equivalents
and restricted cash
Cash, cash equivalents and restricted cash at beginning
of year
Cash, cash equivalents, and restricted cash at end of year
Supplemental disclosures of cash flow information
Interest paid
Interest received
Income taxes paid
Non-cash activities:
Operating lease right-of-use assets obtained in exchange
for operating lease liabilities
Operating lease right-of-use assets released in exchange
for operating lease liabilities
Reconciliation of cash, cash equivalents, and
restricted cash to the consolidated balance sheets:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
(2,844)
-
(44,232)
1,663
(34)
717
(32,197)
-
(100)
-
(1,300)
-
25,000
49,761
1,300
(20,413)
18,247
(100)
-
5,000
83
(44)
(38)
-
1
(258)
-
-
-
(1,569)
3,431
(756)
-
4
-
-
-
4
(76)
6
(67,912)
(7,229)
(16,646)
109,537
41,625
34,396
41,625
34,396
17,750
91
98
22
17
136
367
-
462
36
1,181
4,411
(803)
-
-
-
41,625
-
41,625
34,396
-
34,396
7,809
9,941
17,750
The accompanying notes are an integral part of these consolidated financial statements.
F-8
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
1.
Nature of the business
BeyondSpring Inc. (the “Company”) was incorporated in the Cayman Islands on November 21, 2014.
The Company and its subsidiaries (collectively, the “Group”) are principally engaged in clinical stage
biopharmaceutical activities focused on the development of innovative cancer therapies. The Company is
under the control of Mr. Linqing Jia and Dr. Lan Huang as a couple (collectively, the “Founders”) since its
incorporation.
On March 14, 2017, the Company completed its initial public offering (“IPO”) on the NASDAQ Capital
Market.
On May 21, 2019, the Company entered into a sales agreement with Jefferies LLC (“Jefferies”) to act as
an agent in selling the Company’s ordinary shares in an at-the-market (“ATM”) offering program. As of
December 31, 2023, the Company received aggregate gross proceeds of $13,185 on 630,228 ordinary shares
sold in respect thereof.
On June 14, 2019 and July 3, 2019, certain investors led by Shenzhen Efung 9th Venture Investment
Center (Limited Partnership) (“Efung Capital”) entered into investment agreements with Dalian Wanchunbulin
Pharmaceuticals Ltd. (“Wanchunbulin”), a subsidiary of the Company, to invest $14,537 (RMB100,000) for a
total of 4.76% equity interest of Wanchunbulin. In 2019, the Company received aggregate gross proceeds of
$10,083 (RMB70,000) from this equity financing.
On March 22, 2022, Wanchun Hongji (Dalian) Pharmaceuticals Ltd. was incorporated in the People’s
Republic of China (“PRC”) as a wholly owned subsidiary of SEED Therapeutics Inc.
In March 2023, BeyondSpring Pharmaceuticals Australia PTY Ltd. (BeyondSpring Australia), a wholly
owned subsidiary of the Company, was deregistered in Australia.
As of December 31, 2023, the subsidiaries of the Company are as follows:
Name of company
BeyondSpring Pharmaceuticals Inc.
(“BeyondSpring US”)
BeyondSpring Ltd.
BeyondSpring (HK) Limited
(“BeyondSpring HK”)
Place of incorporation
Date of
incorporation
Percentage of
ownership by
the
Group
Principal activities
Delaware, U.S.
June 18, 2013
100%
Clinical trial activities
The British Virgin
Islands (“BVI”)
December 3, 2014
100%
Holding company
Hong Kong
January 13, 2015
100%
Holding company
Wanchun Biotechnology Limited (“BVI
Biotech”)
BVI
Wanchun Biotechnology (Dalian) Ltd.
(“Wanchun Dalian”)
PRC
Dalian Wanchunbulin Pharmaceuticals
Ltd. (“Wanchunbulin”)
PRC
Beijing Wanchun Pharmaceutical
Technology Ltd. (“Beijing Wanchun”)
PRC
April 1, 2015
100%
Holding company
April 23, 2015
100%
Holding company
May 6, 2015
57.97%
Clinical trial activities
May 21, 2018
57.97%
Holding company
SEED Therapeutics Inc. (“SEED”)
BVI
June 25, 2019
55.05%
Pre-clinical development
activities
SEED Technology Limited (“SEED
Technology”)
BVI
December 9, 2019
57.97%
Holding company
SEED Therapeutics US, Inc. (“SEED US”) Delaware, U.S.
November 25, 2020
55.05%
Wanchun Hongji (Dalian)
Pharmaceuticals Ltd. (“Wanchun
Hongji”)
PRC
March 22, 2022
55.05%
Pre-clinical development
activities
Pre-clinical development
activities
F- 9
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”).
Going concern
According to Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements
- Going Concern (“ASC 205-40”), management must evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going
concern within one year after the date that the financial statements are issued. This evaluation initially does
not take into consideration the potential mitigating effect of management’s plans that have not been fully
implemented as of the date the financial statements are issued. When substantial doubt exists under this
methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates
substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of
management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively
implemented within one year after the date that the financial statements are issued, and (2) it is probable that
the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements
are issued.
The Company has incurred operating losses and negative cash flows from operations since inception.
To date, the Company has no product revenue and management expects operating losses to continue for the
foreseeable future and has primarily funded these losses through equity financings. The Company incurred a
net loss of $21,948 during 2023 and has an accumulated deficit of $396,302 as of December 31, 2023. Net
cash used in operations was approximately $16,474 for the year of 2023. As of December 31, 2023, the
Company had $10,461 of working capital and $17,943 of cash and cash equivalents, restricted cash, and short-
term investments on hand.
The continuing operations of the Company depend upon the Company’s ability to obtain necessary
financing to fund its working capital requirement. These consolidated financial statements have been prepared
in accordance with U.S. GAAP, on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business. These consolidated financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might result from this uncertainty.
In order to enable the Company to operate as a going concern in the foreseeable future, the Company
will need, among other things, additional capital resources. There can be no assurance that capital will be
available as necessary to meet the Company’s working capital requirements or, if the capital is available, that
it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company
may result in dilution in the equity interests of its current shareholders. Obtaining commercial loans, assuming
those loans will be available, will increase the Company’s liabilities and future cash commitments. If the
Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and
future success will be adversely affected including suspension of business operations. These factors raise
substantial doubt regarding the Company’s ability to continue as a going concern.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries. All intercompany transactions and balances between the Company and its subsidiaries are
eliminated upon consolidation.
Use of estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of expenses during the period. Areas where management uses subjective judgment include, but are not limited
to, share-based compensation, clinical trial accruals, valuation allowance for deferred tax assets, estimating
uncertain tax positions, measurement of right-of-use assets and lease liabilities, fair value of financial
instruments, estimating the allowance for credit losses, impairment of long-lived assets and estimating of
useful life for property and equipment. Management bases the estimates on historical experience, known
trends 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.
Research and development (“R&D”) costs
The Company accounts for R&D costs in accordance with ASC 730, Research and Development. R&D
costs primarily are comprised of costs incurred in performing research and development activities, including
related personnel and consultant’s salaries, benefits and related costs, raw materials and supplies to develop
product candidates, patent-related costs incurred in connection with filing patent applications, costs incurred
related to clinical approval, and external costs of outside vendors engaged to conduct clinical development
activities and trials. The Company expenses R&D costs as they are incurred.
Costs incurred related to nonrefundable advance payments for goods or services that will be used in
future research and development activities are deferred and capitalized. The capitalized amounts are expensed
as R&D costs when the related goods are delivered or the services are performed, or when the Company does
not expect it will need the goods to be delivered or the services to be rendered.
Research contract costs and accruals
The Company has entered into various research and development contracts with research institutions
and other companies primarily in the PRC, the U.S., Ukraine and Australia.
Related payments are recorded as research and development expenses and are expensed as incurred.
The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the
accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events,
invoices received and contracted costs. Significant judgments and estimates are made in determining the
accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
The Company’s historical accrual estimates have not been materially different from the actual costs.
Foreign currency translation and transactions
Functional currency
The Company currently uses the U.S. dollar as the functional currency for all its entities, except for
entities in the PRC, which adopt the RMB as their functional currency, and BeyondSpring Australia, which
adopts the Australian dollar as the functional currency. The determination of the respective functional
currency is based on the criteria of ASC 830, Foreign Currency Matters. The Company uses the U.S. dollar as
its reporting currency.
F- 10
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies (continued)
Foreign currency translation and transactions (continued)
Functional 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 (loss) income, 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, and highly liquid investments
with an original maturity date of three months or less at the date of purchase and are stated at cost which
approximates their fair value. All cash and cash equivalents are unrestricted as to withdrawal and use.
Restricted Cash
Cash or cash equivalent that is legally restricted as to withdrawal or usage is reported separately on
the face of the consolidated balance sheets, and is included in the total cash, cash equivalents, and restricted
cash in the consolidated statements of cash flows. As of December 31, 2023, the Company’s restricted cash
represents bank deposits judicially frozen by the court as an interim and conservatory measure for the
arbitration with Jiangsu Hengrui Pharmaceuticals Co., Ltd. (“Hengrui”).
Short-term investments
Investments such as time deposits with original maturities of greater than three months, but less than
twelve months, and financial products issued by commercial banks expected to be realized in cash during the
next twelve months are included in short-term investments.
The Company accounts for its investments in debt securities in accordance with ASC 320-10,
Investments – Debt Securities: Overall (“ASC 320-10”). The Company classifies the investments in debt
securities as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the
respective accounting methods stipulated by ASC 320-10. Interest income of all categorifies of investments in
securities are included in earnings. Any realized gains or losses from the sale of short-term investments are
determined on a specific identification method, and such gains and losses are reflected in earnings during the
period in which gain or losses are realized.
Debt securities that the Company has positive intent and ability to hold to maturity are classified as
held-to-maturity securities and stated at amortized cost less allowance for credit losses.
Debt securities that are bought and held primarily for the purpose of selling in the near term are
classified as trading securities. Trading securities are recorded at fair value. Changes in unrealized gains and
losses are recorded through earnings each period as part of other income or expenses. Trading debt securities
include financial products issued by commercial banks.
Debt securities not classified as trading or as held-to-maturity are classified as available-for-sale
securities. Available-for-sale debt securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported in accumulated other comprehensive (loss) income. Available-for-sale debt securities include
time deposits and financial products issued by commercial banks.
The Company regularly evaluates its investments in debt securities for impairment. The Company
recognizes an allowance on available-for-sale debt securities when a portion of the unrealized loss is
attributable to a credit loss and a corresponding credit loss in net loss. The Company did not record any
impairment losses or allowance for credit losses on short-term investments for all periods presented.
Advances to suppliers
Advances to suppliers consist of cash to contractors and vendors for services and materials that have
not been provided or received. Advances to suppliers are reviewed periodically to determine whether their
carrying values have become impaired. The Company considers the assets to be impaired if it is doubtful that
the services and materials will be or can be provided by the suppliers. As of December 31, 2022, and 2023,
there were no allowances provided.
Leases
The Company determines if an arrangement is a lease or contains a lease at lease inception. For leases
with lease and non-lease components, the Company has elected to apply the practical expedient to not
separate the lease component and its associated non-lease component. Leases are classified as operating or
finance leases in accordance with the recognition criteria in ASC 842, Leases (“ASC842”). The Company’s
lease portfolio consists entirely of operating leases as of December 31, 2022 and 2023. The Company’s leases
do not contain any material residual value guarantees or material restrictive covenants.
At the commencement date of a lease, the Company determines the classification of the lease based on
the relevant factors present and records right-of-use (“ROU”) assets and lease liabilities. ROU assets represent
the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make
lease payments arising from the lease. ROU assets and lease liabilities are calculated as the present value of
the lease payments not yet paid. Variable lease payments not dependent on an index or rate are excluded from
the ROU asset and lease liability calculations and are recognized in expense in the period which the obligation
for those payments is incurred. As the rate implicit in the Company’s leases is not typically readily available,
the Company uses an incremental borrowing rate based on the information available at the lease
commencement date in determining the present value of lease payments. This incremental borrowing rate
reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease
payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any
lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is
recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancelable term of
the lease and may contain options to extend the lease when it is reasonably certain that the Company will
exercise that option.
F- 11
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies (continued)
Leases (continued)
The Company reassesses whether a contract is or contains a lease whenever a substantive change is
made to the terms and conditions of the contract. Such changes are not limited to those that meet the
definition of a lease modification, which is a specific type of modification characterized by a change in the
scope of or consideration for a lease. When a modification does not meet the definition of a lease modification,
the Company reassesses whether the contract is or contains a lease but would not apply the lease modification
framework if the conclusion regarding whether the contract is or contains a lease is unchanged. If there is a
lease modification, the Company considers whether the lease modification results in a separate contract. If so,
the Company accounts for the separate contract the same manner as any other new lease, in addition to the
original unmodified contract. Otherwise, the Company remeasures and reallocates the remaining
consideration in the contract, reassesses the classification of the lease at the effective date of the modification
and accounts for any initial direct costs, lease incentives and other payments made to or by the lessee. If the
modification fully or partially terminates the existing lease, the Company remeasures the lease liability and
decreases the carrying amount of the ROU assets in proportion to the full or partial termination of the existing
lease and recognize in profit or loss any difference between the reduction in the lease liability and the
reduction in the ROU assets.
Operating leases are included in operating lease right-of-use assets and lease liabilities on the
consolidated balance sheets. Lease liabilities that become due within one year of the balance sheet date are
classified as current liabilities.
Leases with an initial lease term of 12 months or less are short-term leases. The Company has elected
to apply the practical expedient to not record short-term leases on the consolidated balance sheets. Lease
expense for short-term leases is recognized on a straight-line basis over the lease term.
Government grants
Government grants consist of cash subsidies received by the Company’s subsidiaries in PRC from local
governments. Grants relating to assets are recognized in the consolidated balance sheets upon receipt and
amortized as other income over the weighted average useful life of the related assets. Grants relating to
income that involves no conditions or continuing performance obligations of the Company are recognized as
other income upon receipt. Grants received with government specified performance obligations are recognized
as other income when such obligations have been fulfilled.
For the year ended December 31, 2023, the Company received cash subsidies of $831 for research and
development expenses incurred in the past. The amount is recognized as other income upon receipt as no
further performance by the Company is required. The Company did not receive government grants for the
years ended December 31, 2022 and 2021.
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:
Category
Estimated useful life
Office equipment
Laboratory equipment
Motor vehicles
Leasehold improvements
5 years
3-8 years
10 years
Lower of lease term or economic life
Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and
betterment that extends the useful lives of plant and equipment are capitalized as additions to the related
assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated
depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected
in the consolidated statements of comprehensive loss.
Impairment of long-lived assets
The Company evaluates long-lived assets such as laboratory equipment for impairment whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable in
accordance with ASC 360-10, Property, Plant and Equipment: Overall (“ASC 360-10”). The Company
recognizes an impairment loss when the fair value less cost to sell, if any, is less than their carrying values.
For the years ended December 31, 2021, 2022 and 2023, the Company did not record any impairment losses
on its long-lived assets.
Fair value measurements
The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), 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—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.
Financial instruments of the Company primarily include cash and cash equivalents, short-term
investments, accounts payable, contingently redeemable noncontrolling interests, and forward contract. The
redeemable noncontrolling interests were initially recorded at issuance price net of issuance costs. The
Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying
value of the redeemable noncontrolling interests to equal the redemption value at the end of each reporting
period. The Company measures its financial products issued by commercial banks at fair value on a recurring
basis based on quoted subscription/redemption price published by the relevant banks. The fair value of the
forward contract is determined on recurring basis with the assistance of an independent third-party valuation
firm. The carrying values of cash and cash equivalents, accounts payable, and time deposits approximated
their fair values due to their short-term nature.
F- 12
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies (continued)
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
Company’s chief operating decision maker (the “CODM”), which is the Chief Executive Officer. Starting from
2022, the Company realigned its operations into two reportable segments, Plinabulin pipeline and Targeted
Protein Degradation (“TPD”) platform, as the CODM manages and assesses the Company’s performance and
operating results of Plinabulin pipeline and TPD platform separately to allocate resources. The Plinabulin
pipeline focuses on developing innovative cancer therapies to improve clinical outcomes for patients who have
high unmet medical needs. The Company’s lead asset, Plinabulin, a selective immunomodulating microtubule-
binding agent, is being developed as a “pipeline in a drug” in a number of cancer indications. The TPD
platform is utilizing a unique “molecular glue” technology to develop innovative therapeutic agents and
discover and develop new chemical entities for the most debilitating diseases and disorders.
Accordingly, the consolidated financial statements include segment information which reflects the
current composition of the reportable segments in accordance with ASC 280, Segment Reporting.
Revenue recognition
Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), an entity recognizes revenue
when its customer obtains control of promised goods or services, in an amount that reflects the consideration
that the entity expects to receive in exchange for those goods or services. To determine revenue recognition
for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price
to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. The Company only applies the five-step model to contracts when it is probable that
the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers
to the customer.
Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations it must deliver and which of these
performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price
that is allocated to each performance obligation when that performance obligation is satisfied or as it is
satisfied.
The Company recognizes a contract asset or a contract liability in the consolidated balance sheets,
depending on the relationship between the entity’s performance and the customer’s payment. Contract
liabilities represent the excess of payments received as compared to the consideration earned, and is recorded
as deferred revenue in the consolidated balance sheets. The Company had no contract assets for the periods
presented.
Collaboration revenue
At contract inception, the Company analyzes its collaboration arrangements to assess whether they are
within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such
arrangements involve joint operating activities performed by parties that are both active participants in the
activities and exposed to significant risks and rewards dependent on the commercial success of such activities.
For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first
determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that
are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements
of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method
is determined and applied consistently.
In determining the appropriate amount of revenue to be recognized as the Company fulfills its
obligations under each of the agreements, the Company performs the five-step model under ASC 606 noted
above.
The collaborative arrangements may contain more than one unit of account, or performance obligation,
including grants of licenses to intellectual property rights, agreement to provide research and development
services and other deliverables. The transaction price is generally comprised of an upfront payment due at
contract inception and variable consideration in the form of payments for the Company’s services and
materials and milestone payments due upon the achievement of specified events. In general, the consideration
allocated to the performance obligation is recognized when the obligation is satisfied either by delivering a
good or providing a service, limited to the consideration that is not constrained. Non-refundable payments
received before all of the relevant criteria for revenue recognition are satisfied are recorded as deferred
revenue.
Licenses of Intellectual Property: Upfront non-refundable payments allocated to the licensing of the
Company’s intellectual property are evaluated to determine if the license is distinct from the other
performance obligations identified in the arrangement. For licenses determined to be distinct, the Company
recognizes revenues from non-refundable up-front fees allocated to the license at a point in time, when the
license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses
determined to be not distinct from other promised goods or services, the Company accounts for the promise to
grant a license and other promised goods or services together as a single performance obligation, and the
Company considers the nature of the combined goods or services in determining whether the performance
obligation is satisfied over time or at a point in time.
Research and Development Service: Upfront non-refundable payment allocated to research and
development services performance obligations is deferred and recognized overtime.
Milestone Payments: At the inception of each arrangement that includes milestone payments, the
Company evaluates whether the milestones are considered probable of being reached and estimates the
amount to be included in the transaction price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated milestone value is included in the transaction
price. Due to the uncertainty involved in meeting these discovery or development-based targets, they are
generally fully constrained at contract inception. The Company will assess whether the variable consideration
is fully constrained each reporting period based on the facts and circumstances surrounding the discovery and
clinical trials. Upon changes to constraint associated with the discovery or developmental milestones, variable
consideration will be included in the transaction price when a significant reversal of revenue recognized is not
expected to occur.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on
the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the
Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance
obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Comprehensive income (loss)
Comprehensive income (loss) is defined as the changes in equity (deficit) of the Company during a
period from transactions and other events and circumstances excluding transactions resulting from
investments by owners and distributions to owners. For each of the periods presented, the Company’s
comprehensive income (loss) includes net loss, foreign currency translation adjustments and unrealized
holding gains (loss) associated with available-for-sale debt securities, and is presented in the consolidated
statements of comprehensive loss.
F- 13
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies (continued)
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 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. All deferred income tax assets and liabilities are
classified as non- current on the consolidated balance sheets.
The Company evaluates its uncertain tax positions using the provisions of ASC 740, Income Taxes,
which prescribes a recognition threshold that a tax position is required to meet before being recognized in the
financial statements. The Company recognizes in the financial statements the benefit of a tax position which is
“more likely than not” to be sustained under examination based solely on the technical merits of the position
assuming a review by tax authorities having all relevant information. Tax positions that meet the recognition
threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has
a greater than fifty percent likelihood of being realized upon settlement. 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.
Share-based compensation
The Company applies ASC 718, Compensation—Stock Compensation (“ASC 718”), to account for its
share-based payments for both employees and non-employees. In accordance with ASC 718, the Company
determines whether an award should be classified and accounted for as a liability award or equity award.
Equity classified share-based awards are recognized in the consolidated financial statements based on their
grant date fair values. Liability classified awards are measured at the fair value of the award on the grant date
and remeasured at each reporting period at fair value until the award is settled. The Company has elected to
recognize compensation expense on a straight-line basis over the requisite service period for each separately
vesting portion of the award as if the award was, in-substance, multiple awards for all employee equity awards
granted with graded vesting based on service condition. The Company uses the accelerated method for all
awards granted with performance and/or market conditions. Compensation expense is recognized for awards
containing performance conditions only to the extent that it is probable that those performance conditions will
be met. Market conditions are included in the determination of the estimated grant-date fair value of share-
based awards. Compensation costs related to awards with a market condition are recognized over the requisite
service period regardless of whether the market condition is satisfied. The Company elected to account for
forfeitures in the period they occur as a reduction to expense.
Modification, replacements or cancellation of awards
A change in 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 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.
Cancellation of an award accompanied by the concurrent grant of (or offer to grant) a replacement award or
other valuable consideration shall be accounted for as a modification of the terms of the cancelled award.
Cancellation of an award without the concurrent grant or offer of a replacement award is treated as a
settlement for no consideration.
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 average number
of ordinary shares outstanding during the period.
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 share options and the vesting of restricted
shares, 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 comprehensive loss.
Concentration of risks
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, restricted cash and short-term investments. The Company’s cash and
cash equivalents, restricted cash and short-term investments are held at financial institutions that
management believes to be of high credit quality. As of December 31, 2022 and 2023, cash and cash
equivalents and restricted cash were held by financial institutions located in the U.S. and PRC and short-term
investments were held by financial institutions located in PRC.
PRC state-owned banks, such as China Merchants Bank, Bank of China, are subject to a series of risk
control regulatory standards, and PRC bank regulatory authorities are empowered to take over the operation
and management when any of those banks faces a material credit crisis. The Company does not foresee
substantial credit risk with respect to cash and cash equivalents, restricted cash and short-term investments
held at the PRC state-owned banks. Meanwhile, China does not have an official deposit insurance program, nor
does it have an agency similar to what was the Federal Deposit Insurance Corporation (FDIC) in the U.S. In
the event of bankruptcy of one of the financial institutions in which the Company has deposits or investments,
it may be unlikely to claim its deposits or investments back in full. The Company selected reputable financial
institutions with high rating rates to place its currencies. The Company regularly monitors the rating of the
financial institutions to avoid any potential defaults. The Company has not experienced any losses on cash and
cash equivalents, restricted cash and short-term investments to date. The Company does not believe that it is
subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Business, customer, political, social and economic risks
The Company participates in a dynamic biopharmaceutical 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 existing competitors and new entrants; advances and new trends in new drugs and industry standards;
changes in clinical research organizations and other key vendors; changes in certain strategic relationships or
customer relationships; regulatory considerations; intellectual property considerations; and risks associated
with the Company’s ability to attract and retain employees necessary to support its operations. The Company’s
operations could also be adversely affected by significant political, economic and social uncertainties in PRC
and in relations between PRC and the U.S.
Business risk
The Company relies on third parties to support clinical development activities, trials and the
manufacturing process for product candidates. If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, the Company may not be able to obtain regulatory approval for
the Company’s drug candidates and the Company’s business could be substantially impacted. The Company’s
main activities are in the U.S. and PRC.
F- 14
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
2.
Summary of significant accounting policies (continued)
Concentration of risks (continued)
Currency convertibility risk
The Company incurs portions of expenses in currencies other than the U.S. dollars, in particular, the
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. 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.
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. The appreciation of RMB against the U.S. dollar was approximately 2.3%
for the year ended December 31, 2021, the depreciation of RMB against the U.S. dollar was approximately
8.2% for the year ended December 31, 2022, and the depreciation of RMB against the U.S. dollar was
approximately 2.9% for the year ended December 31, 2023. 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. dollars into RMB for capital expenditures and
working capital and other business purposes, appreciation of the RMB against the 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. dollars for the purpose of making payments for dividends on
ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of the U.S.
dollar against the 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.
Recent accounting pronouncements
New accounting standards which have not yet been adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures. This update requires disclosure of incremental segment information on an
annual and interim basis. This update is effective for annual periods beginning after December 15, 2023, and
interim periods within annual periods beginning after December 15, 2024. Early adoption is permitted. This
guidance should be applied retrospectively to all prior periods presented in the financial statements. The
Company is currently evaluating the impact on its consolidated financial statements of adopting this guidance.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income
Tax Disclosures. This update requires that public entities on an annual basis, (1) in the rate reconciliation,
disclose specific categories and provide additional information for reconciling items that meet a quantitative
threshold; (2) about income taxes paid, disclose the amount of income taxes paid (net of refunds received)
disaggregated by federal, state, and foreign taxes and by individual jurisdiction in which income taxes paid
(net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds
received); and (3) disclose income (or loss) from continuing operations before income tax expense (or benefit)
disaggregated between domestic and foreign and income tax expense (or benefit) disaggregated by federal,
state, and foreign. This update is effective for annual periods beginning after December 15, 2024. Early
adoption is permitted. This guidance should be applied on a prospective basis. Retrospective application is
permitted. The Company is currently evaluating the impact on its consolidated financial statements of
adopting this guidance.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting
bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the
Company believes that recently issued standards that are not yet effective will not have a material impact on
the Company’s consolidated financial statements.
3.
Short-term investments
Short-term investments as of December 31, 2022 and 2023 are summarized below:
Amortiz
ed cost
Gross
unrealiz
ed
gains
Gross
unrealiz
ed
losses
$
$
$
Fair
value
(Net
carryin
g
amount
)
$
As of December 31,
2022
Trading debt securities
Financial products
issued by commercial
banks
Total at December
31, 2022
As of December 31,
2023
Trading debt securities
Financial products
issued by commercial
banks
Total at December
31, 2023
2,853
19
-
2,872
2,853
19
-
2,872
189
4
-
193
189
4
-
193
F- 15
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
4.
Collaboration revenue
Eli Lilly and Company
On November 12, 2020, the Company’s subsidiary, SEED, entered into a research collaboration and
license agreement (the “Lilly Collaboration Agreement”) with Eli Lilly and Company (“Lilly”). Under the Lilly
Collaboration Agreement, SEED controls certain rights to an intellectual property and other materials related
to a platform technology for ubiquitin ligase agonist screening (the “Ub Platform Technology”), and Lilly and
SEED shall use commercially reasonable efforts to conduct a research and development program to generate,
identify and/or optimize active compounds (“Lilly Compounds”) that directed against no more than three
targets selected by Lilly (“Lilly Targets”), using the Ub Platform Technology in accordance with the applicable
research plans for each of the Lilly Targets.
Under the Lilly Collaboration Agreement, Lilly paid SEED an upfront non-refundable fee of $10,000 in
November 2020. In addition, SEED will also be eligible to receive up to approximately $780,000 in potential
pre-clinical discovery, clinical and regulatory development milestone payments, as well as commercial
milestones and royalty payments based on net sales of products that result from the collaboration. As of
December 31, 2023, SEED has received $2,000 of these milestone payments for pre-clinical discovery. The
Lilly Collaboration Agreement is within the scope of ASC 808, as both parties are active participants and are
exposed to the risks and rewards dependent on the commercial success of the activities performed under the
agreement. The Company further determined the collaboration is reflective of a vendor-customer relationship
and therefore within the scope of ASC 606.
Under ASC 606, the Company determined the license under the Ub Platform Technology is not distinct
within the context of the contract because it is used as inputs to produce and deliver the combined outputs, i.e.
the identification of Lilly Compounds. The Company determined that it has a single performance obligation
which is the stand ready obligation to provide the research and development services to Lilly throughout the
shorter of the period up to the completion of research and development activities under the research plans for
three Lilly Targets or the contract period of 7 years. Transaction price allocated to the research and
development services is recognized as revenue over time on a straight-line basis because the customer
simultaneously receives and consumes the benefits as the Company performs throughout a fixed term. The
preclinical discovery, clinical and regulatory development milestone payments were fully constrained at
contract inception, and are not included in the transaction price.
In connection with the Lilly Collaboration Agreement, the Company and SEED Technology
(collectively, the “BYSI Entities”) transferred certain contracts, know-how, materials and equipment, and
documents related to a proprietary technology platform to SEED for 9,631,941 Series A-1 convertible
preferred shares (the “Series A-1 Preferred Shares”) of SEED. In addition, SEED, BYSI entities, and Lilly
entered into share purchase agreements pursuant to which SEED issued an aggregate of 1,194,030 shares of
its Series A-1 Preferred Shares to BYSI Entities, and 1,990,000 shares of its Series A-2 convertible redeemable
preferred shares (the “Series A-2 Preferred Shares”, collectively with Series A-1 Preferred Shares, the
“Preferred Shares”) to Lilly, each at a cash purchase price of $2.5125 per share. Series A-2 Preferred Shares
were recorded as contingently redeemable noncontrolling interests in mezzanine equity (Note 15). Pursuant to
the share purchase agreement (the “A2 SPA”) entered into between SEED and Lilly, SEED also agree to sell
and issue to Lilly an additional 1,990,000 Series A-2 Preferred Shares to Lilly, at a cash purchase price of
$2.5125 per share upon the fulfilment, prior to November 12, 2022, of certain conditions under the terms of
the A2 SPA (the “Forward”). The fair value of the Series A-2 Preferred Shares and Forward at initial closing
was determined by the Company with the assistance of a third party independent valuation firm. The Company
used a discounted cash flow model to determine the total equity value of SEED and further adopted the equity
allocation model to determine the fair value of the Series A-2 Preferred Shares as of the date of issuance which
is adjusted for a lack of marketability discount because the shares are subject to certain restrictions. The fair
value of the Series A-2 Preferred Shares and the Forward on the initial closing date was determined to be
$5,267 and $278, respectively. In June 2022, SEED settled the Forward with Lilly, and issued 1,990,000 Series
A-2 Preferred Shares to Lilly for $5,000 in cash upon achieving the conditions under the terms of the A2 SPA
(Notes 15 and 16).
The Lilly Collaboration Agreement and the A2 SPA were combined and accounted for as a single
arrangement since they were entered into at the same time. The total cash proceeds of $15,000 received from
Lilly under the Lilly Collaboration Agreement and the A2 SPA were allocated to the Series A-2 Preferred
Shares and the Forward at their fair value with the residual balance to the collaboration arrangement as
follows:
Novembe
r 20,
2020
$
Collaboration arrangement – research and
development services
Fair value of Series A-2 Preferred Shares (Note 14)
Fair value of the Forward (Note 15)
Total cash proceeds
9,455
5,267
278
15,000
The Company recognized collaboration revenue of $1,351 and $1,751 related to the Lilly Collaboration
Agreement for the years ended December 31, 2022 and 2023, respectively. Revenue recognized in each year
were from amounts included in contract liabilities at the beginning of the year and milestone payments
received during the year, if any.
Jiangsu Hengrui Pharmaceuticals Co., Ltd.
On August 25, 2021, the Company’s subsidiary, Wanchunbulin, entered into an exclusive
commercialization and co-development agreement (“Hengrui Collaboration Agreement”) with Hengrui,
pursuant to which Wanchunbulin granted Hengrui exclusive rights to commercialize Plinabulin in all
indications (the “Plinabulin Products”) in mainland China, Hong Kong, Macau and Taiwan (the “Greater
China”). Under the terms of Hengrui Collaboration Agreement, Hengrui assumed all commercialization
responsibilities for the Plinabulin Products effective September 22, 2021, including sales and marketing, and
Wanchunbulin agreed to provide services to Hengrui, including manufacture and supply of the Plinabulin
Products. Wanchunbulin and Hengrui may further participate in the research and development of the
Plinabulin Products for additional indications other than prevention of chemotherapy-induced neutropenia
(“CIN”) and 2nd/3rd line treatment of non-small cell lung cancer (“NSCLC”), and each will share 50% of the
research and development costs. The Hengrui Collaboration Agreement will remain effective until the patent
protection period of all Plinabulin Products related intellectual properties expires.
Under the Hengrui Collaboration Agreement, Hengrui paid Wanchunbulin an upfront non-refundable
fee of $31,039 (RMB200,000) in September 2021. Wanchunbulin will be eligible to receive up to $108,638
(RMB700,000) in potential regulatory development milestone payments, and up to $62,079 (RMB400,000) in
commercial milestone payments, respectively. In addition, Wanchunbulin will be eligible to receive royalty
payments based on net sales of the Plinabulin Products, which sets forth minimum royalties to be received by
Wanchunbulin for a specified period.
The Hengrui Collaboration Agreement is within the scope of ASC 808 as both parties are active
participants and are exposed to the risks and rewards dependent on the commercial success of the activities
performed under the agreement. The Company identified the following material components under the
agreement: (1) license of exclusive commercialization rights of the Plinabulin Products (the “License”), (2) the
manufacturing and supply of the Plinabulin Products (the “Manufacturing and Supply Services”), and (3)
research and development of the Plinabulin Products for additional indications. The Company further
determined the license of exclusive commercialization rights of the Plinabulin Products and the manufacturing
and supply of the Plinabulin Products are reflective of a vendor-customer relationship and therefore within the
scope of ASC 606, and research and development of the Plinabulin Products for additional indications is not a
promise to a customer within the scope of ASC 606.
F- 16
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
4.
Collaboration revenue (continued)
Jiangsu Hengrui Pharmaceuticals Co., Ltd. (continued)
The Company determined that the License and the Manufacturing and Supply Services are not distinct
from each other and represent a single performance obligation. The transaction price of the arrangement was
the upfront payment of $31,039 (RMB200,000). The development and commercialization milestone payments
and the minimum royalty payments are fully constrained at contract inception due to uncertainty of
achievement and are not included in the transaction price. The transaction price allocated to the License and
Manufacturing and Supply Services, as a combined performance obligation, will be recognized as revenue over
time using unit of delivery measure of progress, as the Company believes that it faithfully depicts the
Company’s performance toward complete satisfaction of the performance obligation. The Company did not
recognize any revenues from the Hengrui Collaboration Agreement for the years ended December 31, 2021,
2022 and 2023, and recorded the entire upfront non-refundable fee received as deferred revenue.
5.
Property and equipment, net
Property and equipment consisted of the following:
Office equipment
Laboratory equipment
Motor vehicles
Leasehold improvements
Less: accumulated depreciation
December 31,
2022
$
549
1,499
99
272
2,419
(551)
2023
$
495
1,585
97
272
2,449
(821)
Property and equipment, net
1,868
1,628
Depreciation expenses for the years ended December 31, 2021, 2022 and 2023 were $61, $232 and
$302, respectively.
6.
Long-term loans
On March 28, 2019, the Company borrowed a three-year term loan with a principal amount of $1,493
(RMB10,000) from China Construction Bank, which bore a floating interest rate benchmarking RMB loan
interest rate of financial institution in the PRC. The loan’s interest rate was 5.25% as of December 31, 2021.
The loan was guaranteed by the shareholder of the Company, Shenzhen Sangel Capital Management Limited
Company (“Shenzhen Sangel”) and Mr. Mulong Liu, a shareholder of Shenzhen Sangel. In March 2022, the
outstanding balance of the loan of $1,569 (RMB10,000) was fully repaid.
On May 3, 2020, the Company obtained a two-year term loan with a principal amount of $635 from
Citibank, North America (“Citibank”) under a Paycheck Protection Program initiated by U.S. Small Business
Administration (“SBA”). The loan bore an annual interest rate of 1% and the maturity date is May 3, 2022. In
July 2021, the loan under the Paycheck Protection Program was fully forgiven, and the Company recognized
$635 of gain in other income.
7.
Income taxes
Cayman Islands
The Company is incorporated in the Cayman Islands and is not subject to income tax under the current
laws of the Cayman Islands.
BVI
BeyondSpring Ltd., BVI Biotech, SEED and SEED Technology are all incorporated in the BVI and are
not subject to income tax under the current laws of the BVI.
U.S.
BeyondSpring US and SEED US are incorporated in Delaware, the U.S. They are subject to statutory
U.S. Federal corporate income tax at a rate of 21% for all years presented.
Australia
BeyondSpring Australia is incorporated in Australia and is subject to corporate income tax at a rate of
30%. BeyondSpring Australia had no taxable income for all years presented and therefore, no provision for
income taxes is required. BeyondSpring Australia was deregistered in Australia in March 2023.
Hong Kong
BeyondSpring HK is incorporated in Hong Kong. Companies registered in Hong Kong are subject to
Hong Kong Profits Tax on the taxable income as reported in their respective statutory financial statements
adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong.
BeyondSpring HK had no taxable income for all years presented and therefore, no provision for income taxes
is required.
F- 17
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
7.
Income Taxes (continued)
PRC
Wanchun Dalian, Wanchunbulin, Beijing Wanchun, and Wanchun Hongji are subject to the statutory
tax rate of 25% in accordance with the PRC Enterprise Income Tax Law (“EIT Law”), which was effective since
January 1, 2008. In accordance with the implementation rules of EIT Law, a qualified “High and New
Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is
effective for a period of three years. An entity must file required supporting documents with the tax authority
and ensure fulfillment of the relevant HNTE criteria before using the preferential rate. An entity could re-apply
for the HNTE certificate when the prior certificate expires. Starting from 2022, Wanchunbulin is designated as
the qualified HNTE and is subject to the preferential statutory tax rate of 15% for 3 years.
The components of loss (income) before income tax are as follows:
Cayman Islands
U.S.
PRC
BVI
Australia
Year Ended December 31,
2021
$
5,652
34,318
6,368
18,336
(36)
2022
$
3,522
13,144
7,253
12,831
(633)
2023
$
2,100
8,305
2,674
8,757
6
Loss before income tax
64,638
36,117
21,842
Income tax expenses for the years ended December 31, 2021, 2022 and 2023 are as follows:
Current income tax
Deferred income tax
Year Ended December 31,
2021
$
3,570
-
2022
$
163
-
2023
$
106
-
Income tax expenses
3,570
163
106
A reconciliation of the differences between income tax expenses and the amount computed by applying
the U.S. Federal corporate income tax rate of 21% for the years of 2021, 2022 and 2023 are as follows. The
U.S. statutory tax rate is being used as this is the jurisdiction of the primary operations:
Loss before income tax
Expected income tax
benefit
Tax rate difference
Non-deductible expenses
Research tax credits
Non-taxable income
Tax preference
Others
Current and deferred tax
rate differences
Stock Compensation
Expense - Windfall
R&D super deduction
Interest expenses
Change in valuation
allowance
Year Ended December 31,
2021
$
64,638
2022
$
36,117
2023
$
21,842
13,574
7,585
4,566
(3,796)
(788)
1,096
21
3,755
(262)
-
-
-
-
(2,253)
812
1,437
-
(667)
(216)
(1,800)
20
359
-
(336)
389
672
383
-
389
(315)
(807)
409
(523)
(17,170)
(7,607)
(2,766)
Total income tax (expenses)
(3,570)
(163)
(106)
F- 18
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
7.
Income Taxes (continued)
Net deferred tax assets as of December 31, 2022 and 2023 consisted of the following:
Deferred tax assets:
Net operating loss carryforward
Deferral of tax deduction of R&D
expenses
Mandatory R&D Capitalization
Share-based compensation
Deferred Incentive Compensation
Deferred revenue
Research tax credits
Operating lease liabilities
Accruals and reserves
December 31,
2022
$
2023
$
26,571
28,325
6,857
6,820
3,819
1,591
-
8,630
5,295
1,043
21
5,602
1,687
24
7,699
5,698
841
400
Total deferred tax assets
53,827
57,096
Deferred tax liabilities:
Unrealized gain
Depreciation
Operating lease right-of-use assets
Total deferred tax liabilities
(41)
(346)
(1,153)
(1,540)
(46)
(345)
(925)
(1,316)
Total gross deferred tax assets
Less: valuation allowance
52,287
(52,287)
55,780
(55,780)
Net deferred tax assets
-
-
The Company operates through several subsidiaries and valuation allowances are considered for each
of the subsidiaries on an individual basis. The Company recorded a valuation allowance against deferred tax
assets of those subsidiaries that are individually in a three-year cumulative loss, or in a cumulative loss and not
forecasting profits in the foreseeable future as of December 31, 2022 and 2023. As of December 31, 2023, the
Company continues to assert indefinite reinvestment on the excess of the financial reporting bases over tax
bases in the Company’s investments in foreign subsidiaries. A deferred tax liability of nil has not been
established for the approximately nil of cumulative undistributed foreign earnings that may be subject to
withholding taxes.
As of December 31, 2023, the Company had U.S. and PRC tax loss carryforwards of approximately
$122,818 and $11,721, respectively. For losses incurred in the U.S. in years after December 31, 2017, the Tax
Cuts and Jobs Act included a limitation on the deduction for net operating losses to 80% of current year
taxable income and a provision where such losses can be carried forward indefinitely. $18,347 of loss
carryforwards generated prior to 2018 are not limited in their current usage and can be carried forward for 20
years after the year they were generated. Whereas the PRC unused tax losses can be carried forward for 10
years and $11,748 will fully expire by 2027 if not utilized.
As of December 31, 2022 and 2023, the Company had unrecognized tax benefits of $3,634 and $3,194,
respectively, of which $1,391 and $1,348, respectively, were offset against the deferred tax assets on tax
losses carried forward, and the remaining amount of $2,243 and 1,846, respectively, which if ultimately
recognized, would impact the effective tax rate. The gross unrecognized tax benefits for the years ended
December 31, 2021, 2022 and 2023 were as follows:
Beginning balance, as of
January 1
Additions based on tax
positions related to prior
tax years
Reductions based on tax
positions related to prior
tax years
Additions based on tax
positions related to current
tax year
Ending balance, as of
December 31
Year Ended December 31,
2021
$
2022
$
2023
$
730
1,065
3,634
283
3,099
-
-
(608)
(440)
52
78
-
1,065
3,634
3,194
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income
tax expenses. For the year ended December 31, 2021, the Company did not recognize interest and penalties
accrued related to unrecognized tax benefits in income tax expenses. For the years end December 31, 2022
and 2023, the Company recognized $315 and $523 interest accrued respectively related to unrecognized tax
benefits in income tax expense. The Company had approximately $518 and $1,041 in accumulated accrued
interest and penalties recorded in other current liabilities as of December 31, 2022 and 2023, respectively.
The Company does not anticipate that the amount of existing unrecognized tax benefits will
significantly change within the next 12 months, and the fluctuation in deferred taxes would essentially be
offset by a valuation allowance. The Company’s subsidiaries in the U.S., Australia and PRC filed income tax
returns in the U.S., Australia and PRC, respectively. For the entities in the U.S., the tax returns are subject to
U.S. federal and state income tax examination by tax authorities for tax years beginning in 2020. For the entity
in Australia, the tax returns are open to examination by Australian Taxation Office for tax years beginning in
2020. For entities in the PRC, the tax returns for tax years after 2018 are open to examination by the PRC tax
authorities.
F- 19
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
8.
Net loss per share
Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows:
Year Ended December 31,
2021
2022
2023
$
(64,179) $
(33,279) $
(21,026)
39,023,643 39,093,246 38,996,463
Numerator:
Net loss attributable to
BeyondSpring Inc.—basic
and diluted
Denominator:
Weighted average number
of ordinary shares
outstanding—basic and
diluted
Net loss per share —basic
and diluted
$
(1.64) $
(0.85) $
(0.54)
The effects of all share options and unvested restricted shares were excluded from the calculation of
diluted loss per share as their effect would have been anti-dilutive during the years ended December 31, 2021,
2022, and 2023.
9.
Share-based compensation
General
On February 24, 2017, in connection with the IPO, the Company’s board of directors and shareholders
approved an equity compensation plan, the 2017 Omnibus Incentive Plan (the “2017 Plan”), which became
effective on March 9, 2017, to provide an additional incentive to selected officers, employees, non-employee
directors, independent contractors and consultants of the Company (the “Participants”). The share awards
granted by the Company under the 2017 Plan contain service conditions, and will generally vest based on a
time-based vesting schedule determined by the administrator of the 2017 Plan. Certain awards also contain (1)
performance conditions with respect to research and development progress or/and business development
progress, or/and (2) market conditions with respect to the share price of the Company. Under the 2017 Plan,
the maximum number of the Company’s ordinary shares reserved for issuance is 5,277,197 shares.
Restricted Shares
The following table summarizes the Company’s restricted share activities under the 2017 Plan:
Number
of shares
Weighted
average
grant
date fair
value
Outstanding at December 31, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2023
Expected to vest at December 31, 2023
130,946
15,164
(22,683)
(40,679)
82,748
1,359
(6,216)
(907)
76,984
101,098
(102,118)
(75,964)
-
-
$
17.30
14.64
14.78
14.00
19.12
2.85
11.10
11.03
19.57
1.18
1.28
19.69
-
-
The total fair value of restricted shares vested during the years ended December 31, 2021, 2022 and
2023 was $273, $24 and $121, respectively.
F- 20
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
9.
Share-based compensation (continued)
Share options
The following table summarizes the Company’s share option activities under the 2017 Plan:
Number
of options
Weigh
ted
avera
ge
exerci
se
price
Weigh
ted
avera
ge
grant
date
fair
value
Weigh
ted
avera
ge
remai
ning
contra
ctual
term
Aggre
gate
intrin
sic
value
$
$ Years
$
1,939,049 14.12
9.38
1,134,672 11.24 8.19
(98,500) 16.13 9.66
(307,883) 14.52 9.06
473
2,667,338 12.77
8.82
-
615,407 3.94 2.98
(60,000) 10.81 7.81
(1,212,306) 12.93 8.54
2,010,439 10.03
7.84
15
760,723 1.14 0.88
(905,936) 9.91 6.65
1,865,226 6.46
7.66
752,240 8.06
6.77
1,501,346 5.40
7.87
-
-
-
Outstanding at
December 31, 2020
Granted
Exercised
Forfeited
Outstanding at
December 31, 2021
Granted
Exercised
Forfeited
Outstanding at
December 31, 2022
Granted
Forfeited
Outstanding at
December 31, 2023
Exercisable as of
December 31, 2023
Vested and expected
to vest at December
31, 2023
As of December 31, 2023, there was $516 of total unrecognized share-based compensation cost,
related to unvested and expected to vest share options. This unrecognized share- based compensation cost is
expected to be recognized over an estimated weighted-average period of 1.09 years. Total unrecognized
compensation cost may be adjusted for actual forfeitures occurring in the future. The intrinsic value of a share
option is the difference between the market price of the ordinary share at the measurement date and the
exercise price of the option. There is no intrinsic value for options outstanding and exercisable as of December
31, 2023 as the closing share price at the end of 2023 was lower than the exercise price of these share options.
The total fair value of share options vested during the years ended December 31, 2021, 2022 and 2023
was $2,158, $906 and $367, respectively.
Fair value of options
The Black-Scholes-Merton formula was applied in determining the estimated fair value of the share
options granted without market conditions. The model requires the input of assumptions including the
estimated expected share price volatility and the expected terms of awards. The Company historically has
limited available historical data to demonstrate consistent early exercise behavior. To determine the expected
term of the awards, the Company applied a simplified method considering factors including the timing of
achieving various performance conditions and their respective probabilities as well as the contractual life of
the options. The determination of the expected terms for awards with performance conditions involves the
application of management’s judgment. The risk-free interest rates for the periods within the expected term of
the option are based on the U.S. Treasury rate. The volatility assumption was estimated based on the historical
volatility of the Company’s share price.
The following table presents the assumptions used in Black-Scholes-Merton formula to estimate the
fair values of the share options granted in the years presented:
Fair value of ordinary share
Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield
Contractual life (years)
For the year ended December 31,
2022
2021
2023
9.48 ~31.31 1.14 ~ 3.48 0.77 ~1.75
0.37% ~1.47% 1.23% ~ 3.16% 3.47% ~4.29%
5.0
75% ~90% 100% ~ 115%
0%
~7.49 3.05 ~ 6.00 5.07 ~6.00
0%
5
10
~10
105%
0%
10
Monte Carlo Simulation model was applied in determining the estimated fair value of share options
that are subject to market conditions. This model incorporates six minimum considerations: 1) the exercise
price of the option, 2) the contractual term of the option, 3) the current fair value of the underlying equity, 4)
the expected volatility of the value of the underlying share for the contractual term of the option which is
estimated based on historical volatility of the Company’s share price, 5) the expected dividends on the
underlying share for the expected term of the option and 6) the risk-free interest rates for the contractual term
of the option, which are based on the U.S. Treasury rate.
A total of 370,000 share options granted in May 2021 are subject to market conditions. 170,000 of
these options were forfeited in 2022 and 135,000 in 2023, respectively. The following table presents the
assumptions used in Monte Carlo Simulation model to estimate the fair values of the share options granted:
Exercise price
Fair value of ordinary share
Risk-free interest rate
Contractual term (years)
Expected volatility
Expected dividend yield
For the
year
ended
Decembe
r 31,
2021
10.18
10.71
1.63%
10
75%
0%
F- 21
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
9.
Share-based compensation (continued)
Long-term incentives
During 2021, the Company issued long-term incentive with an aggregate value of $79,225 to certain of
its senior management. The long-term incentive awards are subject to certain performance-based vesting
conditions and certain awards also are subject to market conditions. 25% of the long-term incentive awards
will be settled in the Company’s ordinary shares, and the remaining 75% of the awards will be settled in cash
or the Company’s ordinary shares, all or in part, at the grantee’s election.
The long-term incentive awards are classified as liability awards. As of December 31, 2023, the
Company has issued a total of 3,486 ordinary shares with a total fair value of $37. Compensation expense
recognized for the years ended December 31, 2021, 2022 and 2023 was $204, $32 and $20 respectively. As of
December 31, 2023, there was $45 of total unrecognized share-based compensation cost, related to unvested
and expected to vest long-term incentive awards. This unrecognized share-based compensation cost is
expected to be recognized over an estimated weighted-average period of 1.12 years. Total unrecognized
compensation cost may be adjusted for actual forfeitures occurring in the future.
The following table summarizes total share-based compensation expense recognized under 2017 Plan
for the years ended December 31, 2021, 2022 and 2023:
Research and development
General and administrative
Year ended December 31,
2021
$
901
2,251
2022
$
859
725
2023
$
(181)
735
Total
3,152
1,584
554
SEED 2022 Share Incentive Plan
In 2022, SEED adopted its 2022 Share Incentive Plan (the “SEED Plan”). Under this plan, SEED has
granted share options to some of its employees and consultants, which will be settled by SEED in its ordinary
shares upon exercise of those options. These awards are generally subject to a four-year or five-year time-
based vesting schedule as determined by the administrator of the plan.
The following table summarizes SEED’s share option activities under the 2022 Plan:
Number
of
options
Weigh
ted
avera
ge
exerci
se
price
Weigh
ted
Weigh
ted
avera
ge
remai
ning
Aggre
gate
intrin
sic
value
$
-
$ Years
-
-
1,281,000 0.50 0.38
(93,000) 0.50 0.36
1,188,000 0.50
9.69
172,000 0.50 0.32
(8,000) 0.50 0.40
(95,000) 0.50 0.36
1,257,000 0.50
8.82
436,500 0.50
8.84
1,257,000 0.50
8.82
$
-
-
-
-
-
-
Outstanding at
December 31, 2021
Granted
Forfeited
Outstanding at
December 31, 2022
Granted
Exercised
Forfeited
Outstanding at
December 31, 2023
Exercisable as of
December 31, 2023
Vested and expected
to vest at December
31, 2023
As of December 31, 2023, there was $178 of total unrecognized share-based compensation cost,
related to unvested and expected to vest share options under the SEED Plan. This unrecognized share-based
compensation cost is expected to be recognized over an estimated weighted-average period of 2.09 years. The
total fair value of share options vested during the years ended December 31, 2022 and 2023 was $11 and
$127, respectively.
The Black-Scholes-Merton formula was applied in determining the estimated fair value of the share
options granted by SEED. The following table presents the assumptions used in Black-Scholes-Merton formula
to estimate the fair values of the share options granted in the years presented:
For the year ended December 31,
2023
2022
Fair value of ordinary share
Risk-free interest rate
Expected term (years)
Expected volatility
Expected dividend yield
Contractual life (years)
0.19~
0.44~
5.25~
0.50
2.54%~ 3.75%
6.50
0.44
3.47%~ 4.73%
6.50
99.34%~106.73% 105.97%~141.40%
0%
10
0%
10
5.04~
The following table summarizes total share-based compensation expense recognized under the SEED
Plan for the years ended December 31, 2022 and 2023:
Research and development
General and administrative
Total
Year ended
December 31,
2022
$
71
10
2023
$
89
127
81
216
F- 22
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
10.
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 funds 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 $303, $236 and $150 for the
years ended December 31, 2021, 2022 and 2023, respectively.
11.
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 U.S. GAAP differ from those reflected in the statutory financial
statements of the Company’s PRC subsidiaries.
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of
association, a foreign invested enterprise established in the PRC is required to provide certain statutory
reserves, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A
foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general
reserve until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC
statutory accounts. Appropriations to other funds are at the discretion of the board of directors for all foreign
invested enterprises. The aforementioned reserves can only be used for specific purposes and are not
distributable as cash dividends. Wanchun Dalian and Wanchun Hongji were established as foreign invested
enterprises and therefore are subject to the above mandated restrictions on distributable profits.
Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to
provide a statutory common reserve 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 dividends. Wanchunbulin and
Beijing Wanchun were established as domestic invested enterprises and therefore are subject to the above
mandated restrictions on distributable profits.
Foreign exchange and other regulations in the PRC further restrict the Company’s PRC subsidiaries
from transferring funds to the Company in the form of loans, advances or cash dividends. As of December 31,
2022 and 2023, amounts restricted were the net assets of the Company’s PRC subsidiaries, which amounted to
nil and nil, respectively.
12.
Leases
The Company has operating leases for offices and a laboratory in the U.S. Total expenses incurred
under the operating leases for the years ended December 31, 2021, 2022 and 2023 were $725, $1,107 and
$1,285, respectively. Total expenses incurred under short-term leases for the years ended December 31, 2021,
2022 and 2023 were $20, $116 and $53, respectively. The short-term lease commitments were nil as of
December 31, 2023.
Maturities of operating lease liabilities as of December 31, 2023 are as follows:
Year ending December 31, 2024
Year ending December 31, 2025
Year ending December 31, 2026
Year ending December 31, 2027
Year ending December 31, 2028
Year ending December 31, 2029 and thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
$
785
804
824
521
537
1,027
4,498
(503)
3,995
Other supplemental information related to leases is summarized below:
Year ended
December 31,
2022
$
2023
$
Operating cash flows used in operating
lease
1,471
1,236
As of December 31,
2022
2023
Weighted average remaining lease term
(years)
Weighted average discount rate
6.61
6.14
3.6%
3.4%
F- 23
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
13.
Supplemental balance sheet information
Other noncurrent assets consist of the following:
Deductible input value-added tax
Others
Total
December 31,
2022
$
2023
$
8
339
347
32
332
364
Other current liabilities consist of the following:
Compensation related
Professional services
Income tax and other taxes payable
Others
Total
December 31,
2022
$
1,330
6
32
116
2023
$
1,429
52
16
91
1,484
1,588
Other noncurrent liabilities consist of the following:
December 31,
2022
$
2023
$
Compensation related
Income tax payable
Other taxes payable
Total
85
3,240
336
112
3,238
355
3,661
3,705
F- 24
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
14.
Contingently redeemable noncontrolling interests
The main rights, preferences and privileges of Preferred Shares issued by SEED are as follows:
Liquidation preferences
In the event of any voluntary or involuntary liquidation, dissolution or winding up of SEED, or in a
deemed liquidation event, the assets of SEED shall be distributed in the following order:
a.
b.
c.
before any payment shall be made to the holders of Series A-1 Preferred Shares or ordinary
shares by reason of their ownership thereof, an amount per share equal to the greater of (i)
the applicable original issue price, plus any dividends declared but unpaid thereon, or (ii) such
amount per share as would have been payable had all Series A-2 Preferred Shares been
converted into ordinary shares immediately prior to such liquidation, dissolution, winding up
or deemed liquidation event.
after the payment in full of the amount distributable or payable on the Series A-2 Preferred
Shares, the holders of Series A-1 Preferred Shares then outstanding shall be entitled to be paid
out of the assets of SEED available for distribution to its Shareholders, and in the event of a
deemed liquidation event, the holders of Series A-1 Preferred Shares then outstanding shall be
entitled to be paid out of the consideration not payable to the holders of Series A-2 Preferred
Shares or the remaining available proceeds, as applicable, before any payment shall be made
to the holders of ordinary shares by reason of their ownership thereof, an amount per share
equal to the greater of (i) the applicable original issue price, plus any dividends declared but
unpaid thereon, or (ii) such amount per share as would have been payable had all Series A-1
Preferred Shares been converted into ordinary shares immediately prior to such liquidation,
dissolution, winding up or deemed liquidation event.
after the payment in full of the amount distributable or payable on the Preferred Shares, the
remaining assets of SEED available for distribution to the shareholders or, in the case of a
deemed liquidation event, the consideration not payable to the holders of Preferred Shares or
the remaining available proceeds, as the case may be, shall be distributed among the holders
of ordinary shares, pro rata based on the number of ordinary shares held by each such holder.
Redemption rights
The Series A-2 Preferred Shares shall be redeemed by SEED at a price equal to the applicable original
issue price per share plus an annual return of 8% of the applicable original issue price, in three annual
installments commencing not more than sixty days after receipt by SEED at any time on or after November 10,
2025 from the holders of at least a majority of the outstanding Series A-2 Preferred Shares of written notice
requesting redemption of all Series A-2 Preferred Shares. The redemption is not guaranteed by the Company.
Conversion rights
Each Preferred Share shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder thereof, into such number of
fully paid and non-assessable ordinary shares of SEED as at an initial conversion ratio of 1:1 adjusted for share
splits, share dividends, recapitalizations and similar transactions.
Each Preferred Shares shall automatically be converted into ordinary shares based on a one-for-one
basis upon either (a) in the event of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, in the Nasdaq Stock Market’s National
Market, the New York Stock Exchange or another exchange or marketplace approved by SEED’s Board of
Directors, at a price per share of at least $7.5375 resulting in at least $50,000 of gross proceeds to SEED (the
“Qualified IPO”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of
both (x) at least a majority of the outstanding Preferred Shares voting together as a single class on an as-
converted basis, and (y) the holders of at least a majority of the outstanding shares of Series A-2 Preferred
Shares, voting or consenting as a separate class.
Voting rights
Each holder of outstanding Preferred Shares shall be entitled to cast the number of votes equal to the
number of whole ordinary shares into which the Preferred Shares held by such holder are convertible as of the
record date for determining shareholders entitled to vote on such matter.
Accounting for the Series A-2 Preferred Shares
The Company determined that Series A-2 Preferred Shares issued by SEED are contingently
redeemable noncontrolling interest classified as mezzanine equity as they may be redeemed at the option of
the holders on or after an agreed upon date outside the sole control of SEED. The Company concluded that the
Series A-2 Preferred Shares of SEED are not redeemable currently, but it is probable that they will become
redeemable. The Company chose to recognize changes in the redemption value as they occur and adjust the
carrying amount of the redeemable noncontrolling interests to equal the redemption value at the end of each
reporting period.
The holder of the Series A-2 Preferred Shares of SEED has the ability to convert the instrument into
SEED’s ordinary shares. The Company uses the whole instrument approach to determine whether the nature
of the host contract in a hybrid instrument is more akin to debt or to equity. The Company evaluated the
embedded conversion option in the Series A-2 Preferred Shares of SEED to determine if there were any
embedded derivatives requiring bifurcation. The conversion option of the Series A-2 Preferred Shares of SEED
does not qualify for bifurcation accounting because the conversion option is clearly and closely related to the
host instrument and the underlying ordinary shares are not publicly traded nor readily convertible into cash.
The contingent redemption of the Series A-2 Preferred Shares of SEED does not qualify for bifurcation
accounting because the underlying ordinary shares of SEED are not publicly traded nor readily convertible
into cash. There are no other embedded derivatives that are required to be bifurcated.
On June 13, 2022, upon successfully achieving the conditions set under the A2 SPA, the Company
received $5,000 proceeds from Lilly in exchange for an additional 1,990,000 shares of Series A-2 Preferred
Shares. The fair value of the Series A-2 Preferred Shares and the Forward on the settlement date was
determined to be $3,763 and $1,237, respectively. The Company determined the fair value of Series A-2
Preferred Shares and the Forward with the assistance of an independent third-party valuation firm.
The contingently redeemable noncontrolling interests for the years ended December 31, 2022 and
2023 is summarized below:
Balance as of December 31, 2021
Issuance
Accretion to redemption value
Balance as of December 31, 2022
Accretion to redemption value
Balance as of December 31, 2023
Continge
ntly
redeemab
le
noncontr
olling
interests
$
5,454
3,763
1,857
11,074
800
11,874
F- 25
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
15.
Forward contract
In connection with the issuance of Series A-2 Preferred Shares on November 12, 2020, SEED agrees to
sell and issue to Lilly an additional 1,990,000 Series A-2 Preferred Shares, at a cash purchase price of $2.5125
per share upon the fulfilment, prior to November 12, 2022, of certain conditions under the term of A2 SPA.
The Forward is a freestanding instrument that represents a contingent obligation of SEED to sell
Series A-2 Preferred Shares to Lilly. The Forward is classified as a liability or asset in accordance with ASC
480, Distinguishing Liabilities from Equity, because the redemption feature of the underlying Series A-2
Preferred Shares potentially requires SEED to repurchase its shares by transferring assets. The Company also
evaluated the conversion feature and determined that there was no beneficial conversion feature. There are no
other embedded derivatives that are required to be bifurcated. The Forward was initially recognized as a
liability at a fair value of $278 on November 12, 2020, and is subsequently remeasured to fair value through
earnings at each reporting date until the Forward is exercised or expires.
As of December 31, 2021, the Forward was remeasured and recognized as an asset with a fair value of
$166 in other current assets, resulting in an unrealized gain of $444, which was recorded in other income, net.
On June 13, 2022, the Company received $5,000 in exchange for 1,990,000 shares of Series A-2 Preferred
Shares as settlement of the Forward contract and revalued the Forward contract as an asset to the fair value
of $1,237. The settlement of the Forward contract resulted in a total fair value gain of $1,071 during the year
ended December 31, 2022. Since the Forward contract was fully settled in June 2022, there was no
outstanding Forward as of December 31, 2022. The Company determined the fair value of the Forward with
the assistance of an independent third-party valuation firm.
16.
Accumulated other comprehensive income (loss)
The movement of accumulated other comprehensive income (loss) was as follows:
Foreign
currency
translation
adjustmen
ts
Unrealized
gain (loss)
on
available-
for-sale
securities
$
(528)
964
436
472
908
$
5
(5)
-
-
-
Total
$
(523)
959
436
458
894
December 31, 2021
Current period other
comprehensive income
(loss)
December 31, 2022
Current period other
comprehensive income
(loss)
December 31, 2023
17.
Commitments and contingencies
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. As of December 31, 2023, the Company’s subsidiary, Wanchunbulin, was a
party to an arbitration proceeding initiated by Hengrui with respect to a commercialization and co-
development agreement with Hengrui (“Hengrui Arbitration”). As an interim and conservatory measure for the
arbitration, approximately RMB70,000 (approximately $9,600) of Wanchunbulin’s assets were seized and
frozen on a temporary basis, pending a decision on the merits by the arbitral tribunal. Such seized and frozen
assets are reflected in the Company’s balance sheet as of December 31, 2023 as “Restricted Cash.”. On
January 10, 2024, the arbitral tribunal at China International Economic and Trade Arbitration Committee
issued a final award with respect to the Hengrui Arbitration, denying all claims made by Hengrui. As a result,
all of Wanchunbulin’s assets that have been seized and frozen pending a decision by the arbitral tribunal were
returned to Wanchunbulin in February 2024.
Commitments
Wanchunbulin, a subsidiary of the Company, has entered into a government grant agreement with
specific local authorities in PRC. Wanchunbulin commits to staying within designated districts, maintaining
current tax jurisdictions, and retaining its registered capital, until 2033. Wanchunbulin also undertakes not to
establish additional entities in other jurisdictions within Greater China for the purposes of conducting
research, development, and commercialization activities related to Plinabulin, provided such activities fall
within the scope of the government grant agreement. Otherwise, Wanchunbulin may be required to refund the
grants.
F- 26
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
18.
Segment reporting and geographic information
The Company’s operations are organized into two segments, consisting of Plinabulin pipeline and TPD
platform.
The Company presents segment information after elimination of inter-company transactions. In
general, revenues and operating expenses are directly attributable, or are allocated, to each segment. The
Company allocates operating expenses that are not directly attributable to a specific segment, such as those
that support infrastructure across different segments, to different segments mainly on the basis of usage,
headcount, depending on the nature of the relevant operating expenses. The Company does not allocate assets
to its segments as the Company’s CODM does not evaluate the performance of segments using asset
information.
The table below provides a summary of the Company’s operating segment operating results for the
year ended December 31, 2021:
Year ended December 31, 2021
Plinabu
lin
pipeline
TPD
platfor
m
Interse
gment
elimina
tions
Consoli
dated
$
$
$
$
Revenue
-
1,351
-
1,351
Operating expenses
Research and
development
General and
administrative
(32,077)
(29,737)
(4,851)
40 (36,888)
(1,166)
200 (30,703)
Loss from operations (61,814)
Total other income
(expenses), net
1,382
(4,666)
240 (66,240)
460
(240)
1,602
Loss before income
tax
Income tax expenses
(60,432)
(4,206)
- (64,638)
(3,218)
(352)
-
(3,570)
Net loss
Less: Net loss
attributable to
noncontrolling
interests
Net loss attributable
to BeyondSpring Inc.
(63,650)
(4,558)
- (68,208)
(4,029)
-
-
(4,029)
(59,621)
(4,558)
- (64,179)
The table below provides a summary of the Company’s operating segment operating results for the
year ended December 31, 2022:
Year ended December 31, 2022
Plinabu
lin
pipeline
TPD
platfor
m
Interse
gment
elimina
tions
Consoli
dated
$
$
$
$
Revenue
-
1,351
-
1,351
Operating expenses
Research and
development
General and
administrative
(18,180)
(11,346)
(7,442)
40 (25,582)
(1,862)
200 (13,008)
Loss from operations (29,526)
Total other income
(expenses), net
400
(7,953)
240 (37,239)
962
(240)
1,122
Loss before income
tax
Income tax expenses
(29,126)
(6,991)
- (36,117)
(227)
64
-
(163)
Net loss
Less: Net loss
attributable to
noncontrolling
interests
Net loss attributable
to BeyondSpring Inc.
(29,353)
(6,927)
- (36,280)
(3,001)
-
-
(3,001)
(26,352)
(6,927)
- (33,279)
F- 27
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
18.
Segment reporting and geographic information (continued)
The table below provides a summary of the Company’s operating segment operating results for the
year ended December 31, 2023:
Year ended December 31, 2023
Plinabu
lin
pipeline
TPD
platfor
m
Interse
gment
elimina
tions
Consoli
dated
$
$
$
$
Revenue
-
1,751
-
1,751
Operating expenses
Research and
development
General and
administrative
(7,312)
(7,363)
40 (14,635)
(8,009)
(2,421)
200 (10,230)
Loss from operations (15,321)
Total other income
(expenses), net
1,398
(8,033)
240 (23,114)
114
(240)
1,272
Loss before income
tax
Income tax expenses
(13,923)
(7,919)
- (21,842)
(92)
(14)
-
(106)
Net loss
Less: Net loss
attributable to
noncontrolling
interests
Net loss attributable
to BeyondSpring Inc.
(14,015)
(7,933)
- (21,948)
(922)
-
-
(922)
(13,093)
(7,933)
- (21,026)
For the years ended December 31, 2021, 2022 and 2023, the Company recognized revenue of $1,351,
$1,351, and $1,751 respectively. All of the Company’s revenue was derived from the U.S. for the years ended
December 31, 2021, 2022 and 2023. The Company’s long-lived assets by geographic area are presented as
follows:
Property and equipment, net:
PRC
U.S.
Total
December 31,
2022
$
2023
$
90
1,778
60
1,568
1,868
1,628
19.
Fair value measurements
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2023
are summarized below:
Recurring fair value
measurement
Total
fair
value
Fair value measurement
Quoted
prices
in
active
markets
for
identica
l
assets
(Level
1)
Signific
ant
other
observa
ble
inputs
(Level
2)
Signific
ant
unobser
vable
inputs
(Level
3)
$
$
$
$
As of December 31,
2022
Assets:
Trading debt securities
Financial products
issued by commercial
banks
Total assets measured
at fair value
As of December 31,
2023
Assets:
Trading debt securities
2,872
-
2,872
2,872
-
2,872
-
-
Financial products
issued by commercial
banks
Total assets measured
at fair value
193
-
193
193
-
193
-
-
F- 28
BEYONDSPRING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
(Amounts in thousands of U.S. Dollars (“$”) and Renminbi (“RMB”),
except for number of shares and per share data)
19.
Fair value measurements (continued)
The fair value of the forward contract is estimated using a formulaic valuation approach which
combines the discounted cash flow to first estimate the fair value of the entity’s share price and probability-
based valuation approach to estimate the fair value of the forward contract. Significant unobservable inputs
include the probability of achieving a contingent target, discount for lack of marketability, volatility and
weighted average cost of capital at the end of 2021 and the settlement date.
The following table represents the significant unobservable inputs used to estimate the fair value of
the Forward contract at December 31, 2021 and at settlement date June 13, 2022:
Valuation
technique
Unobservable
inputs
Forward
contract
Discounted cash
flow
Discount for lack of
marketability
Volatility
Weighted average
cost of capital
Probability of
achieving
contingent target
Probability-based
valuation
approach
Range as of
December
31, 2021
June 13,
2022
10%
85%
10%
85%
14.50%
17.10%
90%
100%
The following table presents a reconciliation of the forward contract measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the years presented.
Balance as of December 31, 2020 (liability)
Gains from changes in fair value
Balance as of December 31, 2021 (asset)
Gains from changes in fair value
Settlement during the year
Balance as of December 31, 2022
Forward
contract
$
(278)
444
166
1,071
(1,237)
-
20.
Subsequent events
On January 10, 2024, the arbitral tribunal at China International Economic and Trade Arbitration
Committee issued a final award with respect to the Hengrui Arbitration, denying all claims made by Hengrui.
As a result, all of Wanchunbulin’s assets that have been seized and frozen pending a decision by the arbitral
tribunal were returned to Wanchunbulin in February 2024.
On March 22, 2024, the Company’s subsidiary, SEED, received $1,000 from Lilly upon achievement of
certain pre-clinical discovery milestone under the Lilly Collaboration Agreement.
F-29