Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

OR

 

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

 

For the transition period from             to             

 

Commission File Number: 001-37686

 


 

BEIGENE, LTD.

(Exact name of registrant as specified in its charter)

 


 

Cayman Islands
(State or other jurisdiction of
incorporation or organization)

 

98-1209416
(I.R.S. Employer
Identification No.)

 

 

 

c/o Mourant Ozannes Corporate Services
(Cayman) Limited
94 Solaris Avenue, Camana Bay
Grand Cayman
Cayman Islands
(Address of principal executive offices)

 

KY1-1108
(Zip Code)

 

+1 (345) 949 4123
(Registrant’s telephone number, including area code)

 

 

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    x   No    o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    x   No    o

 

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

 

Large accelerated filer

 

o

 

Accelerated Filer

 

o

 

 

 

 

 

 

 

Non-accelerated filer

 

x (Do not check if a smaller reporting

company)

 

Smaller reporting company

 

o

Emerging growth company

 

x

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    o    No   x

 

As of May 5, 2017, 518,902,349 ordinary shares, par value $0.0001 per share, were outstanding, of which 287,175,707 ordinary shares were held in the form of 22,090,439 American Depositary Shares, each representing 13 ordinary shares.

 

 

 



Table of Contents

 

BeiGene, Ltd.

Quarterly Report on Form 10-Q

 

TABL E OF CONTENTS

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

26

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

 

 

 

Item 3.

Defaults Upon Senior Securities

79

 

 

 

Item 4.

Mine Safety Disclosures

79

 

 

 

Item 5.

Other Information

79

 

 

 

Item 6.

Exhibits

79

 

 

 

SIGNATURES

80

 

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Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

BEIGENE, LTD.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Amounts in thousands of U.S. Dollar (“$”), except for number of shares and per share data)

 

 

 

 

 

As of

 

 

 

Note

 

March 31,
2017

 

December 31,
2016

 

 

 

 

 

$

 

$

 

 

 

 

 

(unaudited)

 

(audited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

97,750

 

87,514

 

Short-term investments

 

3

 

229,726

 

280,660

 

Prepaid expenses and other current assets

 

 

 

8,702

 

6,225

 

Total current assets

 

 

 

336,178

 

374,399

 

Property and equipment, net

 

4

 

30,723

 

25,977

 

Deferred tax assets

 

5

 

2,928

 

768

 

Other non-current assets

 

 

 

6,900

 

4,669

 

Total non-current assets

 

 

 

40,551

 

31,414

 

Total assets

 

 

 

376,729

 

405,813

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

 

 

20,482

 

11,957

 

Accrued expenses and other payables

 

6

 

24,463

 

22,297

 

Short-term loan

 

8

 

2,470

 

 

Tax payable

 

5

 

2,570

 

804

 

Total current liabilities

 

 

 

49,985

 

35,058

 

Non-current liabilities:

 

 

 

 

 

 

 

Long-term bank loan

 

9

 

17,434

 

17,284

 

Other long-term liabilities

 

 

 

893

 

564

 

Total non-current liabilities

 

 

 

18,327

 

17,848

 

Total liabilities

 

 

 

68,312

 

52,906

 

Commitments and contingencies

 

17

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Ordinary shares (par value of US$0.0001 per share; 9,500,000,000 shares authorized; 518,602,349 shares issued and outstanding as of March 31, 2017 (December 31, 2016: 9,500,000,000 shares authorized; 515,833,609 shares issued and outstanding)

 

 

 

52

 

52

 

Additional paid-in capital

 

 

 

597,268

 

591,213

 

Accumulated other comprehensive loss

 

14

 

(868

)

(946

)

Accumulated deficit

 

 

 

(288,035

)

(237,412

)

Total shareholders’ equity

 

15

 

308,417

 

352,907

 

Total liabilities and shareholders’ equity

 

 

 

376,729

 

405,813

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BEIGENE, LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Amounts in thousands of U.S. Dollar (“$”), except for number of shares and per share data)

 

(Unaudited)

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

Note

 

2017

 

2016

 

 

 

 

 

$

 

$

 

Revenue

 

 

 

 

 

 

 

Collaboration revenue

 

11

 

 

677

 

Total revenue

 

 

 

 

677

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

 

(42,773

)

(17,877

)

General and administrative

 

 

 

(8,769

)

(3,134

)

Total operating expenses

 

 

 

(51,542

)

(21,011

)

Loss from operations

 

 

 

(51,542

)

(20,334

)

Interest income, net

 

 

 

186

 

290

 

Changes in fair value of financial instruments

 

7

 

 

(1,514

)

Gain/(loss) on sale of available-for-sale securities

 

 

 

8

 

(712

)

Other income, net

 

 

 

905

 

313

 

Loss before income tax expense

 

 

 

(50,443

)

(21,957

)

Income tax expense

 

5

 

(180

)

(44

)

Net loss

 

 

 

(50,623

)

(22,001

)

Loss per share

 

12

 

 

 

 

 

Basic and diluted

 

 

 

(0.10

)

(0.07

)

Weighted-average number of ordinary shares used in net loss per share calculation

 

12

 

 

 

 

 

Basic and diluted

 

 

 

516,437,707

 

294,042,572

 

Loss per ADS

 

 

 

 

 

 

 

Basic and diluted

 

 

 

(1.27

)

(0.97

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BEIGENE, LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

(Amounts in thousands of U.S. Dollar (“$”), except for number of shares and per share data)

 

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2017

 

2016

 

 

 

$

 

$

 

Net loss

 

(50,623

)

(22,001

)

Other comprehensive loss, net of tax of nil:

 

 

 

 

 

Foreign currency translation adjustments

 

90

 

97

 

Unrealized holding (loss)/gain, net

 

(12

)

461

 

Comprehensive loss

 

(50,545

)

(21,443

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BEIGENE, LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Amounts in thousands of U.S. Dollar (“$”), except for number of shares and per share data)

 

(Unaudited)

 

 

 

 

 

Three Months Ended March 31,

 

 

 

Note

 

2017

 

2016

 

 

 

 

 

$

 

$

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

 

 

(50,623

)

(22,001

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation expense

 

4

 

864

 

439

 

Share-based compensation expense

 

13

 

5,992

 

2,614

 

Loss on disposal of property and equipment

 

 

 

7

 

 

Changes in fair value of financial instruments

 

 

 

 

1,514

 

(Gain)/loss on sale of available-for-sale securities

 

 

 

(8

)

712

 

Interest expense

 

 

 

 

93

 

Deferred income tax benefits

 

 

 

(2,160

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

 

(2,477

)

(406

)

Other non-current assets

 

 

 

(41

)

(47

)

Accounts payable

 

 

 

8,474

 

(5,322

)

Advances from customers

 

 

 

 

(677

)

Accrued expenses and other payables

 

 

 

2,166

 

3,222

 

Tax payable

 

 

 

1,766

 

33

 

Other long-term liabilities

 

 

 

329

 

(15

)

Net cash used in operating activities

 

 

 

(35,711

)

(19,841

)

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

(5,068

)

(3,303

)

Payment for land auction deposit

 

 

 

(2,319

)

 

Purchase of available-for-sale securities

 

 

 

(14,683

)

 

Proceeds from sale or maturity of available-for-sale securities

 

 

 

65,613

 

43,646

 

Net cash provided by investing activities

 

 

 

43,543

 

40,343

 

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of ordinary shares, net of underwriter discount

 

 

 

 

169,409

 

Payment of initial public offering cost

 

 

 

 

(1,478

)

Proceeds from short-term loan

 

8

 

2,470

 

 

Proceeds from exercise of warrants and options

 

 

 

63

 

2,118

 

Net cash provided by financing activities

 

 

 

2,533

 

170,049

 

Effect of foreign exchange rate changes, net

 

 

 

(129

)

86

 

Net increase in cash and cash equivalents

 

 

 

10,236

 

190,637

 

Cash and cash equivalents at beginning of period

 

 

 

87,514

 

17,869

 

Cash and cash equivalents at end of period

 

 

 

97,750

 

208,506

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

Income taxes paid

 

 

 

76

 

25

 

Interest expense paid

 

 

 

305

 

108

 

Non-cash activities:

 

 

 

 

 

 

 

Conversion of Senior Promissory Note

 

 

 

 

14,693

 

Conversion of deferred rental

 

 

 

 

980

 

Conversion of convertible preferred shares

 

 

 

 

176,084

 

Exercise of warrants and options

 

 

 

 

3,687

 

Initial public offering costs accrued in accrued expenses and other payables 

 

 

 

 

166

 

Acquisitions of equipment included in accounts payable

 

 

 

2,204

 

91

 

 

  The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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BEIGENE, LTD.

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”), except for number of shares and per share data)

 

(Unaudited)

 

1. Organization

 

BeiGene, Ltd. (the “Company”) is a globally focused, clinical-stage biopharmaceutical company with the goal of becoming a leader in the discovery and development of innovative, molecularly targeted and immuno-oncology drugs for the treatment of cancer. The Company’s development strategy is based on a novel translational platform that combines its unique access to internal patient-derived biopsies with strong oncology biology. The Company was incorporated under the laws of the Cayman Islands as an exempted company with limited liability on October 28, 2010.

 

Initial public offering

 

On February 8, 2016, the Company completed its initial public offering (“IPO”) on the NASDAQ Global Select Market. 6,600,000 ADSs representing 85,800,000 ordinary shares were sold at $24.00 per ADS, or $1.85 per ordinary share (the “IPO Price”). Additionally, the underwriters exercised their options to purchase an additional 990,000 ADSs representing 12,870,000 ordinary shares from the Company. Net proceeds from the IPO including underwriter options after deducting underwriting discount and offering expenses were $166,197. The deferred IPO costs of $15,963 were recorded as a reduction of the proceeds received from the IPO in shareholders’ equity.

 

Follow-on public offering

 

On November 23, 2016, the Company completed a follow-on public offering at a price of $32.00 per ADS, or $2.46 per ordinary share. In this offering, the Company sold 5,781,250 ADSs representing 75,156,250 ordinary shares. Additionally, the underwriters exercised their options to purchase an additional 850,000 ADSs representing 11,050,000 ordinary shares from the Company. The selling shareholders sold 468,750 ADSs representing 6,093,750 ordinary shares. Net proceeds from this offering including underwriter options after deducting the underwriting discount and offering expenses were $198,625. The Company did not receive any proceeds from the sale of the shares by the selling shareholders. The deferred follow-on public offering costs of $13,575 were recorded as a reduction of the proceeds received from the offering in shareholders’ equity.

 

As at March 31, 2017, the Company’s subsidiaries are as follows:

 

Name of Company

 

Place of
Incorporation

 

Date of
Incorporation

 

Percentage of
Ownership by the
Company

 

Principal Activities

 

BeiGene (Hong Kong) Co., Limited.(“BeiGene HK”)

 

Hong Kong

 

November 22, 2010

 

100

%

Investment holding

 

 

 

 

 

 

 

 

 

 

 

BeiGene (Beijing) Co., Ltd. (“BeiGene (Beijing)”)

 

The People’s Republic of China (“PRC” or “China”)

 

January 24, 2011

 

100

%

Medical and pharmaceutical research

 

 

 

 

 

 

 

 

 

 

 

BeiGene AUS Pty Ltd.

 

Australia

 

July 15, 2013

 

100

%

Clinical trial activities

 

 

 

 

 

 

 

 

 

 

 

BeiGene 101

 

Cayman Islands

 

August 30, 2012

 

100

%

Medical and pharmaceutical research

 

 

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BeiGene (Suzhou) Co., Ltd. (“BeiGene (Suzhou)”)

 

PRC

 

April 9, 2015

 

100

%

Medical and pharmaceutical research

 

 

 

 

 

 

 

 

 

 

 

BeiGene USA, Inc.(“BeiGene (USA)”)

 

United States

 

July 8, 2015

 

100

%

Clinical trial activities

 

 

 

 

 

 

 

 

 

 

 

BeiGene (Shanghai) Co., Ltd. (“BeiGene (Shanghai)”)

 

PRC

 

September 11, 2015

 

100

%

Medical and pharmaceutical research

 

 

 

 

 

 

 

 

 

 

 

BeiGene Biologics Co., Ltd. (“BeiGene Biologics”)

 

PRC

 

January 25, 2017

 

100

%

Biologics manufacturing

 

 

 

 

 

 

 

 

 

 

 

BeiGene Guangzhou Biologics Manufacturing Co., Ltd. (“BeiGene Guangzhou Factory”)

 

PRC

 

March 3, 2017

 

100

%

Biologics manufacturing

 

 

Manufacturing Facility in Guangzhou

 

On March 7, 2017, BeiGene HK, a wholly owned subsidiary of the Company, and Guangzhou GET Technology Development Co., Ltd. (“GET”), entered into a definitive agreement to establish a commercial scale biologics manufacturing facility in Guangzhou, Guangdong Province, PRC.

 

Under the terms of the Equity Joint Venture Contract (the “JV Agreement”), BeiGene HK will make an initial cash capital contribution of RMB200,000 and a subsequent contribution of one or more biologics assets in exchange for a 95% equity interest in BeiGene Biologics. GET will provide a cash capital contribution of RMB100,000 to BeiGene Biologics representing a 5% equity interest in BeiGene Biologics. GET will also provide a shareholder loan (the “Shareholder Loan”) of RMB900,000 to BeiGene Biologics. The term of the Shareholder Loan is 72 calendar months, commencing from the actual draw down date. Interest accrues at 8% per annum. No accrued interest is due and payable prior to the repayment of the principal or the debt-to-equity conversion. The Shareholder Loan may be repaid or converted in full or partially into a mid-single digit percentage equity interest in BeiGene Biologics prior to its maturity date pursuant to the terms of the JV Agreement upon the achievement of certain regulatory milestones. The Shareholder Loan can only be used for BeiGene Biologics, including the construction and operation of the biologics manufacturing facility and research and development and clinical trials to be carried out by BeiGene Biologics. If BeiGene Biologics does not use the Shareholder Loan proceeds for the specified purposes, GET may be entitled to certain liquidated damages. In the event of an early termination of the JV Agreement, the Shareholder Loan will become due and payable at the time of termination of the JV Agreement.

 

2.  Summary of significant accounting policies

 

Basis of presentation and principles of consolidation

 

The accompanying condensed consolidated balance sheet as of March 31, 2017, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2017 and 2016, the condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016, and the related footnote disclosures are unaudited. The accompanying unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), including guidance with respect to interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

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The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all normal recurring adjustments, necessary to present a fair statement of the results for the interim periods presented. Results of the operations for the three months ended March 31, 2017 are not necessarily indicative of the results expected for the full fiscal year or for any future annual or interim period.

 

The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, which are all wholly-owned by the Company as of March 31, 2017. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.

 

Use of estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, identifying separate accounting units and estimating the best estimate of selling price of each deliverable in the Company’s revenue arrangements, assessing the impairment of long-lived assets, share-based compensation expenses, realizability of deferred tax assets and the fair value of financial instruments. Management bases the estimates on historical experience and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents. Cash equivalents which consist primarily of money market funds are stated at fair value.

 

Fair value measurements

 

Fair value of financial instruments

 

Financial instruments of the Company primarily include cash and cash equivalents, short-term investments, short-term loan, long-term bank loan, and accounts payable. As of March 31, 2017 and December 31, 2016, the carrying values of cash and cash equivalents, accounts payable and short-term loan approximated their fair values due to the short-term maturity of these instruments. The short-term investments represented the available-for-sale debt securities which are recorded at fair value based on quoted prices in active markets with unrealized gain or loss recorded in other comprehensive income or loss. The long-term bank loan approximates its fair value due to the fact that the related interest rate approximates the rate currently offered by financial institutions for similar debt instruments of comparable maturities. The warrants in connection with the convertible promissory notes and the option to purchase shares by rental deferral were exercised in January 2016 and February 2016. The Company determined the exercise date fair value of the warrants and option using the intrinsic value, which equals to the difference between the share price at the IPO closing date and the exercise price, as the exercise dates were immediately prior to or very close to the IPO closing date.

 

The Company applies ASC topic 820 (“ASC 820”), Fair Value Measurements and Disclosures, in measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and requires disclosures to be provided on fair value measurement. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

 

Level 3 - Unobservable inputs which are supported by little or no market activity.

 

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

 

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Financial instruments measured at fair value on a recurring basis

 

The following tables set forth assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016:

 

As of March 31, 2017

 

Quoted Price
in Active
Market for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

 

 

$

 

$

 

$

 

Available-for-sale securities (note 3):

 

 

 

 

 

 

 

U.S. Treasury securities

 

229,726

 

 

 

Cash equivalents

 

 

 

 

 

 

 

Money market funds

 

44,342

 

 

 

 

As of December 31, 2016

 

Quoted Price
in Active
Market for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

 

 

$

 

$

 

$

 

Available-for-sale securities (note 3):

 

 

 

 

 

 

 

U.S. Treasury securities

 

280,660

 

 

 

Cash equivalents

 

 

 

 

 

 

 

Money market funds

 

44,052

 

 

 

 

Recent accounting pronouncements

 

In August 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-14, Revenue from Contracts with Customers-Deferral of the effective date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU No. 2014-09, Revenue from Contracts with Customers , (“ASU 2014-09”), issued in May 2014. According to the amendments in ASU 2015-14, the new revenue guidance ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers — Principal versus Agent Considerations (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers — Identifying Performance Obligations and Licensing (“ASU 2016-10”), which clarify guidance related to identifying performance obligations and licensing implementation guidance contained in ASU No. 2014-09. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers — Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which addresses narrow-scope improvements to the guidance on collectability, non-cash consideration, and completed contracts at transition and provides practical expedients for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date for the amendment in ASU 2016-08, ASU 2016-10 and ASU 2016-12 are the same as the effective date of ASU No. 2014-09. The Company will adopt the new standard under the modified retrospective approach, effective January 1, 2018, and is in the process of evaluating its collaboration agreements with Merck KGaA, Darmstadt Germany to determine the impact the adoption of these ASUs has on its consolidated financial statements, if any.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires lessees to recognize assets and liabilities related to lease arrangements longer than 12 months on the balance sheet. This standard also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. The Company is currently evaluating the financial statement impact of adoption.

 

3.  Short-term investments

 

Short-term investments as of March 31, 2017 consisted of the following available-for-sale debt securities:

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value
(Net Carrying
Amount)

 

 

 

$

 

$

 

$

 

$

 

U.S. Treasury securities

 

229,837

 

 

111

 

229,726

 

Total

 

229,837

 

 

111

 

229,726

 

 

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Short-term investments as of December 31, 2016 consisted of the following available-for-sale debt securities:

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value
(Net Carrying
Amount)

 

 

 

$

 

$

 

$

 

$

 

U.S. Treasury securities

 

280,757

 

 

97

 

280,660

 

Total

 

280,757

 

 

97

 

280,660

 

 

Contractual maturities of all debt securities as of March 31, 2017 were within one year. The Company does not intend to sell its investments in U.S. Treasury securities and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis, which may be maturity. Therefore, the Company does not consider the investment in U.S. Treasury securities to be other-than-temporarily impaired at March 31, 2017. The cost of securities sold is based on the specific identification method.

 

4.  Property and equipment

 

Property and equipment consisted of the following:

 

 

 

As of

 

 

 

March 31,
2017

 

December 31,
2016

 

 

 

$

 

$

 

Office equipment

 

528

 

449

 

Electronic equipment

 

776

 

647

 

Laboratory equipment

 

8,343

 

7,536

 

Computer software

 

328

 

317

 

Leasehold improvements

 

10,670

 

9,446

 

Property and equipment, at cost

 

20,645

 

18,395

 

Less accumulated depreciation and amortization

 

(8,392

)

(7,473

)

Construction in progress

 

18,470

 

15,055

 

Property and equipment, net

 

30,723

 

25,977

 

 

Construction in progress as of March 31, 2017 and December 31, 2016 of $18,470 and $15,055, respectively, primarily relates to BeiGene (Suzhou)’s manufacturing facility and laboratory that are still under construction. Depreciation expense for the three months ended March 31, 2017 and 2016 was $864 and $439, respectively.

 

5.  Income taxes

 

Income tax expense was $180 and $44, respectively, for the three months ended March 31, 2017 and 2016. Income tax expense is attributable to BeiGene (USA), a wholly owned subsidiary, which was established in July 2015 and provides general management services and strategic advisory services to the Company. The Company and its other subsidiaries were in cumulative loss positions for the three months ended March 31, 2017 and 2016.

 

The Company has recorded a full valuation allowance against deferred tax assets related to net operating losses and other deductible temporary differences in all of its subsidiaries, with the exception of BeiGene (USA). As of March 31, 2017, deferred tax assets of $2,928 were primarily related to deductible temporary differences on share-based compensation expense, depreciation and accruals. In the three months ended March 31, 2017, tax expense was comprised of a deferred tax benefit of $2,160 and tax expense of $2,340. Taxes payable totaled $2,570 and $804 as of March 31, 2017 and December 31, 2016, respectively. No material unrecognized tax benefits and related interest and penalties were recorded in any of the periods presented.

 

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6.  Accrued expenses and other payables

 

Accrued expenses and other payables consisted of the following:

 

 

 

As of

 

 

 

March 31,
2017

 

December 31,
2016

 

 

 

$

 

$

 

Compensation related

 

2,894

 

3,980

 

External research and development activities related

 

17,012

 

14,198

 

Others

 

4,557

 

4,119

 

Total accrued expenses and other payables

 

24,463

 

22,297

 

 

7.  Warrants and option liabilities

 

Option to purchase shares by rental deferral

 

On September 1, 2012, in conjunction with a lease agreement of one of its premises, the Company granted the landlord an option to purchase the Company’s ordinary shares (the “Option”) in exchange for the deferral of the payment of one year’s rental expense. The Option was a freestanding instrument and was recorded as liability in accordance with ASC480, Distinguishing Liabilities from Equity . The Option was initially recognized at fair value with subsequent changes in fair value recorded in losses. Prior to the Company’s IPO, the Company determined the fair value of the Option with the assistance of an independent third party valuation firm. On February 8, 2016, immediately prior to the Company’s IPO, the landlord exercised the Option to purchase 1,451,586 ordinary shares of the Company. As the exercise date was the IPO closing date, the exercise date fair value of the Option of $2,540 was determined based on its intrinsic value, which equals to the difference between the share price at the IPO closing date and the exercise price of such purchased ordinary shares. During the three months ended March 31, 2016, the Company recognized a loss from the increase in fair value of the Option of $1,151.

 

Warrants in connection with the promissory notes

 

During the years ended December 31, 2012 to 2014, the Company entered into agreements with several investors to issue convertible promissory notes, and related warrants to purchase the Company’s preferred shares up to 10% of the convertible promissory notes’ principal amount concurrently for an aggregate principal amount of $2,410. The warrants were freestanding instruments and were recorded as liabilities in accordance with ASC480. The warrants were initially recognized at fair value with subsequent changes in fair value recorded in losses. In January 2016 and February, 2016, the warrants issued in connection with the promissory notes were exercised for 621,637 Preferred Shares, which shares were converted into 621,637 ordinary shares. As the exercise dates were very close to the IPO closing date, the respective exercise date fair value of the warrants of $1,148 was determined based on the intrinsic value, which equaled the difference between the share price at the IPO closing date and the exercise price of the issued warrants. For the three months ended March 31, 2016, the Company recognized a loss from the increase in fair value of the warrants of $363.

 

8.  Short-term loan

 

On March 28, 2017, BeiGene Biologics borrowed a RMB denominated short-term loan with a principal amount of $2,470 from GET. The loan was interest-free and was a temporary borrowing for the payment of a land auction deposit. The land was expected to be acquired for building the biologics manufacturing facility in Guangzhou. On April 14, 2017, the short-term loan was fully settled.

 

9.  Long-term bank loan

 

On September 2, 2015, BeiGene (Suzhou) entered into a loan agreement with Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank, to borrow $17,434 at a 7% fixed annual interest rate. As of March 31, 2017, the Company has drawn down $17,434, which is secured by BeiGene (Suzhou)’s equipment with a carrying amount of $22,486 and the Company’s rights to a PRC patent on a drug candidate. The loan principal amounts of $8,717 and $8,717 are repayable on September 30, 2018 and 2019, respectively. Interest expense recognized for the three months ended March 31, 2017 and 2016 amounted to $305 and $108, respectively.

 

10.  Related party balances and transactions

 

During the three months ended March 31, 2017 and 2016, a shareholder, who is also a director, provided consulting services to the Company at a fee of $25 and $25, respectively.

 

11.  Research and development collaborative arrangements

 

To date, the Company’s revenue has consisted of upfront license fees, reimbursed research and development expenses and milestone payments from its collaboration agreements with Merck KGaA, Darmstadt Germany on BGB-290 and BGB-283. The Company did not enter into any new collaborative arrangements during the three months ended March 31, 2017 and 2016.

 

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In March 2017, the Company regained the worldwide rights to BGB-283 after Merck KGaA, Darmstadt Germany informed the Company that it would not exercise a continuation option under the agreement, and thus, the ex-PRC BRAF Agreement has terminated in its entirety, except for certain provisions that will survive the termination.

 

Revenue recognized in the three months ended March 31, 2016, related to Phase 1 research and development fees from the Company’s BRAF inhibitor, in accordance with the collaboration agreement with Merck KGaA Darmstadt Germany. Phase 1 services were completed by mid-2016 and as a result, all of the advance payments received from the collaboration to date have been recognized.

 

The following table summarizes total collaboration revenue recognized for the three months ended March 31, 2017 and 2016:

 

 

 

Three Months Ended
March 31,

 

 

 

2017

 

2016

 

 

 

$

 

$

 

Research and development revenue

 

 

677

 

Total

 

 

677

 

 

For more information on our collaboration agreements with Merck KGaA, Darmstadt Germany, see “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue” of this Quarterly Report on Form 10-Q.

 

12.  Loss per share

 

Loss per share was calculated as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2017

 

2016

 

 

 

$

 

$

 

Numerator:

 

 

 

 

 

Net loss attributable to ordinary shareholders for computing basic and diluted loss per ordinary share

 

(50,623

)

(22,001

)

Denominator:

 

 

 

 

 

Weighted average number of ordinary shares outstanding for computing basic and diluted loss per ordinary share

 

516,437,707

 

294,042,572

 

Basic and diluted loss per share

 

 

(0.10

)

(0.07

)

 

For the three months ended March 31, 2017 and 2016, the computation of basic loss per share using the two-class method was not applicable as the Company was in a net loss position.

 

The effects of all share options and restricted shares were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive during the three months ended March 31, 2017.

 

The effects of all convertible preferred shares, share options, restricted shares, warrants and option to purchase ordinary or preferred shares were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive during the three months ended March 31, 2016.

 

13.  Share-based compensation

 

2016 share option and incentive plan

 

On January 14, 2016, in connection with the IPO, the board of directors and shareholders of the Company approved the 2016 Share Option and Incentive Plan (the “2016 Plan”), which became effective on February 2, 2016. The Company initially reserved 65,029,595 ordinary shares for the issuance of awards under the 2016 Plan plus any shares available under the 2011 Option Plan, or 2011 Plan, and not subject to any outstanding options as of the effective date of the 2016 Plan. The 2016 Plan provides for an annual increase in the shares available for issuance thereunder, to be added on the first day of each fiscal year, beginning with the year ending December 31, 2017 and continuing until the expiration of the 2016 Plan, equal to the lesser of (i) five percent (5%) of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year or (ii) such number of shares determined by the board of director or the compensation committee. This number is subject to adjustment in the event of a share split, share dividend or other change in the Company’s capitalization. In addition, options cancelled or forfeited under the 2011 Plan will also be available for issuance under the 2016 Plan.

 

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During the three months ended March 31, 2017, the Company granted an aggregate of 11,973,000 options to employees under the 2016 Plan, with exercise price per ordinary share equal to 1/13 of the closing price of the Company’s ADS quoted on the NASDAQ Stock Exchange on the applicable grant date.

 

During the three months ended March 31, 2017 and 2016, no grants to employees and non-employees were made outside of the Company’s 2011 Plan and 2016 Plan.

 

Generally, options have a contractual term of 10 years and vest over a three- to five-year period, with the first tranche vesting one calendar year after the grant date or the service relationship start date and the remainder of the awards vesting on a monthly basis thereafter. Restricted shares vest over a four-year period, with the first tranche vesting one calendar year after the grant date or the service relationship start date and the remainder of the awards vesting on a yearly basis thereafter.

 

Modification

 

Upon the completion of the Company’s IPO on February 8, 2016, a consultant became a member of the Company’s board of directors. Under the terms of the original option agreement, the individual retains the option grants on a change in status; hence, there is no modification to account for. The fair value of the options granted by the Company to the consultant has been re-measured as of February 8, 2016 and compensation charges have been accounted for prospectively over the remaining vesting period.

 

There were no other modifications to the Company’s share option arrangements for all the periods presented.

 

The following table summarizes total share-based compensation expense recognized for the three months ended March 31, 2017 and 2016:

 

 

 

Three Months Ended
March 31,

 

 

 

2017

 

2016

 

 

 

$

 

$

 

Research and development

 

4,529

 

2,299

 

General and administrative

 

1,463

 

315

 

Total

 

5,992

 

2,614

 

 

14.  Accumulated other comprehensive loss

 

The movement of accumulated other comprehensive loss was as follows:

 

 

 

Foreign Currency
Translation
Adjustments

 

Unrealized
Losses on
available-for-sale
securities

 

Total

 

 

 

$

 

$

 

$

 

Balance as of December 31, 2016

 

(847

)

(99

)

(946

)

Other comprehensive income/(loss) before reclassifications

 

90

 

(4

)

86

 

Amounts reclassified from accumulated other comprehensive income

 

 

(8

)

(8

)

Net-current period other comprehensive income/(loss)

 

90

 

(12

)

78

 

Balance as of March 31, 2017

 

(757

)

(111

)

(868

)

 

15.  Shareholders’ equity

 

Conversion of Preferred Shares and Senior Promissory Note

 

Upon completion of the IPO in 2016, all outstanding Preferred Shares were converted into 199,990,641 ordinary shares and the related carrying value of $176,084 was reclassified from mezzanine equity to shareholders’ equity. The outstanding unpaid principal and interest of the Senior Promissory Note were converted into 7,942,314 ordinary shares, computed at the initial public offering price of $1.85 per ordinary share and the related carrying value of $14,693 was reclassified from current liability to shareholders’ equity in 2016.

 

Exercise of warrants and option

 

In January 2016 and February 2016, certain warrants in connection with the convertible promissory notes and short term notes were exercised to purchase 621,637 Preferred Shares, which were converted into 621,637 ordinary shares. On the IPO closing date, (i) the

 

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Company’s landlord exercised its option to purchase 1,451,586 ordinary shares of the Company; (ii) Baker Bros. exercised their warrants to purchase 2,592,593 ordinary shares at an exercise price of $0.68 per share; and (iii) a senior executive exercised warrants to purchase 57,777 Preferred Shares at an exercise price of $0.68 per share, which were converted into 57,777 ordinary shares. Upon the exercise of the aforementioned option and warrants, except for Baker Bros.’ warrants, which were initially classified in equity, the related carrying value totaling $3,687 was reclassified from current liabilities to shareholders’ equity in 2016.

 

16.  Restricted net assets

 

As a result of PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. As of March 31, 2017 and December 31, 2016, amounts restricted were the net assets of the Company’s PRC subsidiaries, which amounted to $6,711 and $9,955, respectively.

 

17.  Commitments and contingencies

 

Operating lease commitments

 

The Company leases office and manufacturing facilities under non-cancelable operating leases expiring on different dates in the United States and China. Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. There are no restrictions placed upon the Company by entering into these leases. Total expenses under these operating leases were $696 and $316 for the three months ended March 31, 2017 and 2016, respectively.

 

Future minimum payments under non-cancelable operating leases consist of the following as of March 31, 2017:

 

 

 

$

 

Nine months ending December 31, 2017

 

2,222

 

Year ending December 31, 2018

 

2,740

 

Year ending December 31, 2019

 

1,820

 

Year ending December 31, 2020

 

1,616

 

Year ending December 31, 2021

 

461

 

Year ending December 31, 2022 and thereafter

 

 

Total

 

8,859

 

 

Capital commitments

 

The Company had capital commitments amounting to $2,121 for the acquisition of property, plant and equipment as of March 31, 2017, which was mainly for building BeiGene (Suzhou)’s manufacturing facility in Suzhou, China.

 

18.  Subsequent event

 

On April 11, 2017, BeiGene HK, GET and BeiGene Biologics amended the JV Agreement and the capital contribution agreement, among other things, to adjust the capital contribution schedules and adjust the initial term of the governing bodies and certain management position. Additionally, on April 13, 2017 and April 14, 2017, BeiGene HK and GET made cash capital contributions of RMB137,830 and RMB100,000, respectively, into BeiGene Biologics. On April 14, 2017, BeiGene Biologics drew down the Shareholder Loan of RMB900,000 from GET.

 

BeiGene Biologics will establish a biologics manufacturing facility in Guangzhou (the “Factory”) through a wholly-owned subsidiary (the “Factory Sub”, or “BeiGene Guangzhou Factory”) to manufacture biologics, with a registered capital of RMB1,000,000. On April 20, 2017, BeiGene Biologics injected a cash capital contribution of RMB200,000 into BeiGene Guangzhou Factory. BeiGene Guangzhou Factory expects to: (i) acquire at least 100,000 square meters of land for the Factory in the Sino-Singapore Guangzhou Knowledge City, (ii) borrow additional capital in the form of a commercial bank loan for the purpose of the construction and operation of the Factory, and (iii) receive certain interest subsidies for commercial loan interest payment(s), subject to limitation. To date, the commercial bank loan and related interest subsidies have not yet occurred.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements (unaudited) and related notes included in the section of this Quarterly Report on Form 10-Q, or this Quarterly Report, titled “Item 1—Financial Statements.” This Quarterly Report contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. These forward-looking statements, include, but are not limited to, statements regarding: the initiation, timing, progress and results of our preclinical studies and clinical trials and our research and development programs; our ability to advance our drug candidates into, and successfully complete, clinical trials; the ability of our drug candidates to be granted or to maintain Category 1 designation with the China Food and Drug Administration, or CFDA; our reliance on the success of our clinical-stage drug candidates BGB-3111, BGB-A317, BGB-290 and BGB-283 and certain other drug candidates, as monotherapies and in combination with our internally discovered drug candidates and third-party agents; the timing or likelihood of regulatory filings and approvals; the commercialization of our drug candidates, if approved; our ability to develop sales and marketing capabilities; the pricing and reimbursement of our drug candidates, if approved; the implementation of our business model, strategic plans for our business, drug candidates and technology; the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates and technology; our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties; cost associated with defending against intellectual property infringement, product liability and other claims; regulatory developments in the United States, China, the United Kingdom, the European Union and other jurisdictions; the accuracy of our estimates regarding expenses, future revenues, capital requirements and our need 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 drug candidates; developments relating to our competitors and our industry, including competing therapies; the size of the potential markets for our drug candidates and our ability to serve those markets; our ability to effectively manage our anticipated growth; our ability to attract and retain qualified employees and key personnel; our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance; the future trading price of the American Depositary Shares, or ADSs, and impact of securities analysts’ reports on these prices; and other risks and uncertainties, including those listed under “Part II—Item 1A—Risk Factors.” These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described in “Part II—Item 1A—Risk Factors” of this Quarterly Report. These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Unless the context requires otherwise, in this Quarterly Report, the terms “BeiGene,” the “Company,” “we,” “us” and “our” refer to BeiGene, Ltd. and its subsidiaries, on a consolidated basis.

 

Overview

 

We are a globally focused, clinical-stage biopharmaceutical company dedicated to becoming a leader in the discovery and development of innovative, molecularly targeted and immuno-oncology drugs for the treatment of cancer. We believe the next generation of cancer treatment will utilize therapeutics both as monotherapies and in combination to attack multiple underlying mechanisms of cancer cell growth and survival. We further believe that discovery of next-generation cancer therapies requires new research tools. To that end, we have developed a proprietary cancer biology platform that addresses the importance of tumor-immune system interactions and the value of primary biopsies in developing new models to support our drug discovery effort. Our strategy is to develop a pipeline of drug candidates with the potential to be best-in-class monotherapies and also important components of multiple-agent combination regimens.

 

We have used our cancer biology platform to develop four clinical-stage drug candidates that we believe have the potential to be best-in-class or first-in-class. In addition, we believe that each has the potential to be an important component of a drug combination addressing major unmet medical needs. Our clinical-stage drug candidates include three molecularly targeted agents, BGB-3111, BGB-290 and BGB-283 and one immuno-oncology agent, BGB-A317. BGB-3111 is a potent and highly selective small molecule inhibitor of Bruton’s tyrosine kinase, or BTK. BGB-290 is a molecularly targeted, orally available, potent and highly selective inhibitor of PARP1 and PARP2. BGB-283 is a small molecule inhibitor of both the monomer and dimer forms of the RAF kinase. For each of our molecularly targeted drug candidates, we have achieved proof-of-concept by demonstrating objective responses in the defined patient populations. BGB-3111 has received orphan drug designation from the U.S. Food and Drug Administration, or FDA, for chronic lymphocytic leukemia, or CLL, mantle cell lymphoma, or MCL, and Waldenström’s macroglobulinemia, or WM. Our clinical-stage immuno-oncology agent, BGB-A317, is an investigational humanized monoclonal antibody against the immune checkpoint receptor, PD-1. We have Investigational New Drug Applications in effect for our BTK, PD-1 and PARP inhibitors with the

 

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FDA. We have also received approval of our Clinical Trial Applications for each of our four clinical-stage drug candidates from the CFDA. In addition to our clinical-stage drug candidates, we have a robust pipeline of preclinical programs and are planning to advance one or more of these programs into the clinic in the next 12 months. We retain full global rights for all of our clinical and preclinical drug candidates and programs.

 

Since our inception on October 28, 2010, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting preclinical studies and clinical trials. We do not have any drug candidates approved for sale and have not generated any revenue from product sales. We have financed operations through a combination of public and private equity and debt financings and public and private grants and contracts, including the net proceeds from our initial public offering and follow-on public offering, the net proceeds from the issuance of a senior note and convertible promissory note to Merck Sharp & Dohme Research GmbH, or MSD, an affiliate of Merck Sharp & Dohme Corp., the private placements of our Series A preferred shares and Series A-2 preferred shares, and our collaborations with Merck KGaA, Darmstadt Germany. On February 8, 2016 and November 23, 2016, we completed our initial public offering and follow-on public offering, and received net proceeds of $166.2 million and $198.6 million, respectively, after deducting underwriting discounts and offering expenses. On April 14, 2017, BeiGene Biologics drew down the Shareholder Loan of RMB900 million from GET. Although it is difficult to predict our liquidity requirements, based upon our current operating plan and the successful completion of our initial public offering and follow-on public offering, we believe we have sufficient cash to meet our projected operating requirements for at least the next 12 months after the date that the financial statements are issued. See “—Liquidity and Capital Resources.”

 

Since inception we have incurred significant operating losses. Our net losses were $50.6 million and $22.0 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, we had an accumulated deficit of $288.0 million. In the future, we may generate revenue from product sales, collaboration agreements, strategic alliances and licensing arrangements, or a combination of these. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

 

·                       continue preclinical and clinical development of our programs;

 

·                       continue investment in our cancer biology platform;

 

·                       continue investment in our manufacturing facilities;

 

·                       hire additional research, development and business personnel;

 

·                       maintain, expand and protect our intellectual property portfolio; and

 

·                       incur additional costs associated with operating as a public company.

 

We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of license fees, milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

 

Cash used in operations were $35.7 million and $19.8 million, respectively, for the three months ended March 31, 2017 and 2016. As of March 31, 2017, we had cash, cash equivalents and short-term investments of $327.5 million, compared with $368.2 million as of December 31, 2016.

 

Components of Operating Results

 

Revenue

 

To date, our revenue has consisted of upfront license fees, reimbursed research and development expenses and milestone payments from our collaboration agreements with Merck KGaA, Darmstadt Germany on BGB-283 and BGB-290. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty.

 

On May 24, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany on BGB-283, which we amended and restated on December 10, 2013, and further amended on October 1, 2015 and December 3, 2015. In the latest amendment, Merck KGaA, Darmstadt Germany granted us an exclusive license under certain of its intellectual property rights to develop, manufacture and commercialize the RAF dimer inhibitor in The People’s Republic of China, which we refer to as the PRC Territory, subject to certain non-compete restrictions. In March 2017, Merck KGaA, Darmstadt Germany informed us that it would not exercise a continuation option in the ex-PRC Territory, and thus, the ex-PRC BRAF Agreement has terminated in its entirety, except for certain provisions that survive termination. Under these agreements, we received $13 million in non-refundable payments in 2013 following

 

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their execution, $5 million in milestone payments in 2014 and $4 million in milestone payments in 2015. We are eligible to receive $14 million in payments upon the successful achievement of pre-specified clinical milestones in the PRC Territory. In consideration for the licenses Merck KGaA, Darmstadt Germany granted to us, we are required to pay Merck KGaA, Darmstadt Germany a high single-digit royalty on aggregate net sales of licensed BRAF inhibitors in the PRC Territory.

 

On October 28, 2013, we entered into license agreements with Merck KGaA, Darmstadt Germany on BGB-290, pursuant to which (1) we granted to Merck KGaA, Darmstadt Germany an exclusive license under certain of our intellectual property rights to develop and manufacture, and, if Merck KGaA, Darmstadt Germany exercises a certain continuation option, to commercialize and manufacture our compound BGB-290 and any other compound covered by the same existing patent rights with primary activity to inhibit PARP 1, 2 or 3 enzymes in the Ex-PRC Territory, and (2) Merck KGaA, Darmstadt Germany granted us an exclusive license under certain of its intellectual property rights to develop, manufacture and commercialize the licensed PARP inhibitors in the PRC Territory. Under these license agreements, we received $6 million in non-refundable payments in November 2013 following their execution and $9 million in milestone payments in 2014. We were eligible to receive up to $7 million and $2.5 million, in payments upon the successful achievement of pre-specified clinical and regulatory milestones in the PRC Territory, respectively. On October 1, 2015, pursuant to a purchase of rights agreement, we repurchased all of Merck KGaA, Darmstadt Germany’s worldwide rights under the ex-PRC license agreement, in consideration for, among other things, a one-time payment of $10 million and reduction of future milestone payments that we are eligible to receive under the PRC license agreement. In connection with such repurchase, the ex-PRC license agreement terminated except for certain provisions therein. The remaining $3 million of deferred revenue related to PARP as of October 1, 2015 was netted against the $10 million repurchase consideration. In addition, if Merck KGaA, Darmstadt Germany exercises its PRC commercialization option, Merck KGaA, Darmstadt Germany is required to pay us a $50 million non-refundable payment upon such exercise, and we are eligible for a $12.5 million milestone payment upon the successful achievement of a certain additional regulatory event in the PRC Territory. In consideration for the licenses granted to us, we are required to pay Merck KGaA, Darmstadt Germany a high single-digit royalty on aggregate net sales of licensed products in the PRC Territory.

 

We recognized nil and $0.7 million of collaboration revenue from the Merck KGaA, Darmstadt Germany collaborations for the three months ended March 31, 2017 and 2016, respectively. The following table summarizes the revenue recognition schedule of an aggregate of $34.0 million in revenue from our collaboration agreements with Merck KGaA, Darmstadt Germany, comprised of an aggregate of $22.0 million related to BGB-283 and $12.0 million related to BGB-290. The revenue consists of an upfront non-refundable license fee, Phase 1 research and development fees, and a development based target payment related to the collaborative arrangements for BRAF, excluding the $3 million in deferred revenue that was netted against the $10 million repurchase consideration relating to the PARP inhibitors under the ex-PRC license agreement. In accordance with our revenue recognition policy, we have recognized these amounts as shown in the table below:

 

 

 

BGB-283

 

BGB-290

 

Total

 

 

 

(in thousands)

 

2013

 

$

8,317

 

$

2,823

 

$

11,140

 

2014

 

5,906

 

7,048

 

12,954

 

2015

 

6,707

 

2,109

 

8,816

 

2016

 

1,070

 

 

1,070

 

Total

 

$

22,000

 

$

11,980

 

$

33,980

 

 

For the three months ended March 31, 2016, substantially all of our revenue was generated solely from our collaboration agreements with Merck KGaA, Darmstadt Germany. For the next several years, we expect substantially all of our revenue will be generated from future milestones under our collaboration agreements with Merck KGaA, Darmstadt Germany, if any, or other strategic relationships we may enter into. If our development efforts are successful, we may also generate revenue from product sales.

 

Operating Expenses

 

Research and Development Expenses

 

Research and development expenses consist of the costs associated with our research and development activities, conducting preclinical studies and clinical trials and activities related to regulatory filings. Our research and development expenses consist of:

 

·                       employee-related expenses, including salaries, benefits, travel and share-based compensation expense for research and development personnel;

 

·                       expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, and consultants that conduct and support clinical trials and preclinical studies;

 

·                       costs associated with preclinical activities and development activities;

 

·                       costs associated with regulatory operations; and

 

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·                       other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in research and development activities.

 

Our current research and development activities mainly relate to the clinical development of the following programs:

 

·                       BGB-3111, a potent and highly selective small molecule inhibitor of BTK;

 

·                       BGB-A317, an investigational humanized monoclonal antibody against PD-1;

 

·                       BGB-290, a molecularly targeted, orally available, potent and highly selective inhibitor of PARP1 and PARP2; and

 

·                       BGB-283, a small molecule inhibitor of both the monomer and dimer forms of BRAF.

 

We expense research and development costs when we incur them. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us. We do not allocate employee-related costs, depreciation, rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated research and development expenses.

 

At this time, it is difficult to estimate or know, for certain, the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our drug candidates. This is due to the numerous risks and uncertainties associated with developing such drug candidates, including the uncertainty of:

 

·                       successful enrollment in and completion of clinical trials;

 

·                       establishing an appropriate safety profile;

 

·                       establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

·                       receipt of marketing approvals from applicable regulatory authorities;

 

·                       commercializing our drug candidates, if and when approved, whether as monotherapies or in combination with our internally discovered drug candidates or third-party agents;

 

·                       obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drug 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 drug candidates could significantly change the costs, timing and viability associated with the development of that drug candidate.

 

Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, including as we continue to support the clinical trials of BGB-3111, BGB-A317, BGB-290 and BGB-283 as a treatment for various cancers and move these drug candidates into additional clinical trials. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and related benefit costs, including share-based compensation for general and administrative personnel. Other general and administrative expenses include professional fees for legal, consulting, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in general and administrative activities. We anticipate that our general and administrative expenses will increase in future periods to support increases in our research and development activities, including the continuation of the clinical trials of BGB-3111, BGB-A317, BGB-290 and BGB-283 as a treatment for various cancers and the initiation of our clinical trials for our other drug candidates. These cost increases will likely be due to increased headcount, increased share-based compensation charges, expanded infrastructure and increased costs for insurance. We also anticipate increased legal, compliance, accounting and investor and public relations expenses associated with being a public company.

 

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Interest Income (Expense), Net

 

Interest Income

 

Interest income consists primarily of interest generated from our short-term investments in treasury securities, municipal bonds and corporate fixed income bonds.

 

Interest Expense

 

Interest expense consists primarily of interest on our senior promissory note, convertible promissory note and long-term bank loan.

 

In 2011, we issued a $10 million, 8% senior promissory note and a $10 million 8% subordinated convertible promissory note, compounded annually, each to MSD. We also issued an aggregate principal amount of $3.1 million convertible promissory notes to several other investors in 2012 and 2014, all bearing interest of 8% per annum for the first three years and 15% per annum for the remaining term. In October 2014, we completed a Series A preferred share financing, as a result of which, the $10 million MSD subordinated convertible promissory note was automatically converted into 18,518,519 Series A preferred shares, and the other $3.1 million principal amount of convertible promissory notes, along with accrued interest was automatically converted into 5,470,705 Series A preferred shares. We recognized a gain on debt extinguishment of $2.9 million due to the forfeiture of interest upon the conversion, as only the principal amount of the Merck subordinated convertible promissory note was eligible for conversion. In February 2016, in connection with the closing of our initial public offering, the outstanding unpaid principal and interest of the MSD Senior Promissory Note was automatically exchanged into 7,942,314 of our ordinary shares.

 

On September 2, 2015, BeiGene (Suzhou) entered into a loan agreement with Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank, to borrow $17.4 million at a 7% fixed annual interest rate. As of March 31, 2017, we have drawn down $17.4 million, which is secured by BeiGene (Suzhou)’s equipment with a carrying amount of $22.5 million and our rights to a PRC patent on a drug candidate. The loan amounts of $8.7 million and $8.7 million are repayable on September 30, 2018 and 2019, respectively.

 

Other Income, Net

 

Other income consists primarily of government grants and subsidies received that involve no conditions or continuing performance obligations by us. Other expense consists primarily of loss from property and equipment disposals and donations made to sponsor certain events.

 

Results of Operations

 

The following table summarizes our results of operations for the three months ended March 31, 2017 and 2016:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

Change

 

 

 

(in thousands)

 

Collaboration revenue

 

$

 

$

677 

 

$

(677

)

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

(42,773

)

(17,877

)

(24,896

)

General and administrative

 

(8,769

)

(3,134

)

(5,635

)

Total operating expenses

 

(51,542

)

(21,011

)

(30,531

)

Loss from operations

 

(51,542

)

(20,334

)

(31,208

)

Interest income, net

 

186

 

290

 

(104

)

Changes in fair value of financial instruments

 

 

(1,514

)

1,514

 

Gain/(loss) on sale of available-for-sale securities

 

8

 

(712

)

720

 

Other income, net

 

905

 

313

 

592

 

Loss before income tax expense

 

(50,443

)

(21,957

)

(28,486

)

Income tax expense

 

(180

)

(44

)

(136

)

Net loss

 

$

(50,623

)

$

(22,001

)

$

(28,622

)

 

Comparison of the Three Months Ended March 31, 2017 and 2016

 

Revenue

 

Revenue from the Merck KGaA, Darmstadt Germany Collaboration decreased by $0.7 million to nil for the three months ended March 31, 2017 from $0.7 million for the three months ended March 31, 2016. The decrease was primarily attributable to decrease of revenue recognized for BGB-283.

 

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Research and Development Expense

 

Research and development expense increased by $24.9 million to $42.8 million for the three months ended March 31, 2017 from $17.9 million for the three months ended March 31, 2016. The following table summarizes external clinical, external preclinical and internal research and development expense for the three months ended March 31, 2017 and 2016, respectively:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

External cost of clinical-stage programs

 

$

24,580

 

$

 9,453

 

External cost of preclinical-stage programs

 

1,135

 

560

 

Internal research and development expenses

 

17,058

 

7,864

 

Total research and development expenses

 

$

42,773

 

$

17,877

 

 

The increase in external research and development expense was primarily attributable to the advancement of our clinical and preclinical pipeline, and included the following:

 

·           Increases of approximately $12.6 million, $2.3 million and $1.1 million, respectively, for BGB-3111, BGB-A317 and BGB-290, offset by decrease of approximately $0.9 million for BGB-283.

 

The increase in internal research and development expense was primarily attributable to the expansion of our development organization and our pipeline, and included the following:

 

·          $5.0 million increase of employee salary and benefits, which was primarily attributable to hiring of more development personnel;

 

·          $2.2 million increase of share-based compensation expense ($4.5 million in the three months ended March 31, 2017 compared to $2.3 million in the three months ended March 31, 2016); and

 

·          $2.0 million increase of consulting fees, facilities, travel, rental fee and other expenses.

 

General and Administrative Expense

 

General and administrative expense increased by $5.7 million to $8.8 million for the three months ended March 31, 2017 from $3.1 million for the three months ended March 31, 2016. The increase was primarily attributable to the following:

 

·          $2.2 million increase of professional fees for legal, consulting, recruiting and audit services, mainly in connection with our patent prosecution activities, consulting activities, recruiting services and the preparation of periodic reports;

 

·          $1.3 million increase of employee salary and benefits, which was primarily attributable to hiring of more personnel;

 

·          $1.2 million increase of share-based compensation expense ($1.5 million in the three months ended March 31, 2017 compared to $0.3 million in the three months ended March 31, 2016); and

 

·          $1.0 million increase of office, travel, rental fee and other administrative expenses, mainly in connection with the global expansion of our company.

 

Interest Income, Net

 

Interest income (net) decreased by $0.1 million to $0.2 million for the three months ended March 31, 2017 from $0.3 million for the three months ended March 31, 2016. The decrease in interest income (net) was primarily attributable to increase of interest expense from the long-term bank loan. The principal of the loan increased to $17.4 million at March 31, 2017 from $6.2 million at March 31, 2016.

 

Changes in Fair Value of Financial Instruments

 

Loss from changes in fair value of financial instruments was nil for the three months ended March 31, 2017, compared with $1.5 million for the three months ended March 31, 2016. The decrease in loss from changes in fair value of financial instruments was primarily attributable to change in the fair value of warrants and option liabilities, both of which were exercised in January 2016 and February 2016 in connection with the IPO.

 

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Gain on Sale of Available-for-sale Securities

 

The less than $0.1 million gain on sale of available-for-sale securities was recorded for the three months ended March 31, 2017 following the sale of certain available-for-sale securities.

 

Other Income, Net

 

Other income (net) increased by $0.6 million to $0.9 million for the three months ended March 31, 2017 from $0.3 million for the three months ended March 31, 2016. Other income (net) primarily consisted of government grants received and foreign currency exchange gains/losses recognized.

 

Income Tax Expense

 

Income tax expense was $0.2 million for the three months ended March 31, 2017 compared with less than $0.1 million for the three months ended March 31, 2016. Income tax expense is attributable to BeiGene (USA), a wholly owned subsidiary which was established in July 2015 and provided general management services and strategic advisory services to BeiGene, Ltd. BeiGene, Ltd. and its other subsidiaries were in cumulative loss positions for the three months ended March 31, 2017 and 2016 and are in a full valuation allowance position.

 

Liquidity and Capital Resources

 

Since inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations. We incurred net losses of $50.6 million and $22.0 million, respectively, for the three months ended March 31, 2017 and 2016. As of March 31, 2017, we had an accumulated deficit of $288.0 million. Our primary use of cash is to fund research and development costs. Our operating activities used $35.7 million and $19.8 million of cash flows during the three months ended March 31, 2017 and 2016, respectively. Historically, we financed our operations principally through proceeds from private placements of preferred shares, promissory notes and convertible notes and proceeds from the Merck KGaA, Darmstadt Germany collaboration agreements. On February 8, 2016 and November 23, 2016, we completed our initial public offering and follow-on public offering as follows:

 

On February 8, 2016, we completed our initial public offering, or IPO, on the NASDAQ Global Select Market. 6,600,000 ADSs representing 85,800,000 ordinary shares were sold at $24.00 per ADS, or $1.85 per ordinary share. Additionally, the underwriters exercised their options to purchase an additional 990,000 ADSs representing 12,870,000 ordinary shares. Net proceeds from the IPO including underwriter options after deducting underwriting discount and offering expenses were $166.2 million. The deferred IPO costs of $16.0 million were recorded as a reduction of the proceeds received from the IPO in the shareholders’ equity.

 

On November 23, 2016, we completed a follow-on public offering at a price of $32.00 per ADSs, or $2.46 per ordinary share. In this offering, we sold 5,781,250 ADSs representing 75,156,250 ordinary shares. Additionally, the underwriters exercised their options to purchase an additional 850,000 ADSs representing 11,050,000 ordinary shares from us. The selling shareholders sold 468,750 ADSs representing 6,093,750 ordinary shares. Net proceeds from this offering including underwriter options after deducting the underwriting discount and offering expenses were $198.6 million. We did not receive any proceeds from the sale of the shares by the selling shareholders. The deferred follow-on public offering costs of $13.6 million were recorded as a reduction of the proceeds received from the offering in shareholders’ equity.

 

As of March 31, 2017, we had cash, cash equivalents and short-term investments of $327.5 million.

 

The following table provides information regarding our cash flows for the three months ended March 31, 2017 and 2016:

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(35,711

)

$

(19,841

)

Net cash provided by investing activities

 

43,543

 

40,343

 

Net cash provided by financing activities

 

2,533

 

170,049

 

Net effect of foreign exchange rate changes

 

(129

)

86

 

Net increase in cash and cash equivalents

 

$

10,236

 

$

190,637

 

 

Net Cash Used in Operating Activities

 

The use of cash in all periods presented resulted primarily from our net losses adjusted for non-cash charges and changes in

 

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components of working capital. The primary use of our cash in all periods presented was to fund the development of our research and development, regulatory and other clinical trial costs, and related supporting administration. Our prepaid expenses and other current assets, accounts payable and accrued expense balances in all periods presented were affected by the timing of vendor invoicing and payments.

 

During the three months ended March 31, 2017, operating activities used $35.7 million of cash, which resulted principally from our net loss of $50.6 million, adjusting for non-cash charges of $6.9 million, and by cash provided by our operating assets and liabilities of $8.0 million. Our net non-cash charges during the three months ended March 31, 2017 primarily consisted of $6.0 million of share-based compensation expense and $0.9 million of depreciation expense.

 

During the three months ended March 31, 2016, operating activities used $19.8 million of cash, which resulted principally from our net loss of $22.0 million, adjusting for non-cash charges of $5.3 million and interest expense of $0.1 million, and by cash used in our operating assets and liabilities of $3.2 million. Our net non-cash charges during the three months ended March 31, 2016 primarily consisted of $0.4 million of depreciation expense, $2.6 million of share-based compensation expense, a $0.7 million loss on sale of available-for-sale securities and a $1.5 million loss from changes in the fair value of financial instruments related to the valuation changes of warrants and option liabilities that were exercised in the three months ended March 31, 2016.

 

Net Cash Provided by Investing Activities

 

Net cash provided by investing activities was $43.5 million for the three months ended March 31, 2017 compared to $40.3 million for the three months ended March 31, 2016. The increase in cash provided by investing activities was primarily due to $50.9 million of net proceeds from the sale or maturity of available-for-sale securities, $5.1 million paid to purchase property and equipment, and $2.3 million payment related to the Guangzhou land auction deposit.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $2.5 million for the three months ended March 31, 2017 compared to $170.0 million for the three months ended March 31, 2016. The decrease was primarily due to that during the three months ended March 31, 2016, we received net proceeds of $167.9 million from our initial public offering, net of underwriter discount and offering costs.

 

Operating Capital Requirements

 

We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future drug candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our drug candidates and begin to commercialize any approved products. As a growing public company, we will continue to incur additional costs associated with our operations. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing. Accordingly, we anticipate that we will need substantial additional funding in connection with our continuing operations.

 

Based on our current operating plan, we expect that our existing cash, cash equivalents and short-term investments as of March 31, 2017, will enable us to fund our operating expenses and capital expenditures requirements for at least the next 12 months after the date that the financial statements are issued. We expect that our expenses will continue to increase substantially as we fund clinical development of BGB-3111, BGB-A317, BGB-290 and BGB-283 as monotherapies and in combination, fund new and ongoing research and development activities and working capital and other general corporate purposes. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our drug candidates.

 

Our future capital requirements will depend on many factors, including:

 

·                             the costs, timing and outcome of regulatory reviews and approvals;

 

·                             the ability of our drug candidates to progress through clinical development successfully;

 

·                             the initiation, progress, timings, costs and results of nonclinical studies and clinical trials for our other programs and potential drug candidates;

 

·                             the number and characteristics of the drug 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;

 

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·                             the extent to which we acquire or in-license other products and technologies; and

 

·                             our ability to maintain and establish collaboration arrangements on favorable terms, if at all.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and government grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of ADSs or ordinary shares. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.

 

Contractual Obligations and Commitments

 

The following table summarizes our significant contractual obligations as of payment due date by period at March 31, 2017:

 

 

 

Payments Due by Period

 

 

 

Total

 

Less Than 1
Year

 

1–3 Years

 

3–5 Years

 

More Than
5 Years

 

 

 

(in thousands)

 

Contractual obligations

 

 

 

 

 

 

 

 

 

 

 

Operating lease commitments

 

$

8,859

 

$

2,958

 

$

4,225

 

$

1,676

 

 

Long-term debt obligation

 

$

17,434

 

 

$

17,434

 

 

 

Capital commitments

 

$

2,121

 

$

2,121

 

 

 

 

Total

 

$

28,414

 

$

5,079

 

$

21,659

 

$

1,676

 

 

 

Operating Lease Commitments

 

We lease office and manufacturing facilities in Beijing and Suzhou, PRC under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The future minimum payments under these non-cancelable operating leases are summarized in the table above. In addition, we lease office facilities in the United States in the Greater Boston area, California and New Jersey.

 

Long-term Debt Obligation

 

On September 2, 2015, BeiGene (Suzhou) entered into a loan agreement with Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank, to borrow $17.4 million at a 7% fixed annual interest rate. As of March 31, 2017, we have drawn down $17.4 million, which is secured by BeiGene (Suzhou)’s equipment with a carrying amount of $22.5 million and our rights to a PRC patent on a drug candidate. The loan amounts of $8.7 million and $8.7 million are repayable on September 30, 2018 and 2019, respectively.

 

Capital Commitments

 

We had capital commitments amounting to $2.1 million for the acquisition of property, plant and equipment as of March 31, 2017, which was primarily for building BeiGene (Suzhou)’s manufacturing facility in Suzhou, China.

 

Other Business Agreements

 

We enter into agreements in the normal course of business with CROs and institutions to license intellectual property. We have not included these future payments in the table of contractual obligations above since the contracts are cancelable at any time by us with prior written notice.

 

Off-Balance Sheet Arrangements

 

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance

 

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or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the periods. We evaluate our estimates and judgments on an ongoing basis, including but not limited to, estimating the useful lives of long-lived assets, identifying separate accounting units and estimating the best estimate selling price of each deliverable in our revenue arrangements, assessing the impairment of long-lived assets, share-based compensation expenses, realizability of deferred tax assets and the fair value of warrant and option liabilities. We base our estimates on historical experience, known trends and events, contractual milestones and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

 

There have been no material changes to our critical accounting policies from those described in the section titled “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016, or the Annual Report.

 

Recent accounting pronouncements

 

See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements.

 

JOBS Act

 

Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, an “emerging growth company” can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards at the same time as other public companies that are not emerging growth companies. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an emerging growth company, we are exempt from Sections 14A(a) and (b) of the Exchange Act which would otherwise require us to (1) submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “golden parachutes;” and (2) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our chief executive officer’s compensation to our median employee compensation. We also rely on an exemption from the rule requiring us to provide an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and the rule requiring us to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will continue to remain an “emerging growth company” until the earliest of the following: (1) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering, (2) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1 billion, (3) the date on which we have issued more than $1.07 billion in nonconvertible debt during the previous three years, or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Interest and Credit Risk

 

Financial instruments that are potentially subject to credit risk consist of cash and cash equivalents and short-term investments. The carrying amounts of cash and cash equivalents and short-term investments represent the maximum amount of loss due to credit risk. We had cash and cash equivalents of $97.8 million and $87.5 million and short-term investments of $229.7 million and $280.7 million at March 31, 2017 and December 31, 2016, respectively. At March 31, 2017, our cash and cash equivalents were deposited with various major reputable financial institutions located in the PRC and international financial institutions outside of the PRC. The deposits placed with these financial institutions are not protected by statutory or commercial insurance. In the event of bankruptcy of one of these financial institutions, we may be unlikely to claim our deposits back in full. We believe that these financial institutions are of high credit quality, and we continually monitor the credit worthiness of these financial institutions. At March 31, 2017, our short-term investments consisted primarily of U.S. Treasury securities. We believe that the U.S. Treasury securities are of high credit quality and continually monitor the credit worthiness of these institutions.

 

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The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significant increasing risk. Our primary exposure to market risk relates to fluctuations in the interest rates which are affected by changes in the general level of PRC and U.S. interest rates. Given the short-term nature of our cash equivalents, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. We estimate that a hypothetical 100-basis point change in market interest rates would impact the fair value of our investment portfolio as of March 31, 2017 by $0.9 million.

 

We do not believe that our cash, cash equivalents and short-term investments have significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future investments will not be subject to adverse changes in market value.

 

Foreign Currency Exchange Rate Risk

 

We are exposed to foreign exchange risk arising from various currency exposures. Our functional currency is the U.S. dollar, but a portion of our operating transactions and assets and liabilities are in other currencies, such as RMB, Australian dollar and Euro. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk.

 

RMB is not freely convertible into foreign currencies for capital account transactions. The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange prices. From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For the RMB against U.S. dollars, there was appreciation of approximately 1.1% in the three months ended March 31, 2017 and depreciation of approximately 6.3% in the year ended December 31, 2016, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

 

To the extent that we need to convert U.S. dollars into RMB for capital expenditures and working capital and other business purpose, appreciation of RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to us.

 

In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings or losses.

 

Currency Convertibility Risk

 

A majority of our expenses and a significant portion of our assets and liabilities are denominated in RMB. On January 1, 1994, the PRC government abolished the dual rate system and introduced a single rate of exchange as quoted daily by the People’s Bank of China, or PBOC. However, the unification of exchange rates does not imply that the RMB may be readily convertible into U.S. dollars or other foreign currencies. All foreign exchange transactions continue to take place either through the PBOC or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approvals of foreign currency payments by the PBOC or other institutions require submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts.

 

Additionally, the value of the RMB is subject to changes in central government policies and international economic and political developments affecting supply and demand in the PRC foreign exchange trading system market.

 

Effects of Inflation

 

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the three months ended March 31, 2017.

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2017. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,

 

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without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2017, our management, including our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

Item 1A.  Risk Factors.

 

The following section includes the most significant factors that may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this Quarterly Report, including our financial statements and the related notes and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in the ADSs. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of the ADSs could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

The risk factors denoted with a “*” are newly added or have been materially updated from our Annual Report.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We are a globally focused biopharmaceutical company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

 

We are a globally focused biopharmaceutical company formed in October 2010. Our operations to date have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting preclinical studies and clinical trials of our current drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283. We have not yet demonstrated an ability to initiate or successfully complete large-scale, pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale drug, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. We have not yet obtained regulatory approval for, or demonstrated an ability to commercialize, any of our drug candidates. We have no products approved for commercial sale and have not generated any revenue from product sales. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.

 

We are focused on the discovery and development of innovative, molecularly targeted and immuno-oncology drugs for the treatment of cancers. Our limited operating history, particularly in light of the rapidly evolving cancer treatment field, may make it difficult to evaluate our current business and predict our future performance. Our short history makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields as we seek to transition to a company capable of supporting commercial activities. If we do not address these risks and difficulties successfully, our business will suffer.

 

*We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses for the foreseeable future.

 

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a drug candidate will fail to gain regulatory approval or become commercially viable. We have devoted most of our financial resources to research and development, including our nonclinical development activities and clinical trials. We have not generated any revenue from product sales to date, and we continue to incur significant development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2010. We reported a net loss of $50.6 million and $22.0 million, respectively, for the three months ended March 31, 2017 and 2016. As of March 31, 2017, we had a deficit accumulated of $288.0 million. 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, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our drug candidates, and begin to commercialize approved drugs, if any. Typically, it takes many years to develop one new drug from the time it is discovered to when it is available for treating patients. We may

 

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encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses, our ability to generate revenues and the timing and amount of milestones and other required payments to third parties in connection with our potential future arrangements with third parties. If any of our drug candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital.

 

We expect our research and development expenses to continue to be significant in connection with our continued investment in our cancer biology platform and our ongoing and planned clinical trials for our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283. Furthermore, if we obtain regulatory approval for our drug candidates, we expect to incur increased sales and marketing expenses. In addition, we will incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have a material adverse effect on our shareholders’ deficit, financial position, cash flows and working capital.

 

We currently do not generate revenue from product sales and may never become profitable.

 

Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of, and obtain the necessary regulatory approvals for, our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283, as we do not currently have any drugs that are available for commercial sale. We expect to continue to incur substantial and increasing losses through the projected commercialization of our drug candidates. None of our drug candidates have been approved for marketing in the United States, the European Union, the People’s Republic of China, or PRC, or any other jurisdiction and may never receive such approval. Our ability to achieve revenue and profitability is dependent on our ability to complete the development of our drug candidates, obtain necessary regulatory approvals, and have our drugs manufactured and successfully marketed.

 

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

 

·                   completing research regarding, and nonclinical and clinical development of, our drug candidates;

 

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

 

·                   obtaining adequate reimbursement from third-party payors, including government payors;

 

·                   developing a sustainable and scalable manufacturing process for our drug candidates, including establishing and maintaining commercially viable supply relationships with third parties and establishing our own manufacturing capabilities and infrastructure;

 

·                   launching and commercializing drug candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor;

 

·                   obtaining market acceptance of our drug candidates as viable treatment options;

 

·                   identifying, assessing, acquiring and/or developing new drug candidates;

 

·                   addressing any competing technological and market developments;

 

·                   negotiating and maintaining favorable terms in any collaboration, licensing or other arrangements into which we may enter, such as our collaboration arrangements with Merck KGaA, Darmstadt Germany;

 

·                   maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

 

·                   attracting, hiring and retaining qualified personnel.

 

In addition, because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by the FDA; the CFDA; the EMA; or other comparable regulatory authorities to perform studies in addition to those that we currently anticipate. Even if our drug candidates are approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of these drugs.

 

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Our ability to become and remain profitable depends on our ability to generate revenue. Even if we are able to generate revenues from the sale of our potential drugs, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. Failure to become and remain profitable may adversely affect the market price of the ADSs and our ability to raise capital and continue operations.

 

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

 

We have financed our operations with a combination of equity and debt offerings, contracts, and private and public grants. Through March 31, 2017, we raised approximately $170 million in private equity financing and $10 million in non-convertible debt financings. To date, we have received a total of $37 million in upfront payments and milestone payments through our collaboration arrangements with Merck KGaA, Darmstadt Germany for BGB-283 and BGB-290. On February 8, 2016 and November 23, 2016, we completed our initial public offering and follow-on public offering of the ADSs and received net proceeds of $166.2 million and $198.6 million, respectively, after deducting underwriting discount and offering expenses. Our drug candidates will require the completion of regulatory review, significant marketing efforts and substantial investment before they can provide us with any product sales revenue.

 

Our operations have consumed substantial amounts of cash since inception. Our operating activities used $35.7 million and $19.8 million of net cash during the three months ended March 31, 2017 and 2016, respectively. We expect to continue to spend substantial amounts on drug discovery advancing the clinical development of our drug candidates, and launching and commercializing any drug candidates for which we receive regulatory approval, including building our own commercial organizations to address certain markets.

 

We will need to obtain additional financing to fund our future operations, including completing the development and commercialization of our primary drug candidates: BGB-3111, BGB-A317, BGB-290 and BGB-283. We will need to obtain additional financing to conduct additional clinical trials for the approval of our drug candidates if requested by regulatory bodies, and completing the development of any additional drug candidates we might discover. Moreover, our fixed expenses such as rent, interest expense and other contractual commitments are substantial and are expected to increase in the future.

 

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

 

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

 

·                   the outcome, timing and cost of regulatory approvals by the FDA, CFDA, EMA and comparable regulatory authorities, including the potential that the FDA, CFDA, EMA or comparable regulatory authorities may require that we perform more studies than those that we currently expect;

 

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

 

·                   our ability to successfully commercialize our drug candidates;

 

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

 

·                   the amount and timing of the milestone and royalty payments we receive from our collaborators under our licensing arrangements, such as our collaboration with Merck KGaA, Darmstadt Germany;

 

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

 

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

 

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

 

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

 

·                   the costs of operating as a public company;

 

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

 

·                   the time and cost necessary to respond to technological and market developments; and

 

·                   the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

 

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

 

We believe that our existing cash and cash equivalents, will not be sufficient to enable us to complete all necessary global development or commercially launch our current drug candidates. Accordingly, we will require further funding through other public or private offerings, debt financing, collaboration and licensing arrangements or other sources. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Our inability to obtain additional funding when we need it could seriously harm our business.

 

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

 

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

 

Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.

 

We incur portions of our expenses, and may in the future derive revenues, in currencies other than the U.S. dollar, in particular, the RMB and Australian dollars. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. For example, a significant portion of our clinical trial activities are conducted outside of the United States, and associated costs may be incurred in the local currency of the country in which the trial is being conducted, which costs could be subject to fluctuations in currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the U.S. dollar. A decline in the value of the U.S. dollar against currencies in countries in which we conduct clinical trials could have a negative impact on our research and development costs. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows.

 

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC, Australia and other non-U.S. governments.

 

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Specifically in the PRC, on July 21, 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. In April 2012, the PRC government announced that it would allow more RMB exchange rate fluctuation. On August 11, 2015, China’s central bank executed a 2% devaluation in the RMB. Over the following two days, Chinese currency fell 3.5% against the dollar. However, it remains unclear what further fluctuations may occur or what impact this will have on the currency.

 

It is difficult to predict how market forces or PRC, Australian, U.S. or other government policies may impact the exchange rate between the Australian dollar, RMB, U.S. dollar and other currencies in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. Substantially all of our revenues are denominated in U.S. dollars and our costs are denominated in U.S. dollars, Australian dollars and RMB, and a large portion of our financial assets and a significant portion of our debt is denominated in U.S. dollars. Any significant revaluation of the RMB may materially reduce any dividends payable on the ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we received from our initial public offering and follow-on public offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount we would receive.

 

*Our investments are subject to risks that could result in losses.

 

We had cash and cash equivalents of $97.8 million and $87.5 million and short-term investments of $229.7 million and $280.7 million at March 31, 2017 and December 31, 2016, respectively. At March 31, 2017, our short-term investments mainly consisted of U.S. Treasury securities. On February 8, 2016 and November 23, 2016, we completed our initial public offering and follow-on public offering of the ADSs and received net proceeds of $166.2 million and $198.6 million, respectively, after deducting underwriting discount and offering expenses. We may invest our cash in a variety of financial instruments, principally securities issued by the U.S. government and its agencies, investment grade corporate bonds, including commercial paper and money market instruments, which may not yield a favorable return to our shareholders. All of these investments are subject to credit, liquidity, market and interest rate risk. Such risks, including the failure or severe financial distress of the financial institutions that hold our cash, cash equivalents and investments, may result in a loss of liquidity, impairment to our investments, realization of substantial future losses, or a complete loss of the investments in the long-term, which may have a material adverse effect on our business, results of operations, liquidity and financial condition. Our primary exposure to market risk relates to fluctuations in the interest rates of the PRC and the United States. In order to manage the risk to our investments, we maintain an investment policy that, among other things, limits the amount that we may invest in any one issue or any single issuer and requires us to only invest in high credit quality securities. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future investments will not be subject to adverse changes in market value.

 

Risks Related to Clinical Development of Our Drug Candidates

 

We depend substantially on the success of our drug candidates, particularly BGB-3111, BGB-A317, BGB-290 and BGB-283, which are in clinical development. Clinical trials of our drug candidates may not be successful. If we are unable to commercialize our drug candidates, or experience significant delays in doing so, our business will be materially harmed.

 

Our business and the ability to generate revenue related to product sales, if ever, will depend on the successful development, regulatory approval and commercialization of our drug candidates for the treatment of patients with cancer, particularly BGB-3111, BGB-A317, BGB-290 and BGB-283, which are still in development, and other drugs we may develop. We have invested a significant portion of our efforts and financial resources in the development of our existing drug candidates. The success of our drug candidates, including BGB-3111, BGB-A317, BGB-290 and BGB-283, will depend on several factors, including:

 

·                   successful enrollment in, and completion of, preclinical studies and clinical trials;

 

·                   receipt of regulatory approvals from the FDA, CFDA, EMA and other comparable regulatory authorities for our drug candidates, including our companion diagnostics;

 

·                   establishing commercial manufacturing capabilities, either by building facilities ourselves or making arrangements with third-party manufacturers;

 

·                   relying on third parties to conduct our clinical trials safely and efficiently;

 

·                   obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity;

 

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·                   protecting our rights in our intellectual property;

 

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

 

·                   launching commercial sales of our drug candidates, if and when approved;

 

·                   obtaining reimbursement from third-party payors for drug candidates, if and when approved;

 

·                   competition with other drug candidates and drugs;

 

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

 

·                   obtaining sufficient supplies of any competitor drug products that may be necessary for use in clinical trials for evaluation of our drug candidates.

 

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays in our ability to obtain approval for and/or to successfully commercialize our drug candidates, which would materially harm our business and we may not be able to generate sufficient revenues and cash flows to continue our operations.

 

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

 

Although we intend to explore other therapeutic opportunities with our cancer biology platform in addition to the drug candidates that we are currently developing, we may fail to identify other drug candidates for clinical development for a number of reasons. For example, our research methodology may be unsuccessful in identifying potential drug candidates or those we identify may be shown to have harmful side effects or other characteristics that make them unmarketable or unlikely to receive regulatory approval. Specifically, we have focused on developing our cancer biology platform, which enables us to test a large panel of tumor models for sensitivity to the drug candidates we generated, identify targets to pursue, identify drug-resistance mechanisms, explore combination strategies and regimens, and improve our understanding of the contributions of tumor micro, or macro-environment in cancer treatments. If our cancer biology platform fails to identify potential drug candidates, our business could be materially harmed.

 

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

 

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

 

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

 

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

 

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

 

Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our drug candidates or to develop suitable potential drug candidates through internal research programs, which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential drug candidates or other potential programs that ultimately prove to be unsuccessful.

 

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

 

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

 

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sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:

 

·                   the size and nature of the patient population;

 

·                   the patient eligibility criteria defined in the protocol;

 

·                   the size of the study population required for analysis of the trial’s primary endpoints;

 

·                   the proximity of patients to trial sites;

 

·                   the design of the trial;

 

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

 

·                   competing clinical trials for similar therapies or other new therapeutics;

 

·                   clinicians’ and patients’ perceptions as to the potential advantages and side effects of the drug candidate being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating;

 

·                   our ability to obtain and maintain patient consents;

 

·                   the risk that patients enrolled in clinical trials will not complete a clinical trial; and

 

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

 

In addition, our clinical trials will compete with other clinical trials for drug candidates that are in the same therapeutic areas as our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites.

 

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

 

Some of our drug candidates represent a novel approach to cancer treatment that could result in delays in clinical development, heightened regulatory scrutiny, or delays in our ability to achieve regulatory approval or commercialization of our drug candidates.

 

Some of our drug candidates represent a departure from more commonly used methods for cancer treatment, and therefore represent a novel approach that carries inherent development risks. The need to further develop or modify in any way the protocols related to our drug candidates to demonstrate safety or efficacy may delay the clinical program, regulatory approval or commercialization, if approved. In addition, potential patients and their doctors may be inclined to use conventional standard-of-care treatments rather than enroll patients in any future clinical trial. This may have a material impact on our ability to generate revenues from our drug candidates. Further, given the novelty of our drug candidates, the end users and medical personnel may require a substantial amount of education and training.

 

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

 

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

 

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

 

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

 

Before obtaining regulatory approval for the sale of our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and successful interim results of a clinical trial do not necessarily predict successful final results.

 

We may experience numerous unexpected events during, or as a result of, clinical trials that could delay or prevent our ability to receive regulatory approval or commercialize our drug candidates, including:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                   be delayed in obtaining regulatory approval for our drug candidates;

 

·                   not obtain regulatory approval at all;

 

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

 

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

 

·                   be subject to additional post-marketing testing requirements;

 

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

 

·                   be unable to obtain reimbursement for use of the drug.

 

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Delays in testing or approvals may result in increases in our drug development costs. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.

 

Significant clinical trial delays also could shorten any periods during which we have the exclusive right to commercialize our drug candidates or allow our competitors to bring drugs to market before we do and impair our ability to commercialize our drug candidates and may harm our business and results of operations.

 

Risks Related to Obtaining Regulatory Approval for Our Drug Candidates

 

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

 

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

 

Our drug candidates could fail to receive regulatory approval from the FDA, CFDA, EMA or a comparable regulatory authority for many reasons, including:

 

·                   disagreement with the design or implementation of our clinical trials;

 

·                   failure to demonstrate that a drug candidate is safe and effective or that a biologic drug candidate is safe, pure, and potent for its proposed indication;

 

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

 

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

 

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

 

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

 

·                   the FDA, CFDA, EMA or comparable regulatory authority’s finding of deficiencies related to the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; and

 

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

 

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

 

Regulatory approval may be substantially delayed or may not be obtained for one or all of our drug candidates if regulatory authorities require additional time or studies to assess the safety and efficacy of our drug candidates.

 

We may be unable to initiate or complete development of our drug candidates, such as BGB-3111, BGB-A317, BGB-290 and BGB-283, on schedule, if at all. The timing for the completion of the studies for our drug candidates will require funding beyond the proceeds of our initial public offering and follow-on public offering. In addition, if regulatory authorities require additional time or studies to assess the safety or efficacy of our drug candidates, we may not have or be able to obtain adequate funding to complete the necessary steps for approval for any or all of our drug candidates. Preclinical studies and clinical trials required to demonstrate the

 

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safety and efficacy of our drug candidates are time consuming and expensive and together take several years or more to complete. Delays in clinical trials, regulatory approvals or rejections of applications for regulatory approval in the United States, Australia, New Zealand, the PRC, Europe or other markets may result from many factors, including:

 

·                   our inability to obtain sufficient funds required for a clinical trial;

 

·                   regulatory requests for additional analyses, reports, data, nonclinical and preclinical studies and clinical trials;

 

·                   regulatory questions regarding interpretations of data and results and the emergence of new information regarding our drug candidates or other products;

 

·                   clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;

 

·                   failure to reach agreement with the FDA, CFDA, EMA or other regulators regarding the scope or design of our clinical trials;

 

·                   delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;

 

·                   our inability to enroll a sufficient number of patients who meet the inclusion and exclusion criteria in a clinical trial;

 

·                   our inability to conduct a clinical trial in accordance with regulatory requirements or our clinical trial protocols;

 

·                   clinical sites and investigators deviating from a trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;

 

·                   withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

 

·                   inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication;

 

·                   failure of our third-party clinical research organizations to satisfy their contractual duties or meet expected deadlines;

 

·                   delay or failure in adding new clinical trial sites;

 

·                   ambiguous or negative interim results, or results that are inconsistent with earlier results;

 

·                   unfavorable or inconclusive results of clinical trials and supportive nonclinical studies, including unfavorable results regarding effectiveness of drug candidates during clinical trials;

 

·                   feedback from the FDA, CFDA, EMA, an IRB, data safety monitoring boards, or comparable entities, or results from earlier stage or concurrent preclinical studies and clinical trials, that might require modification to the protocol;

 

·                   unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects;

 

·                   decision by the FDA, CFDA, EMA, an IRB, comparable entities, or us, or recommendation by a data safety monitoring board or comparable regulatory entity, to suspend or terminate clinical trials at any time for safety issues or for any other reason;

 

·                   failure to demonstrate a benefit from using a drug or biologic;

 

·                   lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;

 

·                   our inability to reach agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

·                   our inability to obtain approval from IRBs or ethics committees to conduct clinical trials at their respective sites;

 

·                   manufacturing issues, including problems with manufacturing or timely obtaining from third parties sufficient quantities of a drug candidate for use in a clinical trial; and

 

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·                   difficulty in maintaining contact with patients after treatment, resulting in incomplete data.

 

Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial.

 

If we experience delays in the completion of, or the termination of, a clinical trial, of any of our drug candidates, the commercial prospects of our drug candidates will be harmed, and our ability to generate product sales revenues from any of those drug candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our drug candidate development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates.

 

If we are required to conduct additional clinical trials or other studies with respect to any of our drug candidates beyond those that we initially contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be delayed in obtaining regulatory approval for that drug candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that are not as broad as intended. Our drug development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring drugs to market before we do and impair our ability to commercialize our drugs, if and when approved. If any of this occurs, our business will be materially harmed.

 

Failure to successfully validate, develop and obtain regulatory approval for companion diagnostics could harm our drug development strategy.

 

As one of the key elements of our clinical development strategy, we seek to identify patient subsets within a disease category who may derive selective and meaningful benefit from the drug candidates we are developing. In collaboration with partners, we plan to develop companion diagnostics to help us to more accurately identify patients within a particular subset, both during our clinical trials and in connection with the commercialization of our drug candidates. Companion diagnostics are subject to regulation by the FDA, CFDA, EMA and other comparable regulatory authorities and require separate regulatory approval or clearance prior to commercialization. We do not develop companion diagnostics internally, and thus we are dependent on the sustained cooperation and effort of our third-party collaborators in developing and obtaining approval or clearance for these companion diagnostics. We and our collaborators may encounter difficulties in developing and obtaining approval or clearance of the companion diagnostics, including issues relating to selectivity/specificity, analytical validation, reproducibility or clinical validation. Any delay or failure by our collaborators to develop or obtain regulatory approval or clearance of the companion diagnostics could delay or prevent approval of our drug candidates. In addition, our collaborators may encounter production difficulties that could constrain the supply of the companion diagnostics, and both they and we may have difficulties gaining acceptance of the use of the companion diagnostics in the clinical community. A failure of such companion diagnostics to gain market acceptance would have an adverse effect on our ability to derive revenues from sales of our drugs. In addition, the diagnostic company with whom we contract may decide to discontinue selling or manufacturing the diagnostic we anticipate using in connection with development and commercialization of our drug candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our drug candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our drug candidates.

 

Our drug candidates may cause undesirable adverse events or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval.

 

Undesirable AEs caused by our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, CFDA, EMA or other comparable regulatory authority. Results of our trials could reveal a high and unacceptable severity or prevalence of AEs. In such an event, our trials could be suspended or terminated and the FDA, CFDA, EMA or other comparable regulatory authorities could order us to cease further development of, or deny approval of, our drug candidates for any or all targeted indications. Undesirable AEs caused by BGB-3111 may include, but are not limited to, neutropenia, petechiae (spots that appear on the skin as a result of bleeding), purpura (subcutaneous bleeding), bruising, rash, peripheral neuropathy, and fatigue. Undesirable AEs caused by BGB-290 may include, but are not limited to, nausea, vomiting, diarrhea, lethargy, neutropenia, anemia, thrombocytopena, hypophosphataemia, and hot flush. Undesirable AEs caused by BGB-283 may include, but are not limited to, thrombocytopenia, fatigue, rash, hand-foot syndrome, hypertension, and anorexia. Drug-related AEs could affect patient recruitment or the ability of enrolled subjects to complete the trial, and could result in potential product liability claims. Any of these occurrences may harm our reputation, business, financial condition

 

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and prospects significantly.

 

Additionally if one or more of our drug candidates receives regulatory approval, and we or others later identify undesirable side effects caused by such drugs, a number of potentially significant negative consequences could result, including:

 

·                   we may suspend marketing of the drug;

 

·                   regulatory authorities may withdraw approvals or revoke licenses 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 drug candidate, if approved, and could significantly harm our business, results of operations and prospects.

 

Further, combination therapy, such as using our wholly-owned drug candidates as well as third-party agents, involves unique AEs that could be exacerbated compared to AEs from monotherapies. These types of AEs could be caused by our drug candidates and could also cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, CFDA, EMA or other comparable regulatory authority. Results of our trials could reveal a high and unacceptable severity or prevalence of AEs.

 

A Fast Track Designation by the FDA, even if granted for any of our drug candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our drug candidates will receive regulatory approval.

 

We do not currently have Fast Track Designation for any of our drug candidates but may seek such designation in the future. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for that condition, the drug sponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether or not to grant this designation. Even if we believe a particular drug candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw a Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program. Many drugs that have received Fast Track Designation have failed to obtain approval from the FDA.

 

A Breakthrough Therapy Designation by the FDA, even if granted for any of our drug candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our drug candidates will receive regulatory approval.

 

We do not currently have Breakthrough Therapy Designation for any of our drug candidates but may seek it in the future. A Breakthrough Therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for development.

 

Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe, after completing early clinical trials, that one of our drug candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead decide not to grant that designation. In any event, the receipt of a Breakthrough Therapy designation for a drug candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our drug candidates qualify as Breakthrough Therapies, the FDA may later decide that such drug candidates no longer meet the conditions for qualification.

 

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We may seek orphan drug exclusivity for some of our drug candidates, and we may be unsuccessful.

 

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a disease with a patient population of fewer than 200,000 individuals in the United States, or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that costs of research and development of the product for the indication can be recovered by sales of the product in the United States. BGB-3111 received orphan drug designation from the FDA for CLL, MCL and WM in 2016.

 

Generally, if a drug with an orphan drug designation subsequently receives the first regulatory approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA or EMA, from approving another marketing application for the same drug for the same indication during the period of exclusivity. The applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

 

Even if we obtain orphan drug exclusivity for a drug candidate, that exclusivity may not effectively protect the drug candidate from competition because different drugs can be approved for the same condition and the same drugs can be approved for a different condition but used off-label for any orphan indication we may obtain. Even after an orphan drug is approved, the FDA can subsequently approve a drug that is otherwise the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

 

Even if we receive regulatory approval for our drug candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our drug candidates.

 

If our drug candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable regulatory authorities.

 

Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, CFDA, EMA and comparable regulatory authority, requirements, including, in the United States, ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

 

Any regulatory approvals that we receive for our drug candidates may be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the drug candidate. The FDA may also require a REMS program as a condition of approval of our drug candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA, CFDA, EMA or a comparable regulatory authority approves our drug candidates, we will have to comply with requirements including, for example, submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP and GCP, for any clinical trials that we conduct post-approval.

 

The FDA may seek to impose a consent decree or withdraw marketing approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the drug reaches the market. Later discovery of previously unknown problems with our drug candidates, including AEs of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

·                   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;

 

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·                   refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;

 

·                   product seizure or detention, or refusal to permit the import or export of our drug candidates; and

 

·                   injunctions or the imposition of civil or criminal penalties.

 

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for their approved indications and for use in accordance with the provisions of the approved label. The FDA, CFDA, EMA and other regulatory authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of the FDA, CFDA, EMA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval that we may have obtained and we may not achieve or sustain profitability.

 

In addition, if we were able to obtain accelerated approval of any of our drug candidates, the FDA would require us to conduct a confirmatory study to verify the predicted clinical benefit and additional safety studies. Other comparable regulatory authorities outside the United States, such as the CFDA or EMA, may have similar requirements. The results from the confirmatory study may not support the clinical benefit, which would result in the approval being withdrawn. While operating under accelerated approval, we will be subject to certain restrictions that we would not be subject to upon receiving regular approval.

 

Risks Related to Commercialization of Our Drug Candidates

 

If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize our drug candidates, and our ability to generate revenue will be materially impaired.

 

We currently do not have any drug candidates that have gained regulatory approval for sale in the United States, European Union, China or any other country, and we cannot guarantee that we will ever have marketable drugs. Our business is substantially dependent on our ability to complete the development of, obtain regulatory approval for and successfully commercialize drug candidates in a timely manner. We cannot commercialize drug candidates without first obtaining regulatory approval to market each drug from the FDA, CFDA, EMA and comparable regulatory authorities. BGB-3111, BGB-A317, BGB-290 and BGB-283 are each currently undergoing clinical trials. We cannot predict whether these trials and future trials will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date.

 

Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction of the FDA, that the drug candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. In the United States, we have not submitted an NDA or BLA for any of our drug candidates. An NDA or BLA must include extensive preclinical and clinical data and supporting information to establish, in the case of an NDA, the drug candidate’s safety and effectiveness or, in the case of a BLA, safety, purity and potency for each desired indication. The NDA or BLA must also include significant information regarding the chemistry, manufacturing and controls for the drug. Obtaining approval of an NDA or BLA is a lengthy, expensive and uncertain process, and approval may not be obtained. If we submit an NDA or BLA to the FDA, the FDA decides whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA.

 

Regulatory authorities outside of the United States, such as the EMA or regulatory authorities in Australia and New Zealand and in emerging markets, such as in the PRC, also have requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our drug candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking non-U.S. regulatory approval could require additional nonclinical studies or clinical trials, which could be costly and time consuming. The non-U.S. regulatory approval process may include all of the risks associated with obtaining FDA approval. For all of these reasons, we may not obtain non-U.S. regulatory approvals on a timely basis, if at all.

 

Specifically, in China, the CFDA categorizes domestically-manufactured innovative drug applications as Category 1 and imported innovative drug applications as Category 5. To date, most of local companies’ domestically-manufactured drug applications are filed in Category 1 if the drug has not already been approved by the FDA or EMA. Most multinational pharmaceutical companies’ drug registration applications are filed in Category 5 applicable to imported drugs, formerly known as Category 3 prior to the

 

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reclassification implemented by CFDA in 2016. These two categories have distinct approval pathways, as described in the section of our Annual Report titled “Item 1—Business—Regulatory Framework and Structural Advantages of Being a China-Based Research and Development Organization.” We believe the local drug registration pathway, Category 1, is a faster and more efficient path to approval in the Chinese market than Category 5. Companies are required to obtain Clinical Trial Application approval before conducting clinical trials in China. This registration pathway has a fast track review and approval mechanism if the drug candidate is on a national priority list. The imported drug registration pathway, Category 5, is more complex and is evolving. China Category 5 registration applications may only be submitted after a drug has obtained an NDA approval and received the CPP granted by a major drug regulatory authority, such as the FDA or EMA.

 

Further, in August 2015, the Chinese State Council issued a statement, Opinions on reforming the review and approval process for pharmaceutical products and medical devices that contained several potential policy changes that could benefit the pharmaceutical industry:

 

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

 

·                   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 local clinical trial organizations to participate in international multi-center clinical trials.

 

·                   In November 2015, the CFDA released the Circular Concerning Several Policies on Drug Registration Review and Approval , which further clarified the following policies potentially simplifying and accelerating the approval process of clinical trials:

 

·                   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 HIV, cancer, serious infectious diseases and orphan diseases; (2) registration of pediatric drugs; (3) registration of geriatric drugs and drugs treating China-prevalent diseases in elders; (4) registration of drugs sponsored by national science and technology grants; (5) registration of innovative drugs using advanced technology, using innovative treatment methods, or having distinctive clinical benefits; (6) registration of foreign innovative drugs to be manufactured locally in China; and (7) concurrent applications for new drug clinical trials which are already approved in the United States or European Union or concurrent drug registration applications for drugs which have applied for marketing authorization and passed onsite inspections in the United States or European Union and are manufactured using the same production line in China; and (8) clinical trial applications for drugs with urgent clinical need and patent expiry within three years, and marketing authorization applications for drugs with urgent clinical need and patent expiry within one year.

 

In February 2016, the CFDA released the Opinions on Priority Review and Approval for Resolving Drug Registration Applications Backlog, which further clarified the following policies potentially accelerating the approval process of certain clinical trials or drug registrations:

 

·                   A fast track drug registration or clinical trial approval pathway will be available for the following drug registration applications with distinctive clinical benefits: (1) registration application of innovative drugs not sold within or outside China; (2) registration application of innovative drugs transferred to be manufactured in China; (3) registration application of drugs using advanced technology, using innovative treatment methods, or having distinctive treatment advantages; (4) clinical trial applications for drugs with patent expiry within three years, and marketing authorization applications for drugs with patent expiry within one year; (5) concurrent applications for new drug clinical trials which are already approved in the United States or European Union, or concurrent drug registration applications for drugs which have applied for marketing authorization and passed onsite inspections in the United States or European Union and are manufactured using the same production line in China; (6) traditional Chinese medicines (including ethnic medicines) with clear clinical position in prevention and treatment of serious diseases; and (7) registration application of new drugs sponsored by national key technology projects or national key development projects.

 

·                   A fast track drug registration approval pathway will be available for drug registration applications with distinctive clinical benefits for prevention and treatment of HIV, phthisis, viral hepatitis, orphan diseases, cancer, malignant neoplasms, children’s diseases, and geriatrics.

 

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·                   In March 2016, the CFDA released a circular, CFDA Announcement on Reforms of Pharmaceutical Registration Classification, which outlined the re-classifications of drug applications. Under the new categorization, innovative drugs that have not been marketed either within or outside China remain Category 1, while drugs marketed outside China seeking marketing approval in China are now Category 5.

 

·                   However, because these laws and regulations in relation to such above-mentioned fast track clinical trial approval and drug registration pathway were newly issued, uncertainty remains with respect to their implementation. We expect that the CFDA review and approval process will improve over time. However, how and when this approval process will be changed is still subject to further policies to be issued by the CFDA and is currently uncertain.

 

·                   The process to develop, obtain regulatory approval for and commercialize drug candidates is long, complex and costly both inside and outside the United States and China, and approval is never guaranteed. Even if our drug candidates were to successfully obtain approval from the regulatory authorities, any approval might significantly limit the approved indications for use, or require that precautions, contraindications or warnings be included on the product labeling, or require expensive and time-consuming post-approval clinical studies or surveillance as conditions of approval. Following any approval for commercial sale of our drug candidates, certain changes to the drug, such as changes in manufacturing processes and additional labeling claims, may be subject to additional review and approval by the FDA, CFDA and EMA and comparable regulatory authorities. Also, regulatory approval for any of our drug candidates may be withdrawn. If we are unable to obtain regulatory approval for our drug candidates in one or more jurisdictions, or any approval contains significant limitations, our target market will be reduced and our ability to realize the full market potential of our drug candidates will be harmed. Furthermore, we may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue the development of any other drug candidate in the future.

 

A Category 1 designation by the CFDA may be revoked or may not be granted for any of our drug candidates or may not lead to faster development or regulatory review or approval process and does not increase the likelihood that our drug candidates will receive regulatory approval.

 

We believe the local drug registration pathway, Category 1, is a faster and more efficient path to approval in the Chinese market than the drug registration pathway for imported drugs under Category 5. Companies are required to obtain Clinical Trial Application approval before conducting clinical trials in China. This registration pathway has a fast track review and approval mechanism if the drug candidate is on a national priority list. Imported drug candidates under Category 5 cannot qualify for the national priority list to benefit from fast track reviews. Our drug candidates are all new therapeutic agents and we have built both research and development, clinical trial capacities, and commercial manufacturing facilities in China. As a result, we expect all of our current drug candidates to fall within the Category 1 application process, but cannot be sure we will be granted or be able to maintain Category 1 designation.

 

Even if any of our drug candidates receives regulatory approval, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

 

If any of our drug candidates receives regulatory approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments to the exclusion of our drug candidates, such as BGB-A317, BGB-3111, BGB-290 and BGB-283. In addition, physicians, patients and third-party payors may prefer other novel products to ours. If our drug candidates do not achieve an adequate level of acceptance, we may not generate significant product sales revenues and we may not become profitable. The degree of market acceptance of our drug candidates, if approved for commercial sale, will depend on a number of factors, including:

 

·                   the clinical indications for which our drug candidates are approved;

 

·                   physicians, hospitals, cancer treatment centers and patients considering our drug candidates as a safe and effective treatment;

 

·                   the potential and perceived advantages of our drug candidates over alternative treatments;

 

·                   the prevalence and severity of any side effects;

 

·                   product labeling or product insert requirements of the FDA, CFDA, EMA or other comparable regulatory authorities;

 

·                   limitations or warnings contained in the labeling approved by the FDA, CFDA, EMA or other comparable regulatory authorities;

 

·                   the timing of market introduction of our drug candidates as well as competitive drugs;

 

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·                   the cost of treatment in relation to alternative treatments;

 

·                   the amount of upfront costs or training required for physicians to administer our drug 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 drug candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or others in the medical community, we will not be able to generate significant revenue. Even if our drugs achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our drugs, are more cost effective or render our drugs obsolete.

 

We currently have no marketing and sales organization and have no experience in marketing drugs. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our drug candidates, we may not be able to generate product sales revenue.

 

We currently have no sales, marketing or commercial product distribution capabilities and have no experience in marketing drugs. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

 

If we are unable or decide not to establish internal sales, marketing and commercial distribution capabilities for any or all drugs we develop, we will likely pursue collaborative arrangements regarding the sales and marketing of our drugs. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our drug candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our drug candidates.

 

There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any product, and as a result, we may not be able to generate product sales revenue.

 

We face substantial competition, which may result in others discovering, developing or commercializing competing drugs before or more successfully than we do.

 

The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the development of drugs for the treatment of cancer for which we are developing our drug candidates. Some of these competitive drugs and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

 

Specifically, there are a large number of companies developing or marketing treatments for cancer, including many major pharmaceutical and biotechnology companies. See the section titled “Item 1—Business—Competition” of our Annual Report.

 

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we may develop. Our competitors also may obtain approval from the FDA, CFDA, EMA or other comparable regulatory authorities for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market and or slow our regulatory approval. Furthermore, the regulatory framework in China regarding

 

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imported drugs may undergo changes that could erode our competitive advantage with respect to the Chinese domestic regulatory pathway. For example, on March 17, 2017, the CFDA published a draft Decision on Regulation Adjustment on Imported Drugs Registration that if adopted would potentially accelerate the regulatory approval process for imported drugs.

 

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

Our drug candidates for which we intend to seek approval as biological or drug products may face competition sooner than expected.

 

With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively the ACA, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created in the United States. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilars, including the possible designation of a biosimilar as “interchangeable,” based on their similarity to existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the reference product was approved under a BLA. The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty, and it could have a material adverse effect on the future commercial prospects for our biological products, including BGB-A317, if approved.

 

We believe that any of our drugs approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However:

 

·                   a potential competitor could seek and obtain approval of its own BLA during our exclusivity period instead of seeking approval of a biosimilar version; and

 

·                   the FDA could consider a combination therapy which contains both drug and biological product components, to be a drug subject to review pursuant to an NDA, and therefore eligible for a significantly shorter marketing exclusivity period as provided under the Drug Price Competition and Patent Term Restoration Act of 1984.

 

Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear and will depend on a number of marketplace and regulatory factors that are still developing.

 

In addition, a drug product approved under an NDA, such as BGB-3111, BGB-290 or BGB-283, if they were to be approved, could face generic competition earlier than expected. The enactment of the Generic Drug User Fee Amendments of 2012 as part of the Food and Drug Administration Safety and Innovation Act of 2012 established a user fee program that will generate hundreds of millions of dollars in funding for the FDA’s generic drug review program. Funding from the user fee program, along with performance goals that the FDA negotiated with the generic drug industry, could significantly decrease the timeframe for FDA review and approval of generic drug applications.

 

The market opportunities for our drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

 

Cancer therapies are sometimes characterized as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, we expect to initially seek approval of our drug candidates as a later stage therapy for patients who have failed other approved treatments. Subsequently, for those drugs that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that our drug candidates, even if approved, would be approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.

 

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Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive later stage therapy and who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our drug candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we obtain significant market share for our drug candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy.

 

Our market opportunities may also be limited by competitor treatments that may enter the market. See “—We face substantial competition, which may result in others discovering, developing or commercializing competing drugs before or more successfully than we do.”

 

Even if we are able to commercialize any drug candidates, the drugs may become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, which could harm our business.

 

The regulations that govern regulatory approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a drug in a particular country, but then be subject to price regulations that delay our commercial launch of the drug and negatively impact the revenues we are able to generate from the sale of the drug in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more drug candidates, even if our drug candidates obtain regulatory approval. For example, according to a statement, Opinions on reforming the review and approval process for pharmaceutical products and medical devices , issued by the Chinese State Council in August 2015, the enterprises applying for new drug approval will be required to undertake that the selling price of new drug on PRC mainland market shall not be higher than the comparable market prices of the product in its country of origin or PRC’s neighboring markets, as applicable.

 

Our ability to commercialize any drugs successfully also will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the global healthcare industry is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any drug for which we obtain regulatory approval. Obtaining reimbursement for our drugs may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any drug candidate that we successfully develop.

 

There may be significant delays in obtaining reimbursement for approved product drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or other comparable regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower cost drugs that are already reimbursed, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future weakening of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for new drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.

 

Coverage and reimbursement may be limited or unavailable in certain market segments for our drug candidates, which could make it difficult for us to sell our drug candidates profitably.

 

Successful sales of our drug candidates, if approved, depend on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our drug candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from our drug candidates.

 

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the

 

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costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the United States, and commercial payors are critical to new drug acceptance.

 

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a drug is:

 

·                   a covered benefit under its health plan;

 

·                   safe, effective and medically necessary;

 

·                   appropriate for the specific patient;

 

·                   cost-effective; and

 

·                   neither experimental nor investigational.

 

I n the United States, no uniform policy of coverage and reimbursement for drugs exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a drug from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our drugs on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given drug, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our genetically modified drugs. Patients are unlikely to use our drug candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug candidates. Because our drug candidates have a higher cost of goods than conventional therapies, and may require long-term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.

 

The Chinese State Council asked central and provincial authorities across the PRC to promote a medical insurance program for major illnesses. By the end of 2015, all urban and rural residents covered by basic medical insurance programs should be covered by the insurance program for major illnesses, according to Chinese State Council policy number 2015-57, issued on July 28, 2015. As a complement to basic insurance programs, this program is required to cover at least 50% of the medical cost as incurred by treating major illnesses, but falls out of the coverage of the basic insurance programs. The Chinese State Council requires provincial authorities to increase reimbursement rates over the next three years.

 

According to the PRC Central Government’s guidance issued in March 2015, each province will decide which drugs to include in its provincial major illness reimbursement lists and the percentage of reimbursement, based on local funding. For example, Zhejiang province, located in the Yangtze river delta area with a population of 55 million, announced its provincial major illness drug reimbursement list in early 2015. The list includes 31 expensive drugs, among which 15 are targeted therapy agents for cancer, including Glivec, Ireesa, Erbitux, Herceptin, and Rituxan. Although it will take three years to establish a comprehensive national coverage, the affordability of the expensive, novel cancer agents to Chinese patients will improve significantly and the targeted therapy market is expected to enter a fast growing period.

 

We intend to seek approval to market our drug candidates in the United States, China, Europe and in other selected jurisdictions. If we obtain approval in one or more non-U.S. jurisdictions for our drug candidates, we will be subject to rules and regulations in those jurisdictions. In some non-U.S. countries, particularly those in the European Union, the pricing of drugs and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining regulatory approval of a drug candidate. In addition, market acceptance and sales of our drug candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug candidates and may be affected by existing and future health care reform measures.

 

Recently enacted and future legislation may increase the difficulty and cost for us to obtain regulatory approval of and commercialize our drug candidates and affect the prices we may obtain.

 

In the United States, PRC, European Union and some other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug candidates for which we obtain regulatory approval.

 

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the

 

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elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

 

More recently, in March 2010, then President Obama signed into law the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

 

Among the provisions of the ACA of importance to our potential drug candidates are the following:

 

·                   an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologics;

 

·                   an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

·                   expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

·                   a new 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;

 

·                   new requirements to report financial arrangements with physicians and teaching hospitals;

 

·                   a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

 

·                   a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

 

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, starting in 2013. In January 2013, then President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding.

 

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs.

 

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent regulatory approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

 

As a result of the 2016 election in the United States, the fate of the ACA and other healthcare laws is uncertain. The United States House of Representatives is considering approval of legislation to repeal parts of the ACA, but it is uncertain whether Congress will replace the law and what any replacement law would provide.

 

We may be subject, directly or indirectly, to applicable U.S. federal and state anti-kickback, false claims laws, physician payment

 

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transparency laws, fraud and abuse laws or similar healthcare and security laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

 

Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain regulatory approval. If we obtain FDA approval for any of our drug candidates and begin commercializing those drugs in the United States, our operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician payment sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

 

·                   the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;

 

·                   federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid or other third-party payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

·                   the federal HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

 

·                   HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

·                   the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

 

·                   the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services information related to payments or other transfers of value made to 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.

 

Additionally, we are subject to state and non-U.S. equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors, including private insurers. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.

 

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform

 

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legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal Anti-Kickback and criminal healthcare fraud statutes. As a result of such amendment, a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

 

Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well as under the false claims laws of several states.

 

Neither the U.S. government nor the U.S. courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our drug candidates outside the United States will also likely subject us to non-U.S. equivalents of the healthcare laws mentioned above, among other non-U.S. laws.

 

If any of the physicians or other providers or entities with whom we expect to do business with are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which may also adversely affect our business.

 

We may explore the licensing of commercialization rights or other forms of collaboration worldwide, which will expose us to additional risks of conducting business in additional international markets.

 

Non-U.S. markets are an important component of our growth strategy. If we fail to obtain licenses or enter into collaboration arrangements with third parties in these markets, or if these parties are not successful, our revenue-generating growth potential will be adversely affected. Moreover, international business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:

 

·                   efforts to enter into collaboration or licensing arrangements with third parties in connection with our international sales, marketing and distribution efforts may increase our expenses or divert our management’s attention from the acquisition or development of drug candidates;

 

·                   changes in a specific country’s or region’s political and cultural climate or economic condition;

 

·                   differing regulatory requirements for drug approvals and marketing internationally

 

·                   difficulty of effective enforcement of contractual provisions in local jurisdictions;

 

·                   potentially reduced protection for intellectual property rights;

 

·                   potential third-party patent rights;

 

·                   unexpected changes in tariffs, trade barriers and regulatory requirements;

 

·                   economic weakness, including inflation or political instability, particularly in non-U.S. economies and markets;

 

·                   compliance with tax, employment, immigration and labor laws for employees traveling abroad;

 

·                   the effects of applicable non-U.S. tax structures and potentially adverse tax consequences;

 

·                   currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incidental to doing business in another country;

 

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·                   workforce uncertainty and labor unrest, particularly in non-U.S. countries where labor unrest is more common than in the United States;

 

·                   the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a non-U.S. market with low or lower prices rather than buying them locally;

 

·                   failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act;

 

·                   production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

·                   business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.

 

These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.

 

Risks Related to Our Intellectual Property

 

*A significant portion of our intellectual property portfolio currently comprises pending patent applications that have not yet been issued as granted patents and if our pending patent applications fail to issue our business will be adversely affected. If we are unable to obtain and maintain patent protection for our technology and drugs, our competitors could develop and commercialize technology and drugs similar or identical to ours, and our ability to successfully commercialize our technology and drugs may be adversely affected.

 

Our success depends in large part on our ability to obtain and maintain patent protection in the United States, the PRC and other countries with respect to our proprietary technology and drug candidates. As of May 5, 2017, we own nine issued U.S. patents and nine pending U.S. patent applications as well as corresponding patents and patent applications internationally. In addition, we own fourteen pending international patent applications under the PCT, which we plan to file nationally in the United States and other jurisdictions. With respect to any issued patents in the United States and Europe, we may be entitled to obtain a patent term extension to extend the patent expiration date provided we meet the applicable requirements for obtaining such patent term extensions. We have sought to protect our proprietary position by filing patent applications in the United States, the PRC and other countries related to novel technologies and drug candidates that we consider are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or drug candidates or which effectively prevent others from commercializing competitive technologies and drug candidates. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, the first to file a patent application is entitled to the patent. Under the Leahy-Smith America Invents Act enacted in 2011, the United States moved to this first-to-file system in early 2013 from the previous system under which the first to make the claimed invention was entitled to the patent. We may become involved in interference inter partes review, post grant review, ex parte reexamination, derivation, opposition or similar other proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or drug candidates and compete directly with us, or result in our inability to manufacture or commercialize drug candidates without infringing third-party patent rights.

 

There can be no assurance that our pending patent applications will result in issued patents in the United States or non-U.S. jurisdictions in which such applications are pending. Even if patents do issue on any of these applications, there can be no assurance that a third party will not challenge their validity or that we will obtain sufficient claim scope in those patents to prevent a third party from competing successfully with our drug candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or drug candidates in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop or prevent us from

 

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stopping others from using or commercializing similar or identical technology and drug candidates, or limit the duration of the patent protection of our technology and drug candidates. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing drug candidates similar or identical to ours.

 

*We may not be able to protect our intellectual property rights throughout the world.

 

Filing, prosecuting, maintaining and defending patents on drug candidates in all countries throughout the world could be prohibitively expensive for us, and our intellectual property rights in some non-U.S. countries can have a different scope and strength than do those in the United States. In addition, the laws of certain non-U.S. countries do not protect intellectual property rights to the same extent as U.S. federal and state laws do. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing drugs made using our inventions in and into the United States or non-U.S. jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own drugs and further, may export otherwise infringing drugs to non-U.S. jurisdictions where we have patent protection, but where enforcement rights are not as strong as those in the United States. These drugs may compete with our drug candidates and our patent rights or other intellectual property rights may not be effective or adequate to prevent them from competing.

 

We currently hold issued trademark registrations and have trademark applications pending, any of which may be the subject of a governmental or third-party objection, which could prevent the maintenance or issuance of the same. If we are unsuccessful in obtaining trademark protection for our primary brands, we may be required to change our brand names, which could materially adversely affect our business. Moreover, as our products mature, our reliance on our trademarks to differentiate us from our competitors will increase, and as a result, if we are unable to prevent third parties from adopting, registering or using trademarks and trade dress that infringe, dilute or otherwise violate our trademark rights, our business could be materially adversely affected.

 

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain jurisdictions, including China. The legal systems of some countries do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biopharmaceutical products, which could make it difficult in those jurisdictions for us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the marketing of competing drugs in violation of our proprietary rights.

 

Proceedings to enforce our patent and other intellectual property rights in non-U.S. jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.

 

Furthermore, such proceedings could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.

 

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful. Our patent rights relating to our drug candidates could be found invalid or unenforceable if challenged in court or before the U.S. Patent and Trademark Office or comparable non-U.S. authority.

 

Competitors may infringe our patent rights or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. This can be expensive and time consuming. Any claims that we assert against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. Many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce and/or defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that patent rights or other intellectual property rights owned by us are invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent rights or other intellectual property rights do not cover the technology in question. An adverse result in any litigation proceeding could put our patent, as well as any patents that may issue in the future from our pending patent applications, at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

 

If we initiate legal proceedings against a third party to enforce our patent, or any patents that may issue in the future from our

 

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patent applications, that relates to one of our drug candidates, the defendant could counterclaim that such patent rights are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include ex parte re-examination, inter partes review, post-grant review, derivation and equivalent proceedings in non-U.S. jurisdictions, such as opposition proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our drug candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug candidates. Such a loss of patent protection could have a material adverse impact on our business.

 

We may not be able to prevent misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

 

We may be subject to claims challenging the inventorship of our patents and other intellectual property.

 

Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our intellectual property, we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as inventors or co-inventors. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our drug candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose rights such as exclusive ownership of, or right to use, our patent rights or other intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our drug candidates.

 

Our commercial success depends in part on our avoiding infringement of the patents and other intellectual property rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including inter partes review, post grant review, interference and ex parte reexamination proceedings before the USPTO or oppositions and other comparable proceedings in non-U.S. jurisdictions. Numerous issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing drug candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our drug candidates may give rise to claims of infringement of the patent rights of others.

 

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our drug candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our drug candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our drug candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to prevent us from commercializing such drug candidate unless we obtain a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the applicable drug candidate unless we obtain a license, limit our uses, or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all.

 

Third parties who bring successful claims against us for infringement of their intellectual property rights may obtain injunctive or other equitable relief, which could prevent us from developing and commercializing one or more of our drug candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement or misappropriation against us, we may have to pay substantial damages, including treble damages and attorneys’ fees in the case of willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing drug candidates, which may be impossible or require substantial time and monetary expenditure. In the event of an adverse result in any such litigation, or even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our drug candidates. We cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms, and we

 

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may fail to obtain any of these licenses on commercially reasonable terms, if at all. In the event that we are unable to obtain such a license, we would be unable to further develop and commercialize one or more of our drug candidates, which could harm our business significantly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could significantly harm our business.

 

Specifically, we are aware of three U.S. patents owned by Ono Pharmaceutical Co., or Ono, and licensed to Bristol-Myers Squibb Co., or BMS, that are relevant to our BGB-A317 drug candidate. These patents are expected to expire in 2023, 2023 and 2024, respectively. In patent infringement actions filed in Delaware Federal District court, BMS and Ono alleged that Merck & Co.’s KEYTRUDA product, a humanized anti-PD-1 antibody is infringing these U.S. patents. Although Merck challenged the validity of these patents, Merck recently settled this litigation with BMS and Ono resulting in Merck taking a license from BMS and Ono. All these three patents remain presumed valid and enforceable. Merck also filed an opposition proceeding challenging a corresponding European patent at the European Patent Office, or EPO. The EPO’s Opposition Division disagreed with Merck’s arguments and maintained the European patent in the form in which it was granted. Merck appealed the decision, but recently withdrew its appeal. If the validity of the relevant claims in these U.S. patents is upheld and our BGB-A317 drug candidate is approved for sale in the United States before the expiration of these patents, then we will need a license from BMS in order to commercialize our BGB-A317 drug candidate in the United States prior to their expiration. In addition, depending upon circumstances, we may need a license for jurisdictions outside the United States where we wish to commercialize BGB-A317 before the expiration of a corresponding patent covering BGB-A317. There can be no assurance that we will be able to obtain such a license, which could materially and adversely affect our business.

 

In addition, we are aware of a U.S. patent owned by Pharmacyclics, Inc., which was acquired by AbbVie, Inc., with certain claims directed to a complex of an irreversible BTK inhibitor having a covalent bond to a cysteine residue of a BTK. This patent is expected to expire in 2027. Although we believe that the claims of the patent relevant to our BGB-3111 drug candidate would likely be held invalid, we cannot provide any assurances that a court or an administrative agency would agree with our assessment. If the validity of the relevant claims in question is upheld upon a validity challenge, and BGB-3111 is approved for sale in the United States before the expiration of the U.S. patent, then we would need a license in order to commercialize BGB-3111 in the United States. In addition, depending upon circumstances, we may need a license for jurisdictions outside the United States where we wish to commercialize BGB-3111 before the expiration of a corresponding patent covering BGB-3111. However such a license may not be available on commercially reasonable terms or at all, which could materially and adversely affect our business.

 

We are also aware of three U.S. patents, owned or licensed by KuDOS Pharmaceuticals, Ltd., which was acquired by AstraZeneca PLC, with claims directed to using PARP inhibitors to treat cancers with certain defects in homologous recombination including, in some cases, a BRCA1 or BRCA2 mutation. These patents are expected to expire between 2027 and 2031 in the United States. Although we believe that the claims of these patents relevant to our BGB-290 drug candidate would likely be held invalid, we cannot provide any assurances that a court or an administrative agency would agree with our assessment. While we are currently conducting and plan to conduct studies that include cancer patients with a BRCA1 or BRCA2 mutation, we are uncertain whether BGB-290 as commercialized will be used to treat cancer patients limited to having BRCA1 or BRCA2 mutation either in a monotherapy or a combination therapy. If BGB-290 is approved for sale in the United States for patients whose cancers have a BRCA1 or BRCA2 mutation, and if the validity of the relevant claims of these U.S. patents is upheld upon a validity challenge, then we would need a license in order to commercialize BGB-290 prior to expiration of these U.S. patents. In addition, we are also aware of corresponding issued patents in Europe and China. Depending upon circumstances, we may need a license for jurisdictions outside the United States where we wish to commercialize BGB-290 before the expiration of a corresponding patent covering BGB-290. However, such a license may not be available on commercially reasonable terms or at all, which could materially and adversely affect our business.

 

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical personnel, management personnel, or both from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of the ADSs. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.

 

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and other patent agencies in several stages over the lifetime of the patent. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of

 

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procedural, documentary, fee payment, and other similar provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In any such event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

 

The terms of our patents may not be sufficient to effectively protect our drug candidates and business .

 

In most countries in which we file, including the United States, the term of an issued patent is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. Although various extensions may be available, the life of a patent and the protection it affords, is limited. Even if patents covering our drug candidates are obtained, we may be open to competition from other companies as well as generic medications once the patent life has expired for a drug. If patents are issued on our currently pending patent applications, the resulting patents will be expected to expire on dates ranging from 2031 to 2035, excluding any potential patent term extension or adjustment. Upon the expiration of our issued patent or patents that may issue from our pending patent applications, we will not be able to assert such patent rights against potential competitors and our business and results of operations may be adversely affected.

 

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar legislation in other countries extending the terms of our patents, if issued, relating to our drug candidates, our business may be materially harmed.

 

Depending upon the timing, duration and specifics of FDA regulatory approval for our drug candidates, one or more of our U.S. patents, if issued, may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years as compensation for patent term lost during drug development and the FDA regulatory review process. Patent term extensions, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug approval by the FDA, and only one patent can be extended for a particular drug.

 

The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain a patent term extension for a given patent or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our drug will be shortened and our competitors may obtain earlier approval of competing drugs, and our ability to generate revenues could be materially adversely affected.

 

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our drug candidates.

 

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patent rights. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained, if any. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in a recent case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc ., the U.S. Supreme Court held that certain claims to naturally-occurring substances are not patentable. Although we do not believe that our currently-issued patent and any patents that may issue from our pending patent applications directed to our drug candidates if issued in their currently pending forms, as well as patent rights licensed by us, will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patent rights. There could be similar changes in the laws of foreign jurisdictions that may impact the value of our patent rights or our other intellectual property rights.

 

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

 

In addition to our issued patent and pending patent applications, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position and to protect our drug candidates. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties that have access to them, such as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers,

 

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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.

 

Furthermore, many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

 

We may not be successful in obtaining or maintaining necessary rights for our development pipeline through acquisitions and in-licenses.

 

Because our programs may involve additional drug candidates that may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire and maintain licenses or other rights to use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

 

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.

 

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could be required to pay monetary damages or could lose license rights that are important to our business.

 

We have entered into license agreements with third parties providing us with rights under various third-party patents and patent applications, including the rights to prosecute patent applications and to enforce patents. Certain of these license agreements impose and, for a variety of purposes, we may enter into additional licensing and funding arrangements with third parties that also may impose, diligence, development or commercialization timelines and milestone payment, royalty, insurance and other obligations on us. Under certain of our existing licensing agreements, we are obligated to pay royalties on net product sales of our drug candidates once commercialized, pay a percentage of sublicensing revenues, make other specified payments relating to our drug candidates or pay license maintenance and other fees. We also have diligence and clinical development obligations under certain of these agreements that we are required to satisfy. If we fail to comply with our obligations under our current or future license agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any drug or drug candidate that is covered by the licenses provided for under these agreements or we may face claims for monetary damages or other penalties under these agreements. Such an occurrence could diminish the value of these products and our company. Termination of the licenses provided for under these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

 

Risks Related to Our Reliance on Third Parties

 

We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out

 

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their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be substantially harmed.

 

We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and our clinical investigators are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, CFDA, EMA and other comparable regulatory authorities for all of our drugs in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs or clinical investigators fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, CFDA, EMA or comparable regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

 

Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.

 

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our drug candidates. As a result, our results of operations and the commercial prospects for our drug candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

 

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially influence our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition and prospects.

 

We expect to rely on third parties to manufacture at least a portion of our drug candidate supplies, and we intend to rely on third parties for at least a portion of the manufacturing process of our drug candidates, if approved. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.

 

Although we currently have a facility that may be used as our clinical-scale manufacturing and processing facility, we intend to at least partially rely on outside vendors to manufacture supplies and process our drug candidates. We have not yet caused our drug candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our drug candidates. We have limited experience in managing the manufacturing process, and our process may be more difficult or expensive than the approaches currently in use.

 

Although we intend to further develop our own manufacturing facilities, we also intend to use third parties as part of our manufacturing process. Our anticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:

 

·                   we may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA, CFDA, EMA or other comparable regulatory authorities must approve any manufacturers as part of their regulatory oversight of our drug candidates. This approval would require new testing and cGMP-compliance inspections by FDA, CFDA, EMA or other comparable regulatory authorities. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our drugs;

 

·                   our manufacturers may have little or no experience with manufacturing our drug candidates, and therefore may require a significant amount of support from us in order to implement and maintain the infrastructure and processes required to manufacture our drug candidates;

 

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·                   our third-party manufacturers might be unable to timely manufacture our drug candidates or produce the quantity and quality required to meet our clinical and commercial needs, if any;

 

·                   contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately;

 

·                   our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our drugs, or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our drugs;

 

·                   manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies in the United States to ensure strict compliance with cGMPs and other government regulations and by other comparable regulatory authorities for corresponding non-U.S. requirements. We do not have control over third-party manufacturers’ compliance with these regulations and requirements;

 

·                   we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our drugs;

 

·                   our third-party manufacturers could breach or terminate their agreement with us;

 

·                   raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or component defects;

 

·                   our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-made disasters; and

 

·                   our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields.

 

Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our drug candidates by the FDA, CFDA, EMA or other comparable regulatory authorities, result in higher costs or adversely impact commercialization of our drug candidates. In addition, we will rely on third parties to perform certain specification tests on our drug candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm and the FDA, CFDA, EMA or other comparable regulatory authorities could place significant restrictions on our company until deficiencies are remedied.

 

The manufacture of drug and biological products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.

 

Currently, our drug raw materials for our manufacturing activities are supplied by multiple source suppliers. We have agreements for the supply of drug materials with manufacturers or suppliers that we believe have sufficient capacity to meet our demands. In addition, we believe that adequate alternative sources for such supplies exist. However, there is a risk that, if supplies are interrupted, it would materially harm our business.

 

Manufacturers of drug and biological products often encounter difficulties in production, particularly in scaling up or out, validating the production process, and assuring high reliability of the manufacturing process (including the absence of contamination). These problems include logistics and shipping, difficulties with production costs and yields, quality control, including stability of the product, product testing, operator error, availability of qualified personnel, as well as compliance with strictly enforced federal, state and non-U.S. regulations. Furthermore, if contaminants are discovered in our supply of our drug candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our drug candidates will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide our drug candidate to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials at additional expense or terminate clinical trials completely.

 

If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

 

Before a third party can begin commercial manufacture of our drug candidates and potential drugs, contract manufacturers are

 

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subject to regulatory inspections of their manufacturing facilities, processes and quality systems. Due to the complexity of the processes used to manufacture drug and biological products and our drug candidates, any potential third-party manufacturer may be unable to initially pass federal, state or international regulatory inspections in a cost effective manner in order for us to obtain regulatory approval of our drug candidates. If our contract manufacturers do not pass their inspections by the FDA, CFDA, EMA or other comparable regulatory authorities, our commercial supply of drug product or substance will be significantly delayed and may result in significant additional costs, including the delay or denial of any marketing application for our drug candidates. In addition, drug and biological manufacturing facilities are continuously subject to inspection by the FDA, CFDA, EMA and other comparable regulatory authorities, before and after drug approval, and must comply with cGMPs. Our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. In addition, contract manufacturers’ failure to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury, product liability claims, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may also be subject to fines, unanticipated compliance expenses, recall or seizure of our drugs, product liability claims, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions could materially adversely affect our financial results and financial condition.

 

Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, could require prior review by the FDA, CFDA, EMA or other comparable regulatory authorities and/or approval of the manufacturing process and procedures in accordance with the FDA, CFDA or EMA’s regulations, or comparable requirements. This review may be costly and time consuming and could delay or prevent the launch of a product. The new facility will also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and time consuming. It is also possible that the FDA, CFDA, EMA or other comparable regulatory authorities may require clinical testing as a way to prove equivalency, which would result in additional costs and delay.

 

We have entered into collaborations and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

 

We may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our drug candidates and any future drug candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing shareholders, or disrupt our management and business. For example, in 2013, we entered into collaboration agreements with Merck KGaA, Darmstadt Germany pursuant to which we have agreed to license the ex-China rights of BGB-283 to Merck KGaA, Darmstadt Germany as discussed further in the section of our Annual Report titled “Item 1—Business—Collaboration with Merck KGaA, Darmstadt Germany”. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our drug candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our drug candidates as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of a drug candidate, we can expect to relinquish some or all of the control over the future success of that drug candidate to the third party.

 

Further, collaborations involving our drug candidates are subject to numerous risks, which may include the following:

 

·                   collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;

 

·                   collaborators may not pursue development and commercialization of our drug candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive drugs, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

·                   collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a drug candidate, repeat or conduct new clinical trials, or require a new formulation of a drug candidate for clinical testing;

 

·                   collaborators could independently develop, or develop with third parties, drugs that compete directly or indirectly with our drugs or drug candidates;

 

·                   a collaborator with marketing and distribution rights to one or more drugs may not commit sufficient resources to their marketing and distribution;

 

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·                   collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

·                   disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our drug candidates, or that result in costly litigation or arbitration that diverts management attention and resources;

 

·                   collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable drug candidates; and

 

·                   collaborators may own or co-own intellectual property covering our drugs that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.

 

As a result, if we enter into collaboration agreements and strategic partnerships or license our drugs, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a drug candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our drug candidates or bring them to market and generate product sales revenue, which would harm our business prospects, financial condition and results of operations.

 

Risks Related to Our Industry, Business and Operations

 

Our future success depends on our ability to retain the Chairman of our scientific advisory board and our Chief Executive Officer and other key executives and to attract, retain and motivate qualified personnel.

 

We are highly dependent on Xiaodong Wang, Ph.D., our Founder, Chairman of our scientific advisory board and director; John V. Oyler, our Founder, Chief Executive Officer and Chairman of the board; and the other principal members of our management and scientific teams and scientific advisory board. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.

 

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided share option and restricted share grants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in the ADS price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements with our key employees, any of our employees could leave our employment at any time, with or without notice.

 

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel or consultants will also be critical to our success. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our discovery and preclinical development and commercialization strategy. The loss of the services of our executive officers or other key employees and consultants could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy.

 

Furthermore, replacing executive officers and key employees or consultants may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel or consultants on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.

 

We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

 

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*We will need to increase the size and capabilities of our organization, and we may experience difficulties in managing our growth.

 

As of March 31, 2017, we had 397 employees, most of whom are full-time. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we must add a significant number of additional managerial, operational, sales, marketing, financial and other personnel. Future growth will impose significant added responsibilities on members of management, including:

 

·                   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 drug candidates, while complying with our contractual obligations to contractors and other third parties; and

 

·                   improving our operational, financial and management controls, reporting systems and procedures.

 

Our future financial performance and our ability to commercialize our drug candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

 

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our drug candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.

 

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our drug candidates and, accordingly, may not achieve our research, development and commercialization goals.

 

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

 

We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and other similar non-U.S. regulatory authorities; provide true, complete and accurate information to the FDA and other similar non-U.S. regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in the United States and similar non-U.S. fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our drug candidates and begin commercializing those drugs in the United States, our potential exposure under U.S. laws will increase significantly and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 

As a public company, we are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and

 

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procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

 

In order to satisfy our obligations as a public company, we will need to hire additional qualified accounting and financial personnel with appropriate public company experience.

 

As a newly public company, we need to establish and maintain effective disclosure and financial controls and make changes in our corporate governance practices. We need to hire additional accounting and financial personnel with appropriate public company experience and technical accounting knowledge, and it may be difficult to recruit and maintain such personnel. Even if we are able to hire appropriate personnel, our existing operating expenses and operations will be impacted by the direct costs of their employment and the indirect consequences related to the diversion of management resources from product development efforts.

 

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

 

We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

·                   increased operating expenses and cash requirements;

 

·                   the assumption of additional indebtedness or contingent liabilities;

 

·                   the issuance of our equity securities;

 

·                   assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

·                   the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

·                   retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

·                   risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug candidates and regulatory approvals; and

 

·                   our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

 

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

 

If we fail to comply with the U.S. Foreign Corrupt Practices Act or other anti-bribery laws, our reputation may be harmed and we could be subject to penalties and significant expenses that have a material adverse effect on our business, financial condition and results of operations.

 

Although currently our primary operating business is in China, we are subject to the Foreign Corrupt Practices Act, or FCPA. The FCPA generally prohibits us from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We are also subject to the anti-bribery laws of other jurisdictions, particularly China. As our business has expanded, the applicability of the FCPA and other anti-bribery laws to our operations has increased. Our procedures and controls to monitor anti-bribery compliance may fail to protect us from reckless or criminal acts committed by our employees or agents. If we, due to either our own deliberate or inadvertent acts or those of others, fail to comply with applicable anti-bribery laws, our reputation could be harmed and we could incur criminal or civil penalties, other sanctions and/or significant expenses, which could have a material adverse effect on our business, including our financial condition, results of operations, cash flows and prospects.

 

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Any failure to comply with applicable regulations and industry standards or obtain various licenses and permits could harm our reputation and our business, results of operations and prospects.

 

A number of governmental agencies or industry regulatory bodies in the United States, and in non-U.S. jurisdictions including the PRC and European Union, impose strict rules, regulations and industry standards governing pharmaceutical and biotechnology research and development activities, which apply to us. Our failure to comply with such regulations could result in the termination of ongoing research, administrative penalties imposed by regulatory bodies or the disqualification of data for submission to regulatory authorities. This could harm our reputation, prospects for future work and operating results. For example, if we were to treat research animals inhumanely or in violation of international standards set out by the Association for Assessment and Accreditation of Laboratory Animal Care, it could revoke any such accreditation and the accuracy of our animal research data could be questioned.

 

If we or our CROs fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

 

We and third parties, such as our CRO, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We also store certain low level radioactive waste at our facilities until the materials can be properly disposed of. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

 

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of or exposure to hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage, use or disposal of biological, hazardous or radioactive materials.

 

In addition, we may be required to incur substantial costs to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and our drugs could be subject to restrictions or withdrawal from the market.

 

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from our drugs. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.

 

Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.

 

Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we partially rely on our third-party research institution collaborators for research and development of our drug candidates and other third parties for the manufacture of our drug candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our drug candidates could be delayed.

 

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

 

Our operations, and those of our third-party research institution collaborators, CROs, suppliers and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for

 

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which we are predominantly self-insured. In addition, we partially rely on our third-party research institution collaborators for conducting research and development of our drug candidates, and they may be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We partially rely on third-party manufacturers to produce and process our drug candidates. Our ability to obtain clinical supplies of our drug candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. A large portion of our operations is located in a single facility in Changping, Beijing, PRC. Damage or extended periods of interruption to our corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our drug candidates. Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption.

 

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug candidates.

 

We face an inherent risk of product liability as a result of the clinical testing of our drug candidates and will face an even greater risk if we commercialize any drugs. For example, we may be sued if our drug candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the drug, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our drug candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

·                   decreased demand for our drugs;

 

·                   injury to our reputation;

 

·                   withdrawal of clinical trial participants and inability to continue clinical trials;

 

·                   initiation of investigations by regulators;

 

·                   costs to defend the related litigation;

 

·                   a diversion of management’s time and our resources;

 

·                   substantial monetary awards to trial participants or patients;

 

·                   product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

·                   loss of revenue;

 

·                   exhaustion of any available insurance and our capital resources;

 

·                   the inability to commercialize any drug candidate; and

 

·                   a decline in the ADS price.

 

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of drugs we develop, alone or with collaborators. Although we currently hold $10 million in product liability coverage in the aggregate, the amount of such insurance coverage may not be adequate, we may be unable to maintain such insurance at a reasonable cost or in an amount adequate to satisfy any liability that may arise, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

 

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We have limited insurance coverage, and any claims beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.

 

We maintain property insurance policies covering physical damage to, or loss of, our buildings and their improvements, equipment, office furniture and inventory. We hold employer’s liability insurance generally covering death or work-related injury of employees. We hold public liability insurance covering certain incidents involving third parties that occur on or in the premises of the company. We hold directors and officers liability insurance. We do not maintain key-man life insurance on any of our senior management or key personnel, or business interruption insurance. Our insurance coverage may be insufficient to cover any claim for product liability, damage to our fixed assets or employee injuries. Any liability or damage to, or caused by, our facilities or our personnel beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.

 

We may market our drugs, if approved, globally, and we will be subject to the risks of doing business outside of the United States.

 

Because we intend to market drugs, if approved, globally, our business is subject to risks associated with doing business globally. Accordingly, our business and financial results in the future could be adversely affected due to a variety of factors, including:

 

·                   efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our management’s attention from the acquisition or development of drug candidates or cause us to forgo profitable licensing opportunities in these geographies;

 

·                   changes in a specific country’s or region’s political and cultural climate or economic condition;

 

·                   unexpected changes in laws and regulatory requirements in local jurisdictions;

 

·                   difficulty of effective enforcement of contractual provisions in local jurisdictions;

 

·                   inadequate intellectual property protection in certain countries;

 

·                   trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the United States Department of Commerce and fines, penalties or suspension or revocation of export privileges;

 

·                   the effects of applicable local tax regimes and potentially adverse tax consequences; and

 

·                   significant adverse changes in local currency exchange rates.

 

Our business, financial condition and results of operations may be adversely affected by the downturn in the global economy.

 

The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession. The recovery from the lows of 2008 and 2009 was uneven and it is facing new challenges, including the escalation of the European sovereign debt crisis since 2011 and the United Kingdom’s decision to withdraw from the European Union. It is unclear whether the European sovereign debt crisis will be contained and what effects it and the United Kingdom’s decision to withdraw from the European Union may have. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies, including China’s. Economic conditions in United States and China are sensitive to global economic conditions. Although we are uncertain about the extent to which the global financial market disruption and slowdown of the U.S. or Chinese economy may impact our business in the long term, there is a risk that our business, results of operations and prospects would be materially and adversely affected by the global economic downturn and the slowdown of the U.S. or Chinese economy.

 

Recent developments relating to the United Kingdom’s referendum vote in favor of withdrawal from the European Union could adversely affect us.

 

The United Kingdom held a referendum on June 23, 2016 in which a majority voted for the United Kingdom’s withdrawal from the European Union (referred to as “Brexit”). As a result of this vote, negotiations are expected to commence to determine the terms of the United Kingdom’s withdrawal from the European Union as well as its relationship with the European Union going forward, including the terms of trade between the United Kingdom and the European Union. The effects of Brexit have been and are expected to continue to be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic conditions in Europe and globally and could continue to contribute to instability in global financial and foreign exchange markets. Brexit could also have the effect of disrupting the free movement of goods, services and people between the United Kingdom and the European Union; however, the full effects of Brexit are uncertain and will depend on any agreements the United Kingdom may make to retain access to European Union markets.

 

In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the

 

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United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the pharmaceutical industry, we could face significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. Altered regulations could also add time and expense to the process by which our product candidates receive regulatory approval in the United Kingdom and European Union. Similarly, it is unclear at this time what Brexit’s impact will have on our intellectual property rights and the process for obtaining, maintaining and defending such rights. It is possible that certain intellectual property rights, such as trademarks, granted by the European Union will cease being enforceable in the United Kingdom absent special arrangements to the contrary, and we are required to refile our trademarks and other intellectual property applications domestically in the United Kingdom. With regard to existing patent rights, the effect of Brexit should be minimal considering enforceable patent rights are specific to the United Kingdom, whether arising out of the European Patent Office or directly through the United Kingdom patent office.

 

Lastly, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership in the European Union. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, results of operations and financial condition could be adversely affected by Brexit is uncertain.

 

*We manufacture and intend to continue to manufacture at least a portion of our drug candidates ourselves. Delays in completing and receiving regulatory approvals for our manufacturing facility could delay our development plans and thereby limit our revenues and growth.

 

We currently lease an approximately 140 square meter manufacturing facility in Beijing, PRC, which produces and supplies preclinical and clinical trial materials for some of our small molecule drug candidates. In addition, to increase our manufacturing capabilities, we lease an approximately 11,000 square meter space and are building a manufacturing facility in Suzhou, China, where we intend to produce drug candidates for clinical or, in the future, commercial use. This facility consists of one oral-solid-dosage production line for small molecule drug products and one pilot plant for monoclonal antibody drug substances. This new manufacturing facility is expected to be completed in 2017. BeiGene Biologics will establish a biologics manufacturing facility in Guangzhou (the “Factory”) through a wholly-owned subsidiary, BeiGene Guangzhou Factory, to manufacture biologics, with a registered capital of RMB1,000,000. BeiGene Guangzhou Factory expects to acquire at least 100,000 square meters of land for the facility in the Sino-Singapore Guangzhou Knowledge City. These projects may encounter unanticipated delays and cost more than expected due to a number of factors, including regulatory requirements. If construction or regulatory approval of our new facility is delayed, we may not be able to manufacture sufficient quantities of our drug candidates, which would limit our development activities and our opportunities for growth. Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank have agreed to lend us RMB 120 million for the construction of the Suzhou manufacturing facility and the procurement of equipment. Cost overruns associated with constructing our Suzhou and Guangzhou facility could require us to raise additional funds from other sources.

 

In addition to the similar manufacturing risks described in “—Risks Related to Our Reliance on Third Parties,” our manufacturing facilities will be subject to ongoing, periodic inspection by the FDA, CFDA, EMA or other comparable regulatory agencies to ensure compliance with cGMP. Our failure to follow and document our adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of products for clinical or, in the future, commercial use, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our drugs. We also may encounter problems with the following:

 

·                   achieving adequate or clinical-grade materials that meet FDA, CFDA, EMA or other comparable regulatory agency standards or specifications with consistent and acceptable production yield and costs;

 

·                   shortages of qualified personnel, raw materials or key contractors; and

 

·                   ongoing compliance with cGMP regulations and other requirements of the FDA, CFDA, EMA or other comparable regulatory agencies.

 

Failure to comply with applicable regulations could also result in sanctions being imposed on us, including fines, injunctions, civil penalties, a requirement to suspend or put on hold one or more of our clinical trials, failure of regulatory authorities to grant marketing approval of our drug candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of drug candidates, operating restrictions and criminal prosecutions, any of which could harm our business.

 

Developing advanced manufacturing techniques and process controls is required to fully utilize our facilities. Advances in manufacturing techniques may render our facilities and equipment inadequate or obsolete.

 

To produce our drugs in the quantities that we believe will be required to meet anticipated market demand of any of our drug candidates if approved, we will need to increase, or “scale up,” the production process by a significant factor over the initial level of production. If we are unable to do so, are delayed, or if the cost of this scale up is not economically feasible for us or we cannot find a third-party supplier, we may not be able to produce our drugs in a sufficient quantity to meet future demand.

 

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If our manufacturing facilities, including our Suzhou manufacturing facility once completed, are damaged or destroyed or production at such facilities is otherwise interrupted, our business and prospects would be negatively affected.

 

In addition to the similar manufacturing risks described in “—Risks Related to Our Reliance on Third Parties,” if our manufacturing facilities or the equipment in them is damaged or destroyed, we may not be able to quickly or inexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted loss of the facilities or equipment, we might not be able to transfer manufacturing to a third party. Even if we could transfer manufacturing to a third party, the shift would likely be expensive and time-consuming, particularly since the new facility would need to comply with the necessary regulatory requirements and we would need FDA, CFDA, EMA or and other comparable regulatory agency approval before selling any drugs manufactured at that facility. Such an event could delay our clinical trials or reduce our product sales if and when we are able to successfully commercialize one or more of our drug candidates.

 

Any interruption in manufacturing operations at our manufacturing facilities could result in our inability to satisfy the demands of our clinical trials or commercialization. A number of factors could cause interruptions, including:

 

·                   equipment malfunctions or failures;

 

·                   technology malfunctions;

 

·                   work stoppages;

 

·                   damage to or destruction of either facility due to natural disasters;

 

·                   regional power shortages;

 

·                   product tampering; or

 

·                   terrorist activities.

 

Any disruption that impedes our ability to manufacture our drug candidates in a timely manner could materially harm our business, financial condition and operating results.

 

Currently, we maintain insurance coverage against damage to our property and equipment in the amount of up to RMB 100 million. However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer. We may be unable to meet our requirements for our drug candidates if there were a catastrophic event or failure of our manufacturing facilities or processes.

 

Risks Related to Our Doing Business in the PRC

 

The pharmaceutical industry in China is highly regulated and such regulations are subject to change which may affect approval and commercialization of our drugs.

 

Our research operations and manufacturing facilities are in China, which we believe confers clinical, commercial and regulatory advantages. The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. See the section of our Annual Report titled “Item 1—Business—Regulatory Framework and Structural Advantages of Being a China-Based Research and Development Organization” for a discussion of regulatory requirements that are applicable to our current and planned business activities in China. In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our drug candidates in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in China. Chinese authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry and any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China. We believe our strategy and approach is aligned with the Chinese government’s policies, but we cannot ensure that our strategy and approach will continue to be aligned.

 

Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.

 

A significant portion of our operations are in the PRC. Accordingly, our financial condition and results of operations are affected to a large extent by economic, political and legal developments in the PRC.

 

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The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.

 

While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us and consequently have a material adverse effect on our businesses, financial condition and results of operations.

 

There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.

 

A large portion of our operations are conducted in the PRC through our PRC subsidiaries, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

 

In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

 

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.

 

Substantial uncertainties exist with respect to the enactment timetable, the final version, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate governance.

 

The Ministry of Commerce published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The Ministry of Commerce has solicited comments on this draft and substantial uncertainties exist with respect to its enactment timetable, the final version, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate governance if we, in the future, have PRC shareholders.

 

Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the Ministry of Commerce or its local counterparts, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities and/or citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (1) holding 50% of more of the shares, equity or voting rights of the subject entity; (2) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to

 

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exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (3) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. Once an entity is determined to be an FIE, it will be subject to the foreign investment restrictions or prohibitions, if the FIE is engaged in the industry listed in the “negative list” which will be separately issued by the Chinese State Council later. Unless the underlying business of the FIE falls within the negative list, which calls for market entry clearance by the Ministry of Commerce or its local counterparts, prior approval from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment of the FIE.

 

The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.

 

PRC regulations relating to investments in offshore companies by PRC residents may subject our future PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.

 

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

 

We believe that four of our shareholders, each of whom owns our ordinary shares as a result of exercising share options, are PRC residents under SAFE Circular 37. These four shareholders have undertaken to (i) apply to register with local SAFE branch or its delegated commercial bank as soon as possible after exercising their options, and (ii) indemnify and hold harmless us and our subsidiaries against any loss suffered arising from their failure to complete the registration. We do not have control over the four shareholders and our other beneficial owners and cannot assure you that all of our PRC-resident beneficial owners have complied with, and will in the future comply with, SAFE Circular 37 and subsequent implementation rules. The failure of PRC-resident beneficial owners to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future PRC-resident beneficial owners of our company to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, SAFE Circular 37 is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, and we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. These risks could in the future have a material adverse effect on our business, financial condition and results of operations.

 

Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

 

We and our directors, executive officers and other employees who are PRC residents have participated in our employee equity incentive plans. Upon completion of our initial public offering, we became an overseas listed company. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted restricted shares or options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company became an overseas listed company. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations, and there remains uncertainty with respect to its implementation. If we or our directors, executive officers or other employees who are PRC citizens or who have resided in the PRC

 

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for a continuous period of not less than one year and who have been granted restricted shares or options, including but not limited to the four shareholders referred to above, fail to register the employee equity incentive plans or their exercise of options, we and such employees may be subject to (i) legal or administrative sanctions imposed by the SAFE or other PRC authorities, including fines; (ii) to restrictions on our cross-border investment activities; (iii) to limits on the ability of our wholly owned subsidiaries in China to distribute dividends or the proceeds from any reduction in capital, share transfer or liquidation to us; and (iv) to prohibitions on our ability to inject additional capital into these subsidiaries. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits to you could be materially and adversely affected. Upon completion of our initial public offering, we became an overseas listed company, and therefore, we and our directors, executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted restricted shares or options are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any share incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to make payments under our equity incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and employees under PRC law.

 

In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees related to their share options or restricted shares. If the employees fail to pay, or the PRC subsidiaries fail to withhold applicable income taxes, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities.

 

*In the future, we may rely to some extent on dividends and other distributions on equity from our principal operating subsidiaries to fund offshore cash and financing requirements.

 

We are a holding company, incorporated in the Cayman Islands, and may in the future rely to some extent on dividends and other distributions on equity from our principal operating subsidiaries for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside China and pay our expenses. The laws, rules and regulations applicable to our PRC subsidiaries and certain other subsidiaries permit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable accounting standards and regulations.

 

Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required to set aside a portion of its net income each year to fund certain statutory reserves. These reserves, together with the registered equity, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries incorporated in China are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of March 31, 2017, these restricted assets totaled RMB46.2 million.

 

The Enterprise Income Tax Law, or the EIT Law and its implementation rules, both of which became effective on January 1, 2008, provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-PRC resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. As a result, dividends paid to us by our PRC subsidiaries are expected to be subject to PRC withholding tax at a rate of 10%.

 

Pursuant to the Arrangement between Mainland China and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income, or the “Hong Kong Tax Treaty,” BeiGene HK, the shareholder of our PRC subsidiaries, may be subject to a withholding tax at a rate of 5% on dividends received from our PRC operating subsidiaries as a Hong Kong tax resident. Pursuant to the Hong Kong Tax Treaty, subject to certain conditions, this reduced withholding tax rate will be available for dividends from PRC entities provided that the recipient can demonstrate it is a Hong Kong tax resident and it is the beneficial owner of the dividends. BeiGene HK currently does not hold a Hong Kong tax resident certificate from the Inland Revenue Department of Hong Kong and there is no assurance that the reduced withholding tax rate will be available.

 

Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute

 

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dividends or other payments to us 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 PRC tax purposes under the EIT Law and be subject to PRC tax on our worldwide taxable income at a rate of 25%.

 

Under the EIT Law an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it is treated in a manner similar to a Chinese enterprise for PRC enterprise income tax, or EIT, purposes. The implementing rules of the EIT Law define “de facto management bodies” as “management bodies that exercise substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. In addition, the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, specifies that certain Chinese-controlled offshore incorporated enterprises, defined as enterprises incorporated under the laws of foreign countries or territories and that have PRC enterprises or enterprise groups as their primary controlling shareholders, will be classified as resident enterprises if all of the following are located or resident in China: (i) senior management personnel and departments that are responsible for daily production, operation and management; (ii) financial and personnel decision-making bodies; (iii) key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and (iv) half or more of senior management or directors having voting rights. On July 27, 2011, the SAT issued Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial), or Bulletin 45, which became effective on September 1, 2011 and was most recently amended on October 1, 2016, to provide further guidance on the implementation of Circular 82. Bulletin 45 clarifies certain issues related to determining PRC resident enterprise status, including which competent tax authorities are responsible for determining offshore incorporated PRC resident enterprise status, as well as post-determination administration. In 2014, the SAT, released the Announcement of the SAT on Issues Concerning the Recognition of Chinese-Controlled Enterprises Incorporated Overseas as Resident Enterprises on the Basis of Their Actual Management Bodies and supplemented some provisions on the administrative procedures for the recognition of resident enterprise, while the standards used to classify resident enterprises in Circular 82 remain unchanged.

 

Although BeiGene, Ltd. does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of BeiGene, Ltd. and its subsidiaries organized outside the PRC.

 

We are not aware of any offshore holding company with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we do not believe our company or any of our overseas subsidiaries should be treated as a PRC resident enterprise.

 

If the PRC tax authorities determine that our Cayman Islands holding company is a resident enterprise for PRC EIT purposes, a number of unfavorable PRC tax consequences could follow and we may be subject to EIT at a rate of 25% on our worldwide taxable income, as well as to PRC EIT reporting obligations. In that case, it is possible that dividends paid to us by our PRC subsidiaries will not be subject to PRC withholding tax.

 

Dividends payable to our foreign investors may be subject to PRC withholding tax and gains on the sale of the ADSs or ordinary shares by our foreign investors may be subject to PRC tax.

 

If we are deemed a PRC resident enterprise as described under “—We may be treated as a resident enterprise for PRC tax purposes under the EIT Law and be subject to PRC tax on our worldwide taxable income at a rate of 25%,” dividends paid on our ordinary shares or ADSs, and any gain realized from the transfer of our ordinary shares or ADSs, may be treated as income derived from sources within the PRC. As a result, dividends paid to non-PRC resident enterprise ADS holders or shareholders may be subject to PRC withholding tax at a rate of 10% (or 20% in the case of non-PRC individual ADS holders or shareholders) and gains realized by non-PRC resident enterprises ADS holders or shareholders from the transfer of our ordinary shares or ADSs may be subject to PRC tax at a rate of 10% (or 20% in the case of non-PRC individual ADS holders or shareholders). It is unclear whether if we or any of our subsidiaries established outside China are considered a PRC resident enterprise, holders of the ADSs or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of the ADSs or ordinary shares by such investors are subject to PRC tax, the value of your investment in the ADSs or ordinary shares may decline significantly.

 

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a PRC establishment of a non-PRC company, or other assets attributable to a PRC establishment of a non-PRC company.

 

On February 3, 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax and Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, which replaced or supplemented certain previous rules under the Notice on

 

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Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the SAT, on December 10, 2009. Pursuant to this Bulletin, an “indirect transfer” of “PRC taxable assets,” including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be recharacterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, factors to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be reported on with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax at the rate of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements. Late payment of applicable tax will subject the transferor to default interest. Gains derived from the sale of shares by investors through a public stock exchange are not subject to the PRC enterprise income tax pursuant to Bulletin 7 where such shares were acquired in a transaction through a public stock exchange. As such, the sale of the ADSs or ordinary shares on a public stock exchange will not be subject to PRC enterprise income tax pursuant to Bulletin 7. However, the sale of our ordinary shares or ADSs by a non-PRC resident enterprise outside a public stock exchange may be subject to PRC enterprise income tax under Bulletin 7.

 

There are uncertainties as to the application of Bulletin 7. Bulletin 7 may be determined by the tax authorities to be applicable to sale of the shares of our offshore subsidiaries or investments where PRC taxable assets are involved. The transferors and transferees may be subject to the tax filing and withholding or tax payment obligation, while our PRC subsidiaries may be requested to assist in the filing. Furthermore, we, our non-resident enterprises and PRC subsidiaries may be required to spend valuable resources to comply with Bulletin 7 or to establish that we and our non-resident enterprises should not be taxed under Bulletin 7, for our previous and future restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

 

The PRC tax authorities have the discretion under Bulletin 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. If the PRC tax authorities make adjustments to the taxable income of the transactions under Circular 698/Bulletin 7, our income tax costs associated with such potential acquisitions or disposals will increase, which may have an adverse effect on our financial condition and results of operations.

 

Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

 

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. A portion of our revenue may in the future be denominated in RMB. Shortages in availability of foreign currency may then restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to our offshore entities for our offshore entities to pay dividends or make other payments or otherwise to satisfy our foreign currency denominated obligations. The RMB is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a portion of our future revenue may be denominated in RMB, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of the ADSs. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.

 

Recent litigation and negative publicity surrounding China-based companies listed in the United States may result in increased regulatory scrutiny of us and negatively impact the trading price of the ADSs and could have a material adverse effect upon our business, including its results of operations, financial condition, cash flows and prospects.

 

We believe that litigation and negative publicity surrounding companies with operations in China that are listed in the United States have negatively impacted stock prices for such companies. Various equity-based research organizations have published reports on China-based companies after examining, among other things, their corporate governance practices, related party transactions, sales practices and financial statements that have led to special investigations and stock suspensions on national exchanges. Any similar

 

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scrutiny of us, regardless of its lack of merit, could result in a diversion of management resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the ADS trading price, and increased directors and officers insurance premiums and could have a material adverse effect upon our business, including its results of operations, financial condition, cash flows and prospects.

 

The audit report included in our Annual Report is prepared by auditors who are not inspected fully by the Public Company Accounting Oversight Board, or the PCAOB, and, as such, our shareholders are deprived of the benefits of such inspection.

 

As an auditor of companies that are publicly traded in the United States and a firm registered with the PCAOB, Ernst & Young Hua Ming LLP is required under the laws of the United States to undergo regular inspections by the PCAOB. However, because we have substantial operations within the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor and its audit work is not currently inspected fully by the PCAOB.

 

Inspections of other auditors conducted by the PCAOB outside China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, shareholders may be deprived of the benefits of PCAOB inspections, and may lose confidence in our reported financial information and procedures and the quality of our financial statements.

 

Proceedings instituted by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in our financial statements being determined to not be in compliance with the requirements of the Exchange Act.

 

In December 2012, the SEC brought administrative proceedings against five accounting firms in China, including our independent registered public accounting firm, alleging that they had refused to produce audit work papers and other documents related to certain other PRC-based companies under investigation by the SEC. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting firms and suspending four of these firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. On February 12, 2014, four of these PRC-based accounting firms appealed to the SEC against this decision. In February 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. These firms’ ability to continue to serve all their respective clients is not affected by the settlement. The settlement requires these firms to follow detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the China Securities Regulatory Commission. If these firms do not follow these procedures, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. The settlement did not require these firms to admit to any violation of law and preserves these firms’ legal defenses in the event the administrative proceeding is restarted. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United States-listed companies and the market price of the ADSs may be adversely affected.

 

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to deregistration from the SEC, which would substantially reduce or effectively terminate the trading of the ADSs in the United States. Moreover, any negative news about the proceedings against these audit firms may adversely affect investor confidence in companies with substantial mainland China-based operations listed in the United States. All these would materially and adversely affect the market price of the ADSs and substantially reduce or effectively terminate the trading of the ADSs in the United States.

 

Risks Related to the American Depositary Shares

 

The trading prices of the ADSs are likely to be volatile, which could result in substantial losses to you.

 

We completed our initial public offering on February 8, 2016, and there has been a public market for the ADSs for only a short period of time. The trading price of the ADSs is likely to be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control. In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes for the ADSs. Some of these companies have experienced significant volatility, including significant price declines after their initial public offerings. The trading performances of these PRC companies’ securities at the time of or after their offerings may affect the overall investor sentiment towards other PRC companies listed in the United States and consequently may impact the trading performance of the ADSs.

 

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In addition to market and industry factors, the price and trading volume for the ADSs 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 its use, or changes or delays in the regulatory review process;

 

·                   announcements of therapeutic innovations or new products by us or our competitors;

 

·                   adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

·                   any adverse changes to our relationship with manufacturers or suppliers;

 

·                   the results of our testing and clinical trials;

 

·                   the results of our efforts to acquire or license additional drug candidates;

 

·                   variations in the level of expenses related to our existing drug candidates or preclinical and clinical development programs;

 

·                   any intellectual property infringement actions in which we may become involved;

 

·                   announcements concerning our competitors or the pharmaceutical industry in general;

 

·                   achievement of expected product sales and profitability;

 

·                   manufacture, supply or distribution shortages;

 

·                   variations in our results of operations;

 

·                   announcements about our earnings that are not in line with analyst expectations, the risk of which is enhanced because it is our policy not to give guidance on earnings;

 

·                   publication of operating or industry metrics by third parties, including government statistical agencies, that differ from expectations of industry or financial analysts;

 

·                   changes in financial estimates by securities research analysts;

 

·                   announcements made by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;

 

·                   press reports, 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 or ADSs;

 

·                   sales or perceived potential sales of additional ordinary shares or ADSs;

 

·                   sales of the ADSs 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;

 

·                   changes or developments in the PRC or global regulatory environment; and

 

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·                   the outcome of proceedings recently instituted by the SEC against five PRC-based accounting firms, including the affiliate of our independent registered public accounting firm.

 

Any of these factors may result in large and sudden changes in the volume and trading price of the ADSs. In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of management, and, if adversely determined, have a material adverse effect on our financial condition and results of operations.

 

In addition, the stock market, in general, and small pharmaceutical and biotechnology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actual operating performance. Further, the current decline in the financial markets and related factors beyond our control may cause the ADSs price to decline rapidly and unexpectedly.

 

We may be subject to securities litigation, which is expensive and could divert management attention.

 

The ADS price may be volatile, and in the past companies that have experienced volatility in the market price of their ADSs have been subject to an increased incidence of securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

*Future sales of the ADSs in the public market could cause the ADS price to fall.

 

The ADS price could decline as a result of sales of a large number of the ADSs or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 

As of May 5, 2017, we had 518,902,349 ordinary shares outstanding, of which 287,175,707 ordinary shares were held in the form of 22,090,439 American Depositary Shares.

 

We have or will register the offer and sale of all ordinary shares that we may issue under our equity compensation plans, including upon the exercise of share options. These ordinary shares can be freely sold in the public market upon issuance.

 

As of May 5, 2017, the holders of approximately 300,930,627 ordinary shares, or 58%, of our outstanding ordinary shares, will have rights, subject to some conditions, to require us to file registration statements covering the sale of their ordinary shares or to include their ordinary shares in registration statements that we may file for ourselves or other shareholders. Once we register the offer and sale of ordinary shares for the holders of registration rights, they can be freely sold in the public market.

 

In addition, in the future, we may issue additional ordinary shares or other equity or debt securities convertible into ordinary shares in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing shareholders and could cause the ADS price to decline.

 

We are currently an “emerging growth company.” As a result of the reduced disclosure requirements applicable to emerging growth companies, the ADSs may be less attractive to investors.

 

We are currently an “emerging growth company,” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on some of the exemptions from certain reporting requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include but are not limited to not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

We cannot predict whether investors will find the ADSs less attractive because we will rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the ADS price may be more volatile.

 

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Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment.

 

We intend to retain most, if not all, of our available funds and earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

 

Our board of directors has significant discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ADSs and trading volume could decline.

 

The trading market for the ADSs relies in part on the research and reports that equity research analysts publish about us or our business. We do not control these analysts. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the market price for the ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline significantly.

 

We are a Cayman Islands company. Because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have fewer shareholder rights than they would have under U.S. law.

 

Our corporate affairs are governed by our amended and restated memorandum and articles of association (as may be amended from time to time), the Companies Law (as amended) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. This common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities law than the United States. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

 

In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies with the exception that the shareholders may request a copy of the current amended and restated memorandum and articles of association. Our directors have discretion under our amended and restated articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. As a Cayman Islands company, we may not have standing to initiate a derivative action in a federal court of the United States. As a result, you may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a United States federal court. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

 

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we currently conduct substantially all of our operations outside the United States and some of our directors and executive officers reside outside the United States.

 

We are incorporated in the Cayman Islands and currently conduct substantially all of our operations outside the United States through our subsidiaries. Some of our directors and executive officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States or China, although the courts of the

 

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Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

 

Your voting rights as a holder of the ADSs are limited by the terms of the deposit agreement, as amended.

 

You may exercise your voting rights with respect to the ordinary shares underlying your ADSs only in accordance with the provisions of the deposit agreement, as amended. Upon receipt of voting instructions from you in the manner set forth in the deposit agreement, the depositary for the ADSs will endeavor to vote your underlying ordinary shares in accordance with these instructions. Under our articles of association, the minimum notice period required for convening a general meeting is seven calendar days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

 

Anti-takeover provisions in our charter documents may discourage our acquisition by a third party, which could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by the ADSs, at a premium.

 

Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of our company, could modify our structure or could cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares, including ordinary shares represented by ADSs, at a premium over prevailing market prices by discouraging third parties from seeking to obtain control in a tender offer or similar transaction.

 

For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. preferred shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors authorizes the issuance of preferred shares, the market price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares may be materially and adversely affected.

 

Furthermore, the amended and restated articles of association permit the directors to vary all or any of the rights attaching to any shares in issue without the consent of the shareholder but only if such variation is considered by the directors not to have a material adverse effect upon such holder. The directors cannot vary the rights of shares if such variation would have a material adverse effect of the holder. The amended and restated articles of association provide that the holders must consent to any such material adverse changes in the manner set out therein.

 

Because our directors are divided into three classes with staggered terms of three years each, shareholders can only elect or remove a limited number of our directors in any given year. The length of these terms could present an obstacle to certain actions, such as a merger or other change of control, which could be in the interest of our shareholders.

 

Our amended and restated memorandum and articles of association provide that any shareholder bringing an unsuccessful action against us may be obligated to reimburse us for any costs we have incurred in connection with such unsuccessful action.

 

Our amended and restated memorandum and articles of association provide that under certain circumstances the fees, costs, and expenses that we incur in connection with actions or proceedings brought by any person or entity, which we refer to as claiming parties, may be shifted to such person or entity. If a claiming party asserts any claim; initiates any proceeding; or joins, offers substantial assistance to, or has a direct financial interest in any claim or proceeding against us (including any proceeding purportedly filed on behalf of us or any shareholder), and such claiming party (or the third party that received substantial assistance from a claiming party or in whose claim or proceeding such claiming party has a direct financial interest) is unsuccessful in obtaining a judgment on the merits in which the claiming party prevails, then such claiming party may, to the fullest extent permissible by law, be obligated jointly and severally to reimburse us for all fees, costs, and expenses, including but not limited to all reasonable attorneys’ fees and other litigation expenses, that we may incur in connection with such claim, suit, action, or proceeding.

 

Fee-shifting articles are relatively new and untested in both the Cayman Islands and the United States. The case law and potential legislative action on fee-shifting articles are evolving and there exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such articles. For example, it is unclear whether our ability to invoke our fee-shifting article in connection with claims under the federal securities laws, including claims related to any of our public offerings, would be preempted by federal law. Similarly, it is unclear how courts might apply the standard that a claiming party must obtain a judgment that

 

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substantially achieves, in substance and amount, the full remedy sought. The application of our fee-shifting article in connection with such claims, if any, will depend in part on future developments of the law. We cannot assure you that we will or will not invoke our fee-shifting article in any particular dispute, including any claims related to our public offerings. Consistent with our directors’ fiduciary duties to act in the best interests of the company, the directors may in their sole discretion from time to time decide whether or not to enforce this article. In addition, given the unsettled state of the law related to fee-shifting articles, such as ours, we may incur significant additional costs associated with resolving disputes with respect to such articles, which could adversely affect our business and financial condition.

 

If a shareholder that brings any such claim, suit, action or proceeding is unable to obtain the judgment sought, the attorneys’ fees and other litigation expenses that might be shifted to a claiming party are potentially significant. This fee-shifting article, therefore, may dissuade or discourage current or former shareholders (and their attorneys) from initiating lawsuits or claims against us. In addition, it may impact the fees, contingency or otherwise, required by potential plaintiffs’ attorneys to represent our shareholders or otherwise discourage plaintiffs’ attorneys from representing our shareholders at all. As a result, this article may limit the ability of shareholders to affect the management and direction of our company, particularly through litigation or the threat of litigation.

 

The depositary for the ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

 

Under the deposit agreement, as amended, for the ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not give voting instructions to the depositary, unless:

 

·                   we have failed to timely provide the depositary with our notice of meeting and related voting materials;

·                   we have instructed the depositary that we do not wish a discretionary proxy to be given;

·                   we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; or

·                   a matter to be voted on at the meeting would have a material adverse impact on shareholders.

 

The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary, you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence our management. Holders of our ordinary shares are not subject to this discretionary proxy.

 

Holders of the ADSs may be subject to limitations on transfer of their ADSs.

 

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, as amended, or for any other reason, subject to your right to cancel your ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying common shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares.

 

In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.

 

The depositary for the ADSs is entitled to charge holders fees for various services, including annual service fees.

 

The depositary for the ADSs is entitled to charge holders fees for various services including for the issuance of ADSs upon deposit of ordinary shares, cancellation of ADSs, distributions of cash dividends or other cash distributions, distributions of ADSs pursuant to share dividends or other free share distributions, distributions of securities other than ADSs and annual service fees. In the case of ADSs issued by the depositary into The Depository Trust Company, or DTC, the fees will be charged by the DTC participant to the account of the applicable beneficial owner in accordance with the procedures and practices of the DTC participant as in effect at the time.

 

You may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

 

The depositary of the ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for the ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares that your ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities

 

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Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may materially reduce the value of your ADSs.

 

Holders of the ADSs may not be able to participate in rights offerings and may experience dilution of their holdings.

 

From time to time, we may distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to try to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

 

*Our corporate actions are substantially controlled by our directors, executive officers and other principal shareholders, who can exert significant influence over important corporate matters, which may reduce the price of the ADSs and deprive you of an opportunity to receive a premium for your ADSs.

 

Our directors, executive officers and principal shareholders beneficially owned approximately 69.4% of our outstanding ordinary shares as of May 5, 2017. These shareholders, if acting together, could exert substantial influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. In addition, these persons could divert business opportunities away from us to themselves or others.

 

We have incurred increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

 

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. For example, as a public company, we are now subject to the reporting requirements of the Exchange Act, which requires, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. We have incurred and will continue to incur costs associated with the preparation and filing of these reports. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

 

We continue to evaluate these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we were first required to furnish a report by our management on our internal control over financial reporting for the year ending December 31, 2016. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will continue to be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by

 

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Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

We may be a “passive foreign investment company,” which may have adverse U.S. federal income tax consequences for U.S. shareholders.

 

U.S. investors should be aware that, based on current business plans and financial expectations (including that a substantial percentage of our assets are held in cash and cash equivalents), we expect that we may be a passive foreign investment company within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended, or PFIC, for the current taxable year and in future taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period of the ADSs or ordinary shares, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of the ADSs or ordinary shares, or any “excess distribution” received on the ADSs or ordinary shares, as ordinary income earned over the U.S. shareholder’s holding period for the ADSs or ordinary shares, and to pay the applicable taxes on such ordinary income along with an interest charge at the rate applicable to underpayments of tax on a portion of the resulting tax liability, unless the shareholder makes a timely and effective “qualified electing fund” election, or QEF election, or “mark-to-market” election with respect to the ADSs or ordinary shares. A U.S. shareholder who makes an effective QEF election generally must report on a current basis its share of our net capital gain and ordinary earnings for any taxable year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. If a QEF election is not in effect for the first taxable year in your holding period in which we are a PFIC, a QEF election can only be made if you elect to recognize gain as if you had sold the ADSs or ordinary shares for their fair market value on the first day of your taxable year in which the PFIC becomes a QEF pursuant to the QEF election. The gain recognized on this deemed sale would be subject to the general tax treatment of PFICs discussed above. We intend to determine our PFIC status at the end of each taxable year and to satisfy any applicable record keeping and reporting requirements that apply to a QEF, and will endeavor to provide to you, for each taxable year that we determine we are or may be a PFIC, the information that is necessary for you to make a QEF election with respect to us (and any of our subsidiaries which are lower-tier PFICs). We may elect to provide such information on our website. However, there can be no assurances that we will make the necessary information available to you. You are urged to consult your own tax advisors regarding the availability of, and procedure for making, a QEF election. A U.S. shareholder who makes an effective mark-to-market election generally must include as ordinary income any gain recognized in a year that we are a PFIC in an amount equal to the excess of the fair market value of the ADSs over the shareholder’s adjusted tax basis therein. Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership and disposition of the ADSs or ordinary shares.

 

If you are a “Ten Percent Shareholder,” you may be subject to adverse U.S. federal income tax consequences if we are classified as a Controlled Foreign Corporation.

 

Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign corporation,” or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the “CFC’s” “Subpart F income” and investment of earnings in U.S. property, even if the CFC has made no distributions to its shareholders. A non-U.S. corporation generally will be classified as a CFC for U.S federal income tax purposes if Ten Percent Shareholders own in the aggregate, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a U.S. person (as defined by the Internal Revenue Code of 1986, as amended), who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. We may currently be a CFC and/or we may become one in the future. Holders are urged to consult their own tax advisors with respect to our potential CFC status and the consequences thereof.

 

We may be subject to adverse legislative or regulatory tax changes that could negatively affect our financial condition.

 

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our stockholders or us. In recent years, many changes have been made and changes are likely to continue to be made in the future. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or decided that could result in an increase in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

Recent Sales of Unregistered Securities

 

We did not sell any of our ordinary shares or ADSs, or grant any share options or restricted share awards, during the three months ended March 31, 2017 that were not registered under the Securities Act of 1933, as amended, or the Securities Act.

 

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Use of Proceeds from Registered Securities

 

On February 8, 2016, we closed the sale of 7,590,000 ADSs to the public at an initial public offering price of $24.00 per ADS, including the exercise in full by the underwriters of their option to purchase additional ADSs. The ordinary shares in the form of ADSs in our initial public offering were registered under the Securities Act pursuant to a registration statements on Form S-1 (File No. 333-207459), which was filed with the SEC on October 16, 2015 and amended subsequently and declared effective on February 2, 2016. Following the sale of the ADSs in connection with the closing of our initial public offering, the offering terminated. The offering did not terminate before all the securities registered in the registration statements were sold. The underwriters of the offering were Goldman, Sachs & Co., Morgan Stanley, and Cowen and Company acting as joint book-running managers for the offering and as representatives of the underwriters. Baird acted as co-manager for the offering.

 

We raised $166.2 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses of approximately $16.0 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

 

On November 23, 2016, we closed the sale of 6,631,250 ADSs to the public at a public offering price of $32.00 per ADS, including the exercise in full by the underwriters of their option to purchase additional ADSs. In this offering, the selling shareholders sold 468,750 ADSs representing 6,093,750 ordinary shares. The ordinary shares in the form of ADSs in this follow-on public offering were registered under the Securities Act pursuant to a registration statements on Form S-1 (File No.333-214540), which was filed with the SEC on November 10, 2016 and amended subsequently and declared effective on November 17, 2016. Following the sale of the ADSs in connection with the closing of our follow-on public offering, the offering terminated. The offering did not terminate before all the securities registered in the registration statements were sold. The underwriters of the offering were Morgan Stanley; Goldman, Sachs & Co.; and Cowen and Company acting as joint book-running managers for the offering and as representatives of the underwriters. Baird and William Blair acted as co-managers for the offering.

 

We raised $198.6 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses of approximately $13.6 million. We did not receive any proceeds from the sale of the shares by the selling stockholder. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

 

To date, we have used approximately $37.3 million of the net proceeds from our public offerings to fund the costs of ongoing clinical development for our clinical drug candidates, BGB-3111, BGB-A317, BGB-290 and BGB-283, and preclinical drug candidates, as well as for working capital, capital expenditures and general corporate purposes. We invested a significant portion of the balance of the net proceeds from the public offerings in short-term, interest-bearing investment-grade securities and government securities in accordance with our investment policy. Our use of the net offering proceeds to date is consistent with the use of proceeds described in our final prospectuses filed with the SEC on February 3, 2016 and November 18, 2016, pursuant to Rule 424(b) under the Securities Act, and there has been no material change in our planned use of the balance of the net proceeds from the offerings described in such prospectuses.

 

Item 3.   Defaults Upon Senior Securities.

 

None.

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

Item 5.   Other Information.

 

Not applicable.

 

Item 6.   Exhibits.

 

See the Exhibit Index on the page immediately following the signature page to this Quarterly Report for a list of the exhibits filed as part of this Quarterly Report, which Exhibit Index is incorporated herein by reference.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

BEIGENE, LTD.

 

 

Date: May 10, 2017

By:

/s/ John V. Oyler

 

John V. Oyler

 

Chief Executive Officer and Chairman

 

(Principal Executive Officer)

 

 

Date: May 10, 2017

By:

/s/ Howard Liang

 

Howard Liang

 

Chief Financial Officer and Chief Strategy Officer

 

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit

 

 

 

Incorporated by Reference

 

Filed 

Number

 

Exhibit Description

 

Form

 

Date

 

Number

 

Herewith

3.1

 

Fourth Amended and Restated Memorandum and Articles of Incorporation of the Registrant, as currently in effect

 

8-K

 

02/11/2016

 

3.1

 

 

4.1

 

Deposit Agreement dated February 5, 2016 by and among the Registrant, the Depositary and holders of the American Depositary Receipts

 

8-K

 

02/11/2016

 

4.1

 

 

4.2

 

Amendment No. 1 to Deposit Agreement, dated April 11, 2016, by and among the Registrant, Citibank, N.A. and holders of the American Depositary Receipts

 

8-K

 

04/11/2016

 

4.1

 

 

4.3

 

Form of American Depositary Receipt (included in Exhibit 4.2)

 

8-K

 

04/11/2016

 

4.2

 

 

4.4

 

Specimen Certificate for Ordinary Shares

 

S-1

 

12/09/2015

 

4.3

 

 

4.5

 

Second Amended and Restated Investors’ Rights Agreement, dated as of April 21, 2015, by and among the Registrant and certain shareholders named therein

 

S-1

 

10/16/2015

 

4.4

 

 

4.6

 

Amendment No. 1 to Second Amended and Restated Investors’ Rights Agreement, dated January 26, 2016, by and among the Registrant and certain shareholders named therein

 

S-1

 

01/27/2016

 

10.21

 

 

4.7

 

Letter Agreement, dated as of July 11, 2016, between the Registrant and Citibank, N.A.

 

10-Q

 

08/10/2016

 

4.7

 

 

4.8

 

Registration Rights Agreement, dated as of November 16, 2016, by and among the Registrant and the investors name therein

 

8-K

 

08/10/2016

 

4.1

 

 

4.9

 

Form of Letter Agreement, between the Registrant and Citibank, N.A.

 

 

 

 

 

 

 

X

10.1#

 

Amended Equity Joint Venture Contract regarding BeiGene Biologics Co., Ltd., dated April 11, 2017 between BeiGene (Hong Kong) Co., Limited and Guangzhou GET Technology Development Co., Ltd.

 

 

 

 

 

 

 

X

10.2#

 

Amended Capital Increase Agreement with respect to BeiGene Biologics Co., Ltd., dated April 11, 2017, among BeiGene (Hong Kong) Co., Limited; Guangzhou GET Technology Development Co., Ltd.; and BeiGene Biologics Co., Ltd.

 

 

 

 

 

 

 

X

10.3#

 

Shareholder Loan Contract with respect to BeiGene Biologics Co., Ltd, dated March 7, 2017, between Guangzhou GET Technology Development Co., Ltd. and BeiGene Biologics Co., Ltd.

 

 

 

 

 

 

 

X

10.4†

 

Employment Agreement, dated April 25, 2017, by and between the Registrant and John V. Oyler

 

8-K

 

04/25/2017

 

 

 

 

31.1

 

Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

 

 

 

 

X

31.2

 

Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

 

 

 

 

X

32.1*

 

Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350

 

 

 

 

 

 

 

X

 

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101

 

The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in eXtensible Business Reporting Language (XBRL) includes: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to the Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

X

 


                                                     Indicates a management contract or any compensatory plan, contract or arrangement.

#                                                      Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from this Quarterly Report on Form 10-Q and filed separately with the U.S. Securities and Exchange Commission.

*                                                      Furnished herewith.

82


Exhibit 4.9

 

FORM

 

BeiGene, Ltd.

 

As of              , 20    

 

Citibank, N.A. - ADR Department
388 Greenwich Street
New York, New York 10013

 

[Pledgee]

 

Restricted ADSs /Affiliate/Pledge/ [Pledgee name] (Cusip # [ · ] )

 

Ladies and Gentlemen:

 

Reference is made to the Deposit Agreement, dated as of February 5, 2016, as amended and supplemented from time to time (the “ Deposit Agreement ”), by and among BeiGene, Ltd., an exempted company incorporated under the laws of the Cayman Islands (the “ Company ”), Citibank, N.A., a national banking association (“ Citibank ”) organized and existing under the laws of the United States of America, as Depositary (the “ Depositary ”), and the Holders and Beneficial Owners of American Depositary Shares (the “ ADSs ”) issued thereunder.  All capitalized terms used, but not otherwise defined in this Letter Agreement (as amended and supplemented from time to time, the “ Letter Agreement ”), shall have the meaning assigned thereto in the Deposit Agreement.

 

The Company desires to establish procedures to enable certain Affiliates of the Company, the names of which will be provided by the Company to the Depositary from time to time pursuant to the depositary procedures set forth in paragraph 1 below (the “ Affiliate Holders ”), to own Shares that constitute Restricted Securities in the form of Restricted ADSs and to pledge such Shares in the form of Restricted ADSs to [ · ] , as lender and pledgee (“ Pledgee ”), in connection with certain loans to be made by the Pledgee to the Affiliate Holders.  The Depositary agrees to accommodate the deposit of Restricted Securities by, or on behalf of, the Affiliate Holders and the issuance and delivery of Restricted ADSs to the Pledgee (or its nominee) for the benefit of the Affiliate Holders, provided that (a) the terms of deposit of the Restricted Securities for Restricted ADSs neither (i) prejudice any substantial rights of existing Holders and Beneficial Owners of ADSs under the Deposit Agreement, nor (ii) violate or conflict with any law, rule or administrative position applicable to the ADSs, and (b) the terms of the Deposit Agreement are supplemented as set forth in this Letter Agreement to establish procedures for the deposit of Restricted Securities by Affiliate Holders and the issuance of the corresponding Restricted ADSs to the Pledgee (or its nominee).

 

The purpose and intent of this Letter Agreement is to supplement the Deposit Agreement for the purpose of accommodating (i) the deposit of Restricted Securities by the

 



 

Affiliate Holders and the issuance and delivery of Restricted ADSs to the Pledgee for the benefit of the Affiliate Holders, (ii) the sale or transfer of such Restricted ADSs, and (iii) certain ancillary transactions further described below.  The Company and the Depositary agree that a form of this Letter Agreement may be filed as an exhibit to the Company’s next Registration Statement on Form F-6 filed in respect of the ADSs under the Securities Act, if any.

 

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Depositary and the Pledgee hereby agree, notwithstanding the terms of the Deposit Agreement, as follows:

 

1.                                       Depositary Procedures .  The Company consents, under Section 2.3 of the Deposit Agreement, to the deposit by the Affiliate Holders up to the number of Shares listed opposite such Affiliate Holders’ names on lists to be provided by the Company to the Depositary from time to time in writing (the “ Restricted Shares ”) and the issuance and delivery by the Depositary of the corresponding number of Restricted ADSs in respect thereof in the form of Uncertificated Restricted ADSs, upon the terms of Section 2.13 of the Deposit Agreement, as supplemented by this Letter Agreement, to the Pledgee (or its nominee) for the benefit of the Affiliate Holders.  The Restricted ADSs described in the immediately preceding sentence and the Restricted Shares represented thereby are referred to herein as the “ Designated Restricted ADSs ” and the “ Designated Shares ”, respectively.  In connection with each deposit of Designated Shares and request for issuance and delivery of Designated Restricted ADSs to the Pledgee (or its nominee) (which request shall not be unreasonably denied) the Company shall deliver to the Depositary a duly completed and signed Consent and Delivery Instruction substantially in the form of Exhibit A hereto (each a “ Consent and Delivery Instruction ”).

 

In furtherance of the foregoing, the Company instructs the Depositary, and the Depositary agrees, upon the terms and subject to the conditions set forth in Section 2.14 of the Deposit Agreement as supplemented by this Letter Agreement, to (i) establish procedures to enable (x) the deposit of the Designated Shares with the Custodian by the Affiliate Holders as a valid deposit of Shares under the Deposit Agreement in order to enable the issuance and delivery by the Depositary to the Pledgee (or its nominee) of Designated Restricted ADSs issued under the terms of this Letter Agreement upon deposit of Designated Shares, and (y) the transfer of the Designated Restricted ADSs, the removal of the transfer and other restrictions with respect to Designated Restricted ADSs in order to create unrestricted ADSs, and the withdrawal of the Designated Shares, in each case upon the terms and conditions set forth in the Deposit Agreement as supplemented by the terms of this Letter Agreement, and (ii) to deliver an account statement (the “ Account Statement ”) to the Pledgee as registered holder of Designated Restricted ADSs upon the issuance of the Designated Restricted ADSs, in each case upon the terms set forth herein.  Nothing contained in this Letter Agreement shall in any way obligate the Depositary, or give authority to the Depositary, to accept any Shares other than the Designated Shares described herein for deposit under the terms hereof.

 

2.                                       Company Assistance . The Company agrees to (i) provide commercially reasonable assistance upon the request of and to the Depositary in the establishment of such procedures to enable the acceptance of the deposit by the Affiliate Holders of the Designated Shares, the issuance of Designated Restricted ADSs to the Pledgee (or its nominee), the transfer of Designated Restricted ADSs by the Pledgee (or its nominee), the withdrawal of the Designated

 

2



 

Shares by the Pledgee (or its nominee) and the conversion of Designated Restricted ADSs into freely transferable ADSs by the Pledgee (or its nominee), and (ii) take all commercially reasonable steps requested by the Depositary to ensure that the acceptance of the deposit of the Designated Shares by the Affiliate Holders, the issuance of the Designated Restricted ADSs to the Pledgee (or its nominee), the transfer of the Designated Restricted ADSs by the Pledgee (or its nominee), the conversion of Designated Restricted ADSs into freely transferable ADSs by the Pledgee (or its nominee), the withdrawal of Designated Shares by the Pledgee (or its nominee), and the conversion of Designated Restricted ADSs into freely transferable ADSs by the Pledgee (or its nominee), in each case upon the terms and conditions set forth herein, do not prejudice any substantial existing rights of Holders or Beneficial Owners of ADSs (other than the Pledgee or the relevant Affiliate) and do not violate the provisions of the Securities Act or any other applicable laws.

 

In furtherance of the foregoing, the Company shall at the time of execution of this Letter Agreement cause (A) its U.S. counsel to deliver an opinion to the Depositary as of the date hereof stating, inter alia , that assuming its due authorization, execution and delivery, this Letter Agreement is valid, binding and enforceable against the Company under the laws of the State of New York, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally, and as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and (B) its Cayman  counsel to deliver an opinion to the Depositary as of the date hereof stating, inter alia , that (i) the Company has duly authorized and executed this Letter Agreement, (ii) this Letter Agreement constitutes a legal, valid and binding obligation of the Company under Cayman law enforceable against the Company upon its terms, (iii) all approvals required by Cayman law to permit the deposit of Designated Shares under the Deposit Agreement and this Letter Agreement have been obtained, and (iv) the terms of this Letter Agreement and the transactions contemplated by this Letter Agreement do not and will not contravene or conflict with any Cayman law of general application.  In addition, at the time of deposit of the Designated Shares and the issuance of the Designated Restricted ADSs, the Affiliated Holder shall cause its U.S. counsel to deliver an opinion to the Depositary stating that the deposit of Designated Shares by the Affiliate Holders and the issuance and delivery of Designated Restricted ADSs, in each case upon the terms contemplated herein, do not require registration of the Designated Shares under the Securities Act.

 

3.                                       Limitations on Issuance of Restricted ADSs .  The Company hereby instructs the Depositary, and the Depositary agrees, upon the terms and subject to the conditions set forth in this Letter Agreement, to issue and deliver Designated Restricted ADSs to the Pledgee (or its nominee) only (x) in the case of initial issuance upon receipt of (i) a duly completed and signed Consent and Delivery Instruction from the Company, (ii) confirmation from the Custodian of the receipt of the due deposit of the Designated Shares by an Affiliate Holder, and (iii) payment of the applicable fees, taxes and expenses otherwise payable under the terms of the Deposit Agreement upon the deposit of Shares and the issuance of ADSs, and (y) in the event of any corporate action of the Company which results in the issuance of Restricted ADSs to the Pledgee (or its nominee).

 

The Depositary shall cause the Designated Restricted ADSs issued upon the deposit of Designated Shares to be separately identified on the books of the Depositary under

 

3



 

CUSIP # [ · ] (which may also be used by the Depositary to identify other Restricted ADSs to be issued under the terms of the Deposit Agreement pursuant to other Restricted ADS letter agreements) and the Designated Shares to be held, to the extent practicable, separate and distinct by the Custodian from the other Deposited Securities held by the Custodian in respect of the ADSs issued under the Deposit Agreement that are not Restricted ADSs.

 

The Depositary is hereby authorized and directed to issue the Designated Restricted ADSs in the form of Uncertificated Restricted ADSs registered in the books of the Depositary in the name of the Pledgee (or its nominee) for the benefit of the Affiliate Holders subject to the restrictions specified in Section 4 below.

 

4.                                       Stop Transfer Notation and Legend .  The books of the Depositary shall identify the Designated Restricted ADSs as “restricted” and shall contain a “stop transfer” notation to that effect.  The Account Statement to be sent by the Depositary to the Pledgee upon the issuance of Designated Restricted ADSs shall contain the following legend (the “ Legend ”):

 

“THE RESTRICTED AMERICAN DEPOSITARY SHARES (“ RESTRICTED ADSs ”) CREDITED TO YOUR ACCOUNT AND THE UNDERLYING RESTRICTED SHARES (“ RESTRICTED SHARES ”) OF BEIGENE, LTD. (THE “ COMPANY ”) ARE SUBJECT TO THE TERMS OF A RESTRICTED ADS LETTER AGREEMENT (AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME, THE “ RESTRICTED ADS LETTER AGREEMENT ”), AND THE DEPOSIT AGREEMENT, DATED AS OF FEBRUARY 5, 2016,  AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME (AS SO AMENDED AND SUPPLEMENTED, THE “ DEPOSIT AGREEMENT ”).  ALL TERMS USED BUT NOT OTHERWISE DEFINED HEREIN SHALL, UNLESS OTHERWISE SPECIFICALLY DESIGNATED HEREIN, HAVE THE MEANING GIVEN TO SUCH TERMS IN THE RESTRICTED ADS LETTER AGREEMENT, OR IF NOT DEFINED THEREIN, IN THE DEPOSIT AGREEMENT.

 

HOLDERS AND BENEFICIAL OWNERS OF THE RESTRICTED ADSs BY ACCEPTING AND HOLDING THE RESTRICTED ADSs, AND ANY INTEREST THEREIN, SHALL BE BOUND BY THE TERMS OF THE DEPOSIT AGREEMENT AND THE RESTRICTED ADS LETTER AGREEMENT.  AT THE TIME OF ISSUANCE OF THE RESTRICTED ADSs, THE SHARES REPRESENTED THEREBY HAD NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), AND SUCH RESTRICTED SHARES AND RESTRICTED ADSs HAD NOT BEEN REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT IN A TRANSACTION REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS, UNLESS A REGISTRATION STATEMENT IS EFFECTIVE WITH RESPECT TO THESE SECURITIES.  AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, EACH OF CITIBANK, N.A. IN ITS CAPACITY AS THE DEPOSITARY FOR THE RESTRICTED ADSs (THE “ DEPOSITARY ”) AND THE COMPANY MAY REQUIRE THAT IT BE

 

4



 

FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE DEPOSITARY AND THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.

 

PRIOR TO THE SALE OF THE RESTRICTED ADSs AND ISSUANCE OF FREELY TRANSFERABLE ADSs IN RESPECT THEREOF, A HOLDER OF RESTRICTED ADSs WILL BE REQUIRED TO PROVIDE TO THE DEPOSITARY AND TO THE COMPANY A RESALE CERTIFICATION AND INSTRUCTION LETTER IN THE FORM ATTACHED TO THE RESTRICTED  ADS LETTER AGREEMENT.  PRIOR TO THE WITHDRAWAL OF THE RESTRICTED SHARES, A HOLDER OF RESTRICTED ADSs WILL BE REQUIRED TO PROVIDE TO THE DEPOSITARY AND TO THE COMPANY A WITHDRAWAL CERTIFICATION IN THE FORM ATTACHED TO THE RESTRICTED ADS LETTER AGREEMENT.  THE TRANSFER AND OTHER RESTRICTIONS SET FORTH HEREIN AND IN THE RESTRICTED ADS LETTER AGREEMENT SHALL REMAIN APPLICABLE WITH RESPECT TO THE RESTRICTED ADSs AND THE RESTRICTED SHARES UNTIL SUCH TIME AS THE PROCEDURES SET FORTH IN THE RESTRICTED ADS LETTER AGREEMENT FOR REMOVAL OF RESTRICTIONS ARE SATISFIED.  NEITHER THE COMPANY NOR THE DEPOSITARY MAKES ANY REPRESENTATION AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALE OF THE RESTRICTED SHARES OR THE RESTRICTED ADSs.  A COPY OF THE DEPOSIT AGREEMENT AND OF THE RESTRICTED ADS LETTER AGREEMENT MAY BE OBTAINED FROM THE DEPOSITARY OR THE COMPANY UPON REQUEST.”

 

In the event that the Designated Restricted ADSs are to be issued in certificated form at the request of the Pledgee, the ADR issued to evidence the Designated Restricted ADSs shall contain a legend substantially in the form of the Legend, but with such modifications as are appropriate to reflect the issuance of the Designated Restricted ADSs in certificated form.

 

5.                                       Limitations on Transfer of Designated Restricted ADSs .  The Designated Restricted ADSs shall be transferable only by the Pledgee (or its nominee) thereof upon delivery to the Depositary of (i) all applicable documentation otherwise contemplated by the Deposit Agreement, (ii) a Transfer Certification from the Pledgee (or its nominee) substantially in the form attached hereto as Exhibit B, and (iii) such other documents as may reasonably be requested by the Depositary under the terms hereof (including, without limitation, opinions of U.S. counsel as to compliance with the terms of the legend set forth above in Section 4).

 

6.                                       Limitations on Cancellation of Designated Restricted ADSs .  The Company instructs the Depositary, and the Depositary agrees, not to release any Designated Shares or cancel any Designated Restricted ADSs for the purpose of withdrawing the underlying Designated Shares at the instruction of the Pledgee (or its nominee) unless (x) the conditions applicable to the withdrawal of Shares from the depositary receipts facility created pursuant to the terms of the Deposit Agreement have been satisfied (except for any conditions relating to the Shares not being Restricted Securities), and (y) the Depositary shall have received from the Pledgee (or its nominee) a duly completed and signed Withdrawal Certification substantially in the form attached hereto as Exhibit C (such certification, a “ Withdrawal Certification ”).

 

5



 

7.                                       Fungibility .  Except as contemplated herein and except as required by applicable law, the Designated Restricted ADSs shall, to the maximum extent permitted by law and to the maximum extent practicable, be treated as ADSs issued and outstanding under the terms of the Deposit Agreement that are not Restricted ADSs.  The Depositary shall not be obligated to treat the Pledgee (or its nominee) on terms more favorable than those accorded to Holders of ADSs under the Deposit Agreement, except as specifically contemplated herein.

 

8.                                       Limitations on Exchange of Designated Restricted ADSs for Freely Transferrable ADSs .  The Company instructs the Depositary, and the Depositary agrees, to cancel the Designated Restricted ADSs and to issue and deliver freely transferable ADSs in respect thereof upon receipt of (i) from the Pledgee (or its nominee) of a duly completed and signed Resale Certification and Instruction Letter, substantially in the form attached hereto as Exhibit D (the “ Resale Certification and Instruction Letter ”), (ii) an opinion contemplated in the Resale Certification and Instruction Letter (substantially in the form of Exhibit E hereto, (iii) payment of the issuance fees, taxes and expenses otherwise payable under the terms of the Deposit Agreement and this Letter Agreement, and (iv) any other documents as may reasonably be requested by the Depositary under the terms of the Deposit Agreement and this Letter Agreement.

 

9.                                       Removal of Restrictions .  The Depositary shall remove all stop transfer notations from its records in respect of specified Designated Restricted ADSs and shall treat such Designated Restricted ADSs on the same terms as the ADSs outstanding under the terms of the Deposit Agreement that are not Restricted ADSs upon receipt of (x) written instructions from the Company to so remove all stop transfer notations from its records in respect of specified Designated Restricted ADSs and to treat such Designated Restricted ADSs on the same terms as the ADSs outstanding under the terms of the Deposit Agreement that are not Restricted ADSs, and (y) an opinion of U.S. counsel to the Pledgee stating, inter alia , that the restrictive notations with respect to Designated Restricted ADSs and the Designated Shares may be removed in accordance with the Deposit Agreement and this Letter Agreement and that the Designated Restricted ADSs and the Designated Shares are not subject to any greater limitations on transfer or sale under the U.S. Securities Act of 1933, as amended, than Shares and ADSs that are not Restricted Securities.  Upon receipt of such instructions and opinion of counsel, the Depositary shall take all actions necessary to remove any distinctions previously existing between the applicable Designated Restricted ADSs and the ADSs that are not Restricted ADSs, including, without limitation, by (a) removing the stop transfer notations on its records in respect of the applicable ADSs previously identified as Designated Restricted ADSs, and (b) making the formerly Designated Restricted ADSs eligible for Pre-Release Transactions and for inclusion in the applicable book-entry settlement system.  For avoidance of doubt, the parties agree that the conditions of this Section 9 do not apply to the circumstances set out in Section 8.

 

10.                                UCC Classification .  Each Designated Restricted ADS shall constitute a “security” within the meaning of, and shall be governed by, Article 8 of the Uniform Commercial Code (including section 8-102(a)(15) thereof) as in effect from time to time in the State of New York.

 

6



 

11.                                [Intentionally left blank]

 

12.                                Indemnity .  (a) Each of the Company and the Depositary acknowledges and agrees that the indemnification provisions of Section 5.8 of the Deposit Agreement shall apply to the acceptance of Designated Shares for deposit, the issuance and delivery of Designated Restricted ADSs, the transfer of the Designated Restricted ADSs, the addition/removal of the transfer and other restrictions set forth herein with respect to ADSs/Restricted ADSs, and the withdrawal of Designated Shares, in each case upon the terms set forth herein, as well as to any other acts performed or omitted by the Depositary as contemplated by this Letter Agreement.

 

(b) The Pledgee agrees to indemnify and hold harmless the Depositary, the Company, and their respective agents, employees, officers and directors for any direct loss, liability or expense incurred as a result of any action or omission by the Pledgee under the terms of this Letter Agreement.

 

13.                                Role of Pledgee .

 

(a)  The Company and the Depositary acknowledge that (i) the Pledgee (or its nominee) is the record holder of the Designated Restricted ADSs for the benefit of the Beneficial Owners of the Designated Restricted ADSs (and as such the authorized representative of the Beneficial Owners of the Designated Restricted ADSs), (ii) the Pledgee may make loans to the Beneficial Owners of the Designated ADSs,  in which case the Designated ADSs will be delivered by the Beneficial Owners to the Pledgee as collateral for such loans, and the Pledgee will be the holder of a security interest in the Designated ADSs, and (iii) in taking actions on behalf of the owners of the Designated Restricted ADSs the Depositary and the Company shall (unless otherwise directed by the Pledgee in writing) only act upon the instructions of the Pledgee (notwithstanding the interests of the Affiliate Holders as the Beneficial Owners of the Designated ADSs).

 

(b)  The Pledgee agrees and warrants to the Company and the Depositary that (i) it will hold the Designated Restricted ADSs for the benefit of the Beneficial Owners and will be responsible to monitor the transfer of such Designated Restricted ADSs by, or on behalf of, the Beneficial Owners thereof, including, without limitation, compliance with the restrictions set forth in the Legend, and to communicate such limitations the Beneficial Owners of the Designated Restricted ADSs, (ii) it (or its nominee) will receive all distributions of cash, securities and corporate action notices on behalf of the Beneficial Owners of the Designated Restricted ADSs, it (or its nominee) will distribute the cash, securities and corporate action notices so received to the Beneficial Owners of the Designated Restricted ADSs upon the terms of the applicable agreements between the Beneficial Owners of the Designated Restricted ADSs and the Pledgee (or its nominee), and it (or its nominee) will act upon any instructions received from the Beneficial Owners of the Designated Restricted ADSs in respect of the corporate actions applicable to the Designated Restricted ADSs it holds pursuant to the terms hereof (including, without limitation, the solicitation of ADS voting instructions), and (iii) it (or its nominee) will provide the Company and the Depositary such information about the Beneficial Owners of Designated Restricted ADSs as the Company or the Depositary may request and is available to it as the registered holder of Designated Restricted ADSs.

 

14.                                [Intentionally left blank]

 

15.                                Governing Law and Jurisdiction .  This Letter Agreement shall be interpreted in accordance with, and all the rights and obligations hereunder shall be governed by, the laws of the State of New York as applicable to contracts to be wholly performed within the State of New York.

 

7



 

The parties agree that the federal or state courts in the City of New York shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between them that may arise out of, or in connection with, this Letter Agreement and, for such purposes, each irrevocably submits to the non-exclusive jurisdiction of such courts.

 

The parties irrevocably waive, to the fullest extent permitted by law, any and all rights to trial by jury in any legal proceeding arising out of or in connection with this Letter Agreement, and any objection that they may now or hereafter have to the laying of venue of any actions, suits or proceedings brought in any court as provided in this Section 15, and hereby further irrevocably and unconditionally waive, and agree not to plead or claim in any such court, that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.  The parties further irrevocably and unconditionally waive, to the fullest extent permitted by law, and agree not to plead or claim, any right of immunity from legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any such court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution or judgment, from execution of judgment, or from any other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, and consents to such relief and enforcement against it, its assets and its revenues in any jurisdiction, in each case with respect to any matter arising out of, or in connection with, this Letter Agreement.

 

This Letter Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of such counterparts shall constitute the same agreement.

 

8



 

The Company, the Depositary and the Pledgee have caused this Letter Agreement to be executed and delivered on their behalf by their respective officers thereunto duly authorized as of the date set forth above.

 

 

BEIGENE, LTD

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

CITIBANK, N.A.,

 

 

as Depositary

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

[                 ],

 

 

as Pledgee

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

9



 

EXHIBITS

 

A                                        Consent and Delivery Instruction

B                                        Transfer Certification

C                                        Withdrawal Certification

D                                        Resale Certification and Instruction Letter

E                                         Opinion of Counsel

 



 

EXHIBIT A
to

 

Letter Agreement, dated as of [         ], 20  
(the “ Letter Agreement ”), by and among BeiGene, Ltd.,
Citibank, N.A., as Depositary, and
[            ], as Pledgee

 


 

CONSENT AND DELIVERY INSTRUCTION

 


 

                      ,     

 

Citibank, N.A.,
    as Depositary
ADR Department
388 Greenwich Street, 14
th  Floor
New York, New York  10013

 

Attention:  Account Management

 

BeiGene, Ltd. (Cusip #[ · ] )

 

Dear Sirs:

 

Reference is hereby made to (i) the Deposit Agreement, dated as of February 5, 2016, as amended and supplemented from time to time (the “ Deposit Agreement ”), by and among BeiGene, Ltd. (the “ Company ”), Citibank, N.A., as Depositary (the “ Depositary ”), and the Holders and Beneficial Owners of American Depositary Shares (the “ ADSs ”) issued thereunder, and (ii) the Restricted ADS Letter Agreement, dated as of [            ] , 20  , as amended and supplemented from time to time (the “ Restricted ADS Letter Agreement ”), by and among the Company,  the Depositary, and [          ], as Pledgee (the “ Pledgee ”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Deposit Agreement, or, in the event so noted herein, in the Restricted ADS Letter Agreement.

 

The Company hereby consents to the deposit of the Designated Shares specified in Schedule I by the specified beneficial owners thereof, and hereby consents to the issuance by the Depositary of the corresponding Designated Restricted ADSs (as defined in the Restricted ADS Letter Agreement) to the Pledgee (or its nominee).

 

Exh. A- 1



 

The Company has caused this Consent and Delivery Instruction to be executed and delivered on its behalf by their respective officers thereunto duly authorized as of the date set forth above.

 

 

BEIGENE, LTD.

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Cc: [Pledgee Name]

 

 

Exh. A- 2



 

Schedule I

 

Designated Shares

 

Designated Restricted ADSs

 

Name and Address of
Beneficial Owner of
Designated Restricted ADSs

                  Shares

 

          RADSs

 

 

 

Exh. A- 3



 

EXHIBIT B
to

 

Letter Agreement, dated as of [         ], 20  
(the “ Letter Agreement ”), by and among BeiGene, Ltd.,
Citibank, N.A., as Depositary, and
[           ], as Pledgee

 


 

TRANSFER CERTIFICATION

 


 

               ,    

 

Citibank, N.A.,
    as Depositary
ADR Department
388 Greenwich Street, 14
th  Floor
New York, New York 10013

 

Attention:  Account Management

 

BeiGene, Ltd. (Cusip #[ · ] )

 

Dear Sirs:

 

Reference is hereby made to (i) the Deposit Agreement, dated as of February 5, 2016, as amended and supplemented from time to time (the “ Deposit Agreement ”), by and among BeiGene, Ltd. (the “ Company ”), Citibank, N.A., as Depositary (the “ Depositary ”), and the Holders and Beneficial Owners of American Depositary Shares (the “ ADSs ”) issued thereunder, and (ii) the Restricted ADS Letter Agreement, dated as of [           ] , 20  , as amended and supplemented from time to time (the “ Restricted ADS Letter Agreement ”), by and among the Company,  the Depositary, and [         ], as Pledgee (the “Pledgee”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Deposit Agreement, or, in the event so noted herein, in the Restricted ADS Letter Agreement.

 

In connection with the transfer of the Restricted ADSs surrendered herewith (the “ Surrendered Restricted ADSs ”) to the person(s) specified in Schedule I hereto, the undersigned Holder certifies that:

 

(CHECK ONE)

 

(a)                                  The Surrendered Restricted ADSs are being transferred to a person who the undersigned Holder reasonably believes is a “Qualified Institutional

 

Exh. B- 1



 

Buyer” (within the meaning of Rule 144A under the Securities Act) for the account of a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A under the Securities Act and the transferee is acquiring the Surrendered Restricted ADSs for investment purposes only without a view to distribution;

 

OR

 

(b)                                  The Surrendered Restricted ADSs are being transferred to a person other than a U.S. Person (as defined in Regulation S under the Securities Act) in an offshore transaction meeting the requirements of Regulation S under the Securities Act and the transferee is acquiring the Surrendered Restricted ADSs for investment purposes without a view to distribution.

 

If neither of the items above is checked, the Depositary shall not be obligated to register the Surrendered Restricted ADSs in the name of any person other than the Holder thereof unless and until the conditions to any such transfer or registration set forth in the Deposit Agreement and the Restricted ADS Letter Agreement shall have been satisfied (including, without limitation, the delivery of an opinion of U.S. securities counsel).

 

The transferee has and, if acting on behalf of the Beneficial Owner, such Beneficial Owner has agreed to take a Restricted ADSs identical to the Restricted ADSs surrendered for transfer and subject to the same restrictions on transfer set forth in the Restricted ADS Letter Agreement.

 

 

[             ] , as Pledgee

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

Dated:

 

Exh. B- 2



 

MEDALLION GUARANTEE

 

Medallion Guarantee Stamp (Notary public seal is not acceptable)

 

Name of Firm Issuing Guarantee:                                            

 

Authorized Signature of Officer:                                           

 

 

Title of Officer Signing this Guarantee:                                    

 

Address:                                

 

 

Area Code and Telephone Number:                     

 

Dated:                                                                                       

 

The signature(s) above must be guaranteed by an Eligible Guarantor Institution that is a member in good standing of a recognized Medallion Signature Guarantee Program approved by The Securities Transfer Association, Inc.

 

The signature(s) must be stamped with a Medallion Signature Guarantee by a qualified financial institution, such as a commercial bank, savings bank, savings and loan institutions, U.S. stock broker and security dealer, or credit union, that is participating in an approved Medallion Signature Guarantee Program.  A NOTARY PUBLIC SEAL IS NOT ACCEPTABLE.

 

Schedule I

 

The Restricted ADSs are to be issued in the name of, and delivered to, the following person(s)  in the form of Uncertificated Restricted ADSs:

 

Name of Transferee:

 

Street Address:

 

Exh. B- 3



 

City, State, and Country:

 

Nationality:

 

Social Security or Tax Identification Number:

 

Exh. B- 4



 

EXHIBIT C
to

 

Letter Agreement, dated as of [         ], 20  
(the “ Letter Agreement ”), by and among
BeiGene, Ltd.,
Citibank, N.A., as Depositary, and
[           ], as Pledgee

 

WITHDRAWAL CERTIFICATION

 

               ,   

 

Citibank, N.A.,
    as Depositary
ADR Department
111 Wall Street
New York, New York  10043

 

BeiGene, Ltd. (Cusip #[ · ] )

 

Dear Sirs:

 

Reference is hereby made to (i) the Deposit Agreement, dated as of February 5, 2016, as amended and supplemented from time to time (the “ Deposit Agreement ”), by and among BeiGene, Ltd. (the “ Company ”), Citibank, N.A., as Depositary (the “ Depositary ”), and the Holders and Beneficial Owners of American Depositary Shares (the “ ADSs ”) issued thereunder, and (ii) the Letter Agreement, dated as of [             ] , 20  , as amended and supplemented from time to time (the “ Restricted ADS Letter Agreement ”), by and among the Company, the Depositary, and [    ], as Pledgee (the “ Pledgee ”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Deposit Agreement, or, in the event so noted herein, in the Restricted ADS Letter Agreement.

 

1.      This Withdrawal Certification is being furnished in connection with the withdrawal of Restricted Shares upon surrender of Restricted ADSs to the Depositary.

 

2.      We acknowledge, or, if we are acting for the account of another person, such person has confirmed to us that it acknowledges, that the Restricted ADSs and the Restricted Shares represented thereby have not been registered under the Securities Act.

 

3.      We certify that either (check one):

 

Exh. C- 1



 

(a)           o             The Beneficial Owner of the Restricted ADSs has sold or otherwise transferred, or agreed to sell or otherwise transfer and at or prior to the time of withdrawal will have sold or otherwise transferred, the Restricted Shares represented by the Restricted ADSs surrendered herewith to persons other than U.S. Persons (as defined in Regulation S under the Securities Act) in an offshore transaction (as defined in Regulation S under the Securities Act) in accordance with Rule 904 of Regulation S under the Securities Act [ , provided that in connection with such transfer, we have delivered or will deliver an opinion of U.S. counsel reasonably satisfactory to the Depositary and the Company to the effect that the transfer is exempt from the registration requirements of the Securities Act] , or

 

(b)           o             The Beneficial Owner of the Restricted ADSs has sold or otherwise transferred, or agreed to sell or otherwise transfer and at or prior to the time of withdrawal will have sold or otherwise transferred, the Restricted Shares represented by the Restricted ADSs surrendered herewith in a transaction exempt from registration pursuant to Rule 144 under the Securities Act [, provided that in connection with such transfer, we have delivered or will deliver an opinion of U.S. counsel reasonably satisfactory to the Depositary and the Company to the effect that the transfer is exempt from the registration requirements of the Securities Act] , or

 

(c)           o             The Beneficial Owner of the Restricted ADSs will be  the beneficial owner of the Restricted Shares upon withdrawal, and, accordingly, has confirmed to us that it (x) will not offer, sell, pledge or otherwise transfer the Restricted Shares except (A) in a transaction exempt from registration pursuant to Rule 144 under the Securities Act, if available, (B) in an offshore transaction (as defined in Regulation S under the Securities Act) to persons other than U.S. Persons (as defined in Regulation S under the Securities Act) in accordance with Rule 904 of Regulation S under the Securities Act,  (C) pursuant to any other available exemption from the registration requirements of the Securities Act, or (D) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of the states of the United States, and (y) will not deposit or cause to be deposited such Restricted Shares into any depositary receipt facility established or maintained by a depositary bank (including any such facility maintained by the Depositary), so long as such Restricted Shares are “Restricted Securities” (within the meaning of Rule 144(a)(3) under the Securities Act and given to such term in the Deposit Agreement).

 

The undersigned hereby instructs the Depositary to cancel the Restricted ADSs specified below, to deliver the Shares represented thereby as specified below and, if applicable, to issue to the  undersigned a statement identifying the number of Restricted ADSs held by the undersigned and not cancelled pursuant to these instructions.  The undersigned appoints the Depositary and any of its authorized representatives as its attorney to take the actions contemplated above on behalf of the undersigned.

 

Exh. C- 2



 

Name of Holder::

 

 

 

Number of Restricted ADSs to be cancelled:

 

 

 

Delivery Information for delivery of Shares Represented by Restricted ADSs to be cancelled:

 

 

 

Date:

 

 

 

Signature of Holder:

 

 

Name:

 

Title:

 

MEDALLION GUARANTEE

 

Medallion Guarantee Stamp (Notary public seal is not acceptable)

 

Name of Firm Issuing Guarantee:                               

 

Authorized Signature of Officer:                         

 

 

Title of Officer Signing this Guarantee:                              

 

Address:                              

 

 

Area Code and Telephone Number:                                 

 

Dated:                                                                                       

The signature(s) above must be guaranteed by an Eligible Guarantor Institution that is a member in good standing of a recognized Medallion Signature Guarantee Program approved by The Securities Transfer Association, Inc.

 

The signature(s) must be stamped with a Medallion Signature Guarantee by a qualified financial institution, such as a commercial bank, savings bank, savings and loan institutions, U.S. stock broker and security dealer, or credit union, that is participating in an approved Medallion Signature Guarantee Program.  A NOTARY PUBLIC SEAL IS NOT ACCEPTABLE.

 

Exh. C- 3



 

EXHIBIT D

 

to
Letter Agreement, dated as of [         ], 20  
(the “ Letter Agreement ”), by and among
BeiGene, Ltd.,
Citibank, N.A., as Depositary, and
[     ], as Pledgee

 


 

RESALE CERTIFICATION AND INSTRUCTION LETTER

 


 

Citibank, N.A., as Depositary
111 Wall Street, 15
th  Floor/Zone 8
New York, New York 10043

 

Attn.:  Broker Services

 

BeiGene, Ltd. (Cusip No.: [ · ] )

 

Dear Sirs:

 

Reference is hereby made to (i) the Deposit Agreement, dated as of February 5, 2016, as amended and supplemented from time to time (the “ Deposit Agreement ”), by and among BeiGene, Ltd. (the “ Company ”), Citibank, N.A., as Depositary (the “ Depositary ”), and all Holders and Beneficial Owners from time to time of American Depositary Shares (the “ ADSs ”) issued thereunder, and (ii) the Restricted ADS Letter Agreement, dated as of [              ] , 20  , as amended and supplemented from time to time (the “ Restricted ADS Letter Agreement ”), by and among the Company, the Depositary, and [         ], as Pledgee (the “ Pledgee ”) .  Capitalized terms used but not defined herein shall have the meanings given to them in the Deposit Agreement, or, in the event so noted herein, in the Restricted ADS Letter Agreement.

 

This Resale Certification and Instruction letter is being provided in connection with our request to the Depositary to transfer the Restricted ADSs specified below (CUSIP No.: [ · ] ) registered in the name of the undersigned or the undersigned’s designee in the form of freely transferable ADSs in connection with our sale or transfer of such ADSs in a transaction exempt from registration under the Securities Act or covered by a Registration Statement (the “ Sale ”).

 

The undersigned certifies that (please check appropriate box below):

 

o Sale Pursuant to Resale Registration Statement :   (x) the Sale pursuant to which its Restricted ADSs are being sold is covered by a registration statement under the Securities Act that has been declared effective by the Commission and is currently in effect, (y) the ADSs to be delivered upon such sale are not “Restricted Securities” (within the meaning of

 

Exh. D- 1



 

Rule 144(a)(3) under the Securities Act), and (z) the undersigned has satisfied all applicable prospectus delivery requirements under the Securities Act;

 

OR

 

** o Sale Exempt from Registration (Post Six Months Sales only) :   (x) the Restricted ADSs to be sold and the Restricted Shares represented thereby are not held for an Affiliate of the Company or a person who has been an Affiliate of the Company during the preceding three months, (y) at least six months has elapsed since the Restricted Shares represented by such Restricted ADSs were acquired (or were deemed to have been so acquired within the meaning of Rule 144(d)(3)(iv) under the Securities Act) from the Company or an Affiliate of the Company, and (z) the Company has stated in its most recent filing under the U.S. Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), that it has complied with the applicable reporting requirements of the Exchange Act specified in Rule 144(c)(1) for the preceding twelve months, and the undersigned does not know, and has a reason to believe, that the Company has not complied with such requirements;

 

OR

 

** o Sale Exempt from Registration (Post One Year Sales only) (x) the Restricted ADSs to be sold and the Restricted Shares represented thereby are not being sold for an Affiliate of the Company or a person who has been an Affiliate of the Company during the preceding three months, and (y) at least one year has elapsed since the Restricted Shares represented by such Restricted ADSs were acquired (or were deemed to have been so acquired within the meaning of Rule 144(d)(3)(iv) under the Securities Act) from the Company or an Affiliate of the Company;

 

OR

 

** o Sale Exempt from Registration (other than Post Six Months Sales or Post One Year Sales) the Restricted ADSs to be sold and the Restricted Shares represented thereby are being sold in a transaction exempt from registration under the Securities Act and the ADSs to be delivered upon transfer are not “Restricted Securities” (within the meaning of Rule 144(a)(3) under the Securities Act);

 

OR

 

** o Transfers Exempt from Registration (other than sales above) the Restricted ADSs to be transferred and the Restricted Shares represented thereby are being transferred in a transaction exempt from registration under the Securities Act and the ADSs to be delivered upon transfer are not “Restricted Securities” (within the meaning of Rule 144(a)(3) under the Securities Act);

 

OR

 

** o Other :                                                  .

[Please fill in details]

 

Exh. E- 2



 

[ The Restricted ADSs and the Restricted Shares represented thereby are to be transferred in a transaction exempt from registration under the Securities Act so that the ADSs to be delivered upon transfer are not “Restricted Securities” (within the meaning of Rule 144(a)(3) under the Securities Act) ].

 

The undersigned hereby requests that the Depositary:

 

(i)                                      debit from the undersigned’s account specified below, for the issuance of unrestricted ADSs, the following number of Restricted ADSs:

 

 

Restricted ADSs (CUSIP No.: [ · ] ), and

 

(ii)                                   following the debit of the Restricted ADSs as contemplated in (i) above, issue and deliver “free” the following number of ADSs:

 

 

(CUSIP No.: 01609W102)

 

to the person(s) identified below:

 

1.          If ADSs are to be issued and delivered by means of book-entry transfer to the DTC account of the undersigned:

 

Name of DTC Participant:

 

 

 

DTC Participant Account No.:

 

 

 

Account No. for undersigned at DTC Participant (f/b/o information):

 

 

 

Onward Delivery Instructions of undersigned:

 

 

 

Contact person at DTC Participant:

 

 

 

Daytime telephone number of contact person at DTC Participant:

 

 

2.          If ADSs are to be issued delivered in the form of Uncertificated Restricted ADSs or in the form of an ADR:

 

Exh. E- 3



 

Name of Purchaser/Transferee:

 

 

 

Street Address:

 

 

 

City, State, and Country:

 

 

 

Nationality:

 

 

 

Social Security or Tax Identification Number:

 

 

The undersigned hereby instructs the Depositary to cancel the Restricted ADSs to be transferred in the form of freely transferable ADSs and, if applicable, to issue to the undersigned a statement identifying the number of Restricted ADSs held by the undersigned and not so transferred.  The undersigned irrevocably appoints the Depositary and any of its authorized representatives as its attorney to take the actions contemplated above on behalf of the undersigned.

 

Name of Pledgee:

 

 

 

Date:

 

 

 

Signature of Pledgee:

 

 

Name:

 

Title:

 

MEDALLION GUARANTEE

 

Medallion Guarantee Stamp (Notary public seal is not acceptable)

 

Name of Firm Issuing Guarantee:                                                   

 

Authorized Signature of Officer:                           

 

 

Title of Officer Signing this Guarantee:                                   

 

Address:                                  

 

 

Area Code and Telephone Number:                                                   

 

Exh. E- 4



 

Dated:                                                                                       

The signature(s) above must be guaranteed by an Eligible Guarantor Institution that is a member in good standing of a recognized Medallion Signature Guarantee Program approved by The Securities Transfer Association, Inc.

 

The signature(s) must be stamped with a Medallion Signature Guarantee by a qualified financial institution, such as a commercial bank, savings bank, savings and loan institutions, U.S. stock broker and security dealer, or credit union, that is participating in an approved Medallion Signature Guarantee Program.  A NOTARY PUBLIC SEAL IS NOT ACCEPTABLE.

 

Exh. E- 5



 

EXHIBIT E
to

 

Letter Agreement, dated as of [         ], 20   
(the “ Letter Agreement ”), by and among
BeiGene, Ltd.,
Citibank, N.A., as Depositary, and
[            ], as Pledgee

 


 

OPINION OF COUNSEL

 


 

[Form of no registration opinion for sales by pledgee to be inserted]

 

Exh. D- 1


Exhibit 10.1

 

Execution Version

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[...***...].” A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE U.S. SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

AMENDED EQUITY JOINT VENTURE CONTRACT

 

regarding

 

BEIGENE BIOLOGICS CO., LTD.

 

Between

 

BeiGene (Hong Kong) Co., Limited

 

and

 

Guangzhou GET Technology Development Co., Ltd.

 

April 11, 2017

 



 

TABLE OF CONTENTS

 

CHAPTER 1

DEFINITIONS AND INTERPRETATIONS

2

 

 

 

CHAPTER 2

GENERAL PRINCIPLES

8

 

 

 

ARTICLE 1

JOINT VENTURE PARTIES

8

ARTICLE 2

NAME AND ADDRESS OF THE JV COMPANY

9

ARTICLE 3

NAME AND ADDRESS OF THE PARTIES

9

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

10

ARTICLE 5

LEGAL PERSON STATUS AND FUNDING OF JV COMPANY

12

 

 

 

CHAPTER 3

BUSINESS OBJECTIVE AND BUSINESS SCOPE

12

 

 

 

ARTICLE 6

BUSINESS OBJECTIVE

12

ARTICLE 7

BUSINESS SCOPE

12

 

 

 

CHAPTER 4

TOTAL INVESTMENT AND REGISTERED CAPITAL

13

 

 

 

ARTICLE 8

TOTAL INVESTMENT

13

ARTICLE 9

REGISTERED CAPITAL

13

ARTICLE 10

PAYMENT OF CAPITAL CONTRIBUTIONS

13

 

 

 

CHAPTER 5

SHAREHOLDER LOAN FROM PARTY B AND DEBT-TO-EQUITY CONVERSION

14

 

 

 

ARTICLE 11

SHAREHOLDER LOAN FROM PARTY B

14

ARTICLE 12

DEBT-TO-EQUITY CONVERSION OF THE SHAREHOLDER LOAN FROM PARTY B

14

 

 

 

CHAPTER 6

BRANCH AND SUBSIDIARY OF JV COMPANY

15

 

 

 

ARTICLE 13

BRANCH AND SUBSIDIARY OF JV COMPANY

15

ARTICLE 14

[…***…]

15

ARTICLE 15

BEIGENE GZ FACTORY

15

 

 

 

CHAPTER 7

RESPONSIBILITIES OF THE PARTIES

16

 

 

 

ARTICLE 16

RESPONSIBILITIES OF THE PARTIES

16

 

 

 

CHAPTER 8

COMPLIANCE

19

 

 

 

ARTICLE 17

COMPLIANCE

19

 

 

 

CHAPTER 9

THE BOARD AND SUPERVISORS

20

 

 

 

ARTICLE 18

ESTABLISHMENT OF THE BOARD

20

ARTICLE 19

COMPOSITION OF THE BOARD

20

ARTICLE 20

POWERS AND DUTIES OF THE BOARD

21

ARTICLE 21

BOARD MEETINGS

22

ARTICLE 22

QUORUM

23

ARTICLE 23

NOTICE AND PROCEDURES FOR BOARD MEETINGS

23

ARTICLE 24

SUPERVISORS

25

ARTICLE 25

POWERS AND DUTIES OF SUPERVISORS

25

 

 

 

CHAPTER 10

MANAGEMENT OF THE JV COMPANY

26

 

 

 

ARTICLE 26

MANAGEMENT OF THE JV COMPANY

26

ARTICLE 27

OPERATION AND MANAGEMENT OF BEIGENE GZ FACTORY

29

 

 

 

CHAPTER 11

EXPENSES

30

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

i



 

ARTICLE 28

COSTS AND EXPENSES OF THE PARTIES

30

 

 

 

CHAPTER 12

LABOR MANAGEMENT

31

 

 

 

ARTICLE 29

LABOR MANAGEMENT

31

 

 

 

CHAPTER 13

TAXATION, FINANCES AND ACCOUNTING

32

 

 

 

ARTICLE 30

TAXES

32

ARTICLE 31

MANDATORY FUNDS

32

ARTICLE 32

DISTRIBUTIONS

32

ARTICLE 33

FURTHER FUNDING

32

ARTICLE 34

ACCOUNTING

34

ARTICLE 35

FINANCIAL AUDITING

35

ARTICLE 36

INFORMATION

36

ARTICLE 37

BANK ACCOUNT AND FOREIGN EXCHANGE

37

 

 

 

CHAPTER 14

INSURANCE

37

 

 

 

ARTICLE 38

INSURANCE

37

 

 

 

CHAPTER 15

JOINT VENTURE TERM

37

 

 

 

ARTICLE 39

JOINT VENTURE TERM

37

 

 

 

CHAPTER 16

CONFIDETIALITY

38

 

 

 

ARTICLE 40

CONFIDENTIALITY

38

 

 

 

CHAPTER 17

ANNOUNCEMENT

40

 

 

 

ARTICLE 41

ANNOUNCEMENT

40

 

 

 

CHAPTER 18

DEADLOCK RESOLUTION

40

 

 

 

ARTICLE 42

DEADLOCK RESOLUTION

40

 

 

 

CHAPTER 19

EQUITY TRANSFER, DEFAULT, TERMINATION AND LIQUIDATION

41

 

 

 

ARTICLE 43

EQUITY TRANSFER

41

ARTICLE 44

EARLY TERMINATION

44

ARTICLE 45

LIQUIDATION

47

 

 

 

CHAPTER 20

INDEMNIFICATION

49

 

 

 

ARTICLE 46

INDEMNIFICATION

49

 

 

 

CHAPTER 21

FORCE MAJEURE

49

 

 

 

ARTICLE 47

EVENT OF FORCE MAJEURE

49

 

 

 

CHAPTER 22

GOVERNING LAW

50

 

 

 

ARTICLE 48

GOVERNING LAW

50

 

 

 

CHAPTER 23

DISPUTE RESOLUTION

50

 

 

 

ARTICLE 49

ARBITRATION

50

 

 

 

CHAPTER 24

NOTICE

51

 

 

 

ARTICLE 50

NOTICE

51

 

 

 

CHAPTER 25

EFFECTIVENESS

52

 

 

 

ARTICLE 51

EFFECTIVENESS OF THE CONTRACT

52

 

ii



 

CHAPTER 26

MISCELLANEOUS

52

 

 

 

ARTICLE 52

FURTHER ASSURANCE

52

ARTICLE 53

LANGUAGE

53

ARTICLE 54

WAIVER AND AMENDMENT

53

ARTICLE 55

SUCCESSORS AND ASSIGNS

53

ARTICLE 56

SEVERABILITY

53

ARTICLE 57

ENTIRE AGREEMENT

54

APPENDIX 12.6

FORM CAPITAL INCREASE AGREEMENT OF DEBT-TO-EQUITY CONVERSION

1

APPENDIX 20.3

PROJECT FUNDS USE PLAN

1

 

iii



 

PREAMBLE

 

WHEREAS, BeiGene (Hong Kong) Co., Limited., is a limited liability company established under the laws of the Hong Kong Special Administrative Region and registered in 13/F, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong (“ Party A ”);

 

WHEREAS, Guangzhou GET Technology Development Co., Ltd., is a limited liability company incorporated under the laws of the People’s Republic of China (the “ PRC ” or “ China ”) with its registered address at Room 901, No. 273 Science City, Science Road, Hi-Tech Industry Development Zone, Guangzhou, the PRC (“ Party B ”);

 

WHEREAS , BeiGene Biologics Co., Ltd., is a foreign-invested enterprise established by Party A on [...***...], under the laws of the PRC, with the registered capital of [...***...] as of the date hereof (“ BeiGene Biologics ”);

 

WHEREAS, an Investment Agreement (the “ Investment Agreement ”) was entered into by Party A and the Administrative Committee of Sino-Singapore Guangzhou Knowledge City on March 7, 2017, where the Administrative Committee of Sino-Singapore Guangzhou Knowledge City designates Party B, together with Party A, to subscribe for the increased registered capital of BeiGene Biologics. For the foregoing purpose, an Amended Capital Increase Agreement (the “ Capital Increase Agreement ”) is entered into by Party A, Party B and BeiGene Biologics on the date hereof, pursuant to which, both Party A and Party B shall subscribe the increased registered capital of BeiGene Biologics by increasing the registered capital of BeiGene Biologics to RMB 2 billion, and convert BeiGene Biologics from a wholly foreign owned enterprise to a Sino-foreign equity joint venture company, which will engage in the business of R&D (including, without limitation, clinical trials and fundamental research and development, etc.) of biologics, as well as the manufacturing of the same (the “ Project ”).

 

WHEREAS, Party A and Party B would endeavor to realize the intention of cooperation as set forth in the Investment Agreement and the Capital Increase Agreement;

 

WHEREAS, an Equity Joint Venture Contract Regarding BeiGene Biologics Co., Ltd. was executed by Party A and Party B on March 7, 2017. After the signing thereof, both Parties, through friendly negotiation, decide to make amendments to certain provisions under such Equity Joint Venture Contract and therefore enter into this Amended Equity Joint Venture Contract.

 

NOW, THEREFORE, in consideration of the premises and mutual obligations

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

1



 

contained herein, the Parties hereby agree as follows:

 

CHAPTER 1     DEFINITIONS AND INTERPRETATIONS

 

Certain Defined Terms. Except as otherwise provided under the terms of this Contract, the following terms shall have the following respective meanings:

 

Affiliate ” means, with respect to any Person, any corporate or other entity that Controls or is Controlled by or is under common Control with such Person. For the purpose of this Contract , C ontrol ” means that a Person, directly or indirectly, has (i) the holding (direct or indirect) of over 50% of the voting rights at another Person’s highest decision making authority; or (ii) the right to appoint the majority of the directors of another Person; or (iii) the ability to direct or cause the direction of the management or operation of another Person directly, whether through ownership of equity or shares with voting rights, contract or otherwise. For the purposes of this Contract only, the JV Company, and other company and entity under its Control from time to time, shall not be regarded as an Affiliate of either Party.

 

Applicable Law ” means, with respect to any Person, any laws applicable to such Person, or any laws, regulations, rules, guidelines, instructions, treaties, judgements, decrees, orders, notices, rulings, and decisions promulgated by any Government Authorities, regulatory administrations or stock exchanges which enjoy jurisdiction over such Person.

 

Articles of Association of JV Company ” means the Articles of Association (Amended Version) of the JV Company concurrently executed by the Parties hereto on the date hereof.

 

Authorization ” means any authorization, consent, registration, filing, agreement, notarization, certificate, license, approval, permit or exemption from, by or with any Government Authority, whether given by express action or deemed given by failure to act within any specified time period.

 

Average Value ” has the meaning set forth in Section 12.2(d).

 

Bank Loan Agreement ” has the meaning set forth in Section 15.4.

 

BeiGene GZ Factory ” has the meaning set forth in Section 15.1.

 

[...***...] ” means [...***...].

 

Board ” means the Board of Directors of the JV Company.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

2



 

Business ” means biologics research and development, biotechnology research and development, biotechnology transfer, biologics contracted research and consulting services, biologics clinical research and trial, biologics manufacture.

 

Business Day ” means any day other than a Saturday, Sunday, or a statutory holiday in the PRC.

 

Business License ” means the business license of the JV Company updated in accordance with this Contract, the Capital Increase Agreement and/or the Articles of Association of JV Company, and issued by the relevant Registration Administration Authority after relevant registration/filing, as updated from time to time based on the future changes of the JV Company.

 

Call Option ” has the meaning set forth in Section 44.5.

 

Capital Increase Agreement ” has the meaning set forth in the Preamble.

 

Capital Increase Agreement of Debt-to-Equity Conversion ” means the agreement to be entered into among Party A, Party B and the JV Company at the date set forth in Section 12.6 of this Contract, concerning the capital increase to be carried out by Party B to JV Company in accordance with Article 12 of this Contract by using the entire or part of Shareholder Loan from Party B actually provided to the JV Company and its accrued interests.

 

Chairman ” has the meaning set forth in Section 19.3.

 

Chief Financial Officer ” means the officer of the JV Company who is responsible for the financial affairs of the JV Company, with his/her title to be changed from time to time by the JV Company.

 

CFDA ” means China Food and Drug Administration and the government authorities at the provincial, municipal, and district level in charge of the food and drug administration.

 

[...***...] ” has the meaning set forth in Section 49.2.

 

Closing Period ” has the meaning set forth in Section 43.1(b).

 

Commencement Date of Debt-to-Equity Conversion ” has the meaning set forth in Section 12.1.

 

Company Auditor ” has the meaning set forth in Section 35.1.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

3



 

Competitor ” has the meaning set forth in Section 43.1(d).

 

Confidential Information ” has the meaning set forth in Section 40.1.

 

Contract ” has the meaning set forth in Section 1.1.

 

Contracting Manufacture Agreement for Drugs ” means the agreement between [...***...] and BeiGene GZ Factory regarding [...***...] as the Marketing Authorization Holder entrusting BeiGene GZ Factory to produce the relevant dugs, to be executed after [...***...] and BeiGene GZ Factory is equipped with proper production capacity through CFDA certification, or at other times otherwise agreed by the Parties;

 

Cooperation Term Sheet ” means BeiGene Biologics Project Cooperation Term Sheet executed by Party A and the Administration Committee of Guangzhou Economic and Technological Development District on [...***...] in Guangzhou.

 

Deadlock ” has the meaning set forth in Section 42.1.

 

Deadlock Notice ” has the meaning set forth in Section 42.2.

 

Debt-to-Equity Conversion ” means the transaction to be completed in accordance with Section 12 hereunder and the Capital Increase Agreement of Debt-to-Equity Conversion.

 

Directors ” has the meaning set forth in Section 19.1.

 

Disclosing Party ” has the meaning set forth in Section 40.1.

 

Dispute ” has the meaning set forth in Section 49.1.

 

Employees ” means the individuals working for the JV Company and entering into the labor contract with the JV Company in accordance with the applicable PRC laws.

 

Establishment Date ” means the issuing date of the new Business License of BeiGene Biologics after it is transformed from a wholly foreign owned enterprise to a Sino-foreign equity joint venture company pursuant to this Contract.

 

Evaluation Cut-off Date ” has the meaning set forth in Section 12.1(b).

 

Event of Force Majeure ” means an event that is unforeseeable, unavoidable and beyond the reasonable control of the affected party and, in either case, prevents total or partial performance by the affected party. Such events may include but are not limited to fire, flood, lightning, typhoon, earthquake or other acts of nature, sabotage,

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

4



 

explosions, strike, war, riot, civil commotion, or government action including change of law.

 

Extended Period ” has the meaning set forth in Section 12.4(c).

 

FCPA ” means the United States Foreign Corrupt Practices Act, as amended from time to time.

 

GAAP ” means the generally accepted accounting principles in a certain jurisdiction as in effect from time to time.

 

General Manager ” has the meaning set forth in Section 26.1.

 

Government Authority ” means any nation or government, any central, state, provincial, municipal, autonomous region, local or other political subdivision thereof, and any department, ministry, agency, commission, entity, authority or other body exercising executive, legislative, judicial, fiscal, regulatory or administrative functions of or pertaining to government, or any enterprise owned or controlled by any of the foregoing.

 

Immediate Family Member of a State Functionary ” means the State Functionary’s spouse; the State Functionary’s and/or the spouse’s grandparents, parents, siblings, and children; the spouses of any of these people; and any other individuals who share the same household with the State Functionary or otherwise may be dependent of the State Functionary.

 

Independent Valuation Firm ” has the meaning set forth in Section 12.2(b).

 

Investment Agreement ” has the meaning set forth in the Preamble.

 

Joint Venture Term ” has the meaning set forth in Section 39.1.

 

JV Company ” has the meaning set forth in Article 1.1.

 

Long Stop Date ” means May 31, 2017, or such later date as mutually agreed by the Parties in writing before May 31, 2017.

 

LUR ” has the meaning set forth in Section 15.3.

 

Management Personnel ” means JV Company’s General Manager, VP, Chief Financial Officer, Internal Audit Officers, Chief Operating Officer, Chief Science Officer, Chief Medical Officer (with such titles to be changed from time to time by the JV Company), and other persons to be appointed in accordance with Sections 26.3, 26.5 and 26.8 of this Contract.

 

5



 

Mandatory Funds ” has the meaning set forth in Section 31.1.

 

Market Price ” has the meaning set forth in Section 44.7.

 

Non-transferring Party ” has the meaning set forth in Section 43.2(a).

 

Offering Period ” has the meaning set forth in Section 43.2(b).

 

Person ” means any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, consortium, unincorporated organization, other entity or Government Authority.

 

Post-Money Fair Market Value ” has the meaning set forth in Section 12.1(b).

 

Potential Buyer ” has the meaning set forth in Section 43.2(a).

 

“PRC” or “China” has the meaning set forth in the Preamble, and for the purpose of this Contract, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan.

 

Project ” has the meaning set forth in the Preamble.

 

Project Documents ” means this Contract, the Investment Agreement, the Capital Increase Agreement, the Articles of Association of JV Company, the Shareholder Loan Contract, the Bank Loan Agreement, the Articles of Association of BeiGene GZ Factory, and other contracts and agreements as jointly agreed by both Parties in writing as key to the Project from time to time.

 

Receiving Party ” has the meaning set forth in Section 40.1.

 

Recipient ” has the meaning set forth in Section 40.3.

 

Registered Capital ” has the meaning set forth in Section 9.1.

 

Registration Administration Authority ” means the competent PRC Government Authority with registration authority over the JV Company, namely the Administration for Industry and Commerce or any other competent Government Authority duly delegated thereby.

 

Renminbi ” or “ RMB means the lawful currency of the PRC.

 

Senior Representative ” has the meaning set forth in Section 42.3.

 

6



 

Shareholder Loan Contract ” means the agreement entered between Party B and the JV Company on March 7, 2017, regarding the Shareholder Loan from Party B to be extended to the JV Company.

 

Shareholder Loan from Party B ” has the meaning set forth in Section 11.1.

 

State Functionary ” means (a) any political party; (b) any political candidate; (c) any officer, employee, or representative of any Government Authority, or of any political party, or of any public international organization; (d) any management personnel of state-owned enterprises or any state-owned non-enterprise institutions; and (e) any person acting in an official capacity on behalf of any of the above.

 

Subsidiary ” means BeiGene GZ Factory, [...***...].

 

Supervisors ” has the meaning set forth in Section 24.1.

 

Total Investment ” has the meaning set forth in Section 8.1.

 

Transfer ” has the meaning set forth in Section 43.1(a).

 

Transfer Notice ” has the meaning set forth in Section 43.2(a).

 

Transferred Equity ” has the meaning set forth in Section 43.2(a).

 

Transferring Party ” has the meaning set forth in Section 43.2.

 

“US” means the United States of America.

 

US$ ” or “ United States Dollars ” means the legal currency of the US.

 

US GAAP ” means generally accepted accounting principles in the United States of America as in effect from time to time.

 

Valuation Monitoring ” has the meaning set forth in Section 12.2(a).

 

Verification Valuation Firm ” has the meaning set forth in Section 12.2(d).

 

VP ” has the meaning set forth in Section 26.1.

 

Interpretation and Rules of Construction .  In this Contract, except to the extent that the context otherwise requires:

 

(a)                                  when a reference is made in this Contract to an Article, Section, Clause, Exhibit, Appendix, Schedule, Recitals or Preamble, such reference is to such

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

7



 

items as they relate to this Contract and such items shall be deemed to form an integral part of this Contract;

 

(b)                                  the table of contents and headings for this Contract are for reference purposes only and do not affect in any way the meaning or interpretation of this Contract;

 

(c)                                   whenever the words “include”, “includes” or “including” are used in this Contract, they are deemed to be followed by the words “without limitation”;

 

(d)                                  the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Contract, refer to this Contract as a whole and not to any particular provision of this Contract;

 

(e)                                   all terms defined in this Contract have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

 

(f)                                    the definitions contained in this Contract are applicable to the singular as well as the plural forms of such terms;

 

(g)                                   any law defined or referred to herein or in any agreement or instrument that is referred to herein means such law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor laws;

 

(h)                                  a reference to a document is a reference to such document as modified or amended from time to time;

 

(i)                                      references to a Person are also to its permitted successors and assigns; and

 

(j)                                     unless otherwise explicitly provided, the dates and times referred to herein are in Beijing time.

 

CHAPTER 2     GENERAL PRINCIPLES

 

Article 1        Joint Venture Parties

 

1.1                                This Amended Equity Joint Venture Contract (this “ Contract ”) is made as of April 11, 2017 by and between:

 

(i)                          BeiGene (Hong Kong) Co., Limited , a limited liability company duly

 

8



 

incorporated and validly existing under the laws of Hong Kong, as Party A, and

 

(ii)                       Guangzhou GET Technology Development Co., Ltd. , a limited liability company incorporated and validly existing under the laws of the PRC, as Party B,

 

in accordance with the Company Law of the People’s Republic of China , the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures and the Implementing Rules of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures , and other relevant PRC laws and regulations, and in consideration of the principles of fairness, equality, and mutual benefit, for the purpose of transforming BeiGene Biologics to an equity joint venture enterprise (the “ JV Company ”) in Sino-Singapore Guangzhou Knowledge City, Guangzhou Province, the PRC, for the development, construction and operation of the Project.

 

1.2                                Each of Party A and Party B is hereinafter referred to as a Party and collectively as the Parties.

 

Article 2                                                Name and Address of the JV Company

 

2.1                                After this Contract becomes effective, the name of the JV Company shall remain unchanged, with its Chinese name being “ 百济神州生物药业有限公司 ” and its English name being “BeiGene Biologics Co., Ltd.”. The legal address of the JV Company shall remain unchanged, which is Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, Guangzhou, the PRC.

 

Article 3                                                Name and Address of the Parties

 

3.1                                The name and the legal addresses of the Parties are as follows

 

Party A:

 

BeiGene (Hong Kong) Co., Limited

 

 

 

Legal Address

 

13/F, Gloucester Tower, The Landmark15, Queen’s Road Central, Hong Kong

 

Party B:

 

Guangzhou GET Technology Development Co., Ltd.,

 

9



 

Legal Address

 

Room 901, No. 273 Science City, Science Road, Hi-Tech Industry Development Zone, Guangzhou, the PRC

 

Article 4                                                Representations and Warranties

 

4.1                                In addition to any representations and warranties otherwise made in this Contract, each Party hereby represents and warrants to the other Party that on the date hereof

 

(a)                                  it is a corporate entity duly organized and validly existing under the laws of the jurisdiction of its incorporation and is in compliance with all requirements of laws of the jurisdiction of its incorporation;

 

(b)                                  it has full corporate power and authority, and all necessary Authorizations (including the approval/filing of State-owned Assets Supervision and Administration Commission with respect to Party B) and third party consents to enter into this Contract and each Project Document to which it is a party and to perform its obligations under this Contract and each Project Document to which it is a party, and has taken all necessary actions to authorize its entry into and performance of this Contract and such Project Documents;

 

(c)                                   its representative(s) have been fully authorized to sign this Contract, and each Project Document to which it is a party, on its behalf;

 

(d)                                  this Contract and each Project Document to which it is a party shall constitute its legal, valid, binding and enforceable obligations once this Contract and such Project Document become effective;

 

(e)                                   the execution, delivery and performance of this Contract and each Project Document to which it is a party will not violate in any way its business license, certificate of incorporation, corporate constitutional documents, or any applicable laws, rules, decrees, authorizations or approvals, or any provisions of any contractual arrangements to which it is a party or is otherwise bound;

 

(f)                                    no directors or employees of either Party have received, requested, offered, or given anything of value, nor any financial or other advantages, in connection with the negotiation, execution, delivery, or performance of the Cooperation Term Sheet, this Contract, any other Project Document or any other agreement related to the JV Company;

 

10



 

(g)                                   no litigation or legal proceeding before any arbitration institution, judicial institution or Government Authority is pending (or, to the knowledge of such Party, threatened) against such Party that may lead to or cause a material adverse effect to: (a) its execution and delivery of this Contract or a Project Document to which it is a party; and (b) its performance of this Contract or a Project Document to which it is a party; and

 

(h)                                  in any proceedings taken by any Person in its jurisdiction of incorporation in relation to this Contract or any Project Document to which it is a party or the transactions contemplated hereby or thereby, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.

 

4.2                                Each Party further represents and warrants that it will not, and will cause its respective Affiliates, and the directors, employees, representatives and agents of the Party and of its respective Affiliates (including without limitation Directors and Management Personnel of the JV Company appointed by each Party who are directors, employees, representatives or agents of such Party or its Affiliates) not to, in connection with the negotiation, execution, or performance of this Contract or in connection with any other business transactions involving the Parties or the JV Company, engage in any activities as follows:

 

(a)                                  any money or any other thing of value, such as travel, gifts, meals, or entertainment, will be given, offered, paid, or promised to any State Functionary or Immediate Family Member of a State Functionary directly or indirectly, for the purposes of (i) influencing any act or decision of any State Functionary, (ii) inducing such State Functionary to act in violation of his or her lawful duty, (iii) securing any improper advantage, or (iv) persuading such State Functionary to influence any act or decision of a government or international organization, to obtain or retain business for, or direct business to, the JV Company or anyone else; or

 

(b)                                  a financial or other advantage, to any person, whether or not a State Functionary or Immediate Family Member of a State Functionary, with the intention to bring about or reward the improper performance of a duty or obligation to which the person is subject or with the knowledge or belief that the acceptance of the advantage in itself constitutes the improper performance of the person’s duty or obligation.

 

4.3                                Each Party further represents and warrants that it understands the requirements

 

11



 

of the FCPA and of all applicable anti-bribery and anti-corruption laws of the PRC and other applicable jurisdictions. In connection with all actions taken pursuant or in relation to this Contract or any other Project Documents and the transactions hereunder or thereunder, each Party undertakes to comply with said requirements, and, notwithstanding anything to the contrary, to cause the JV Company to comply with said requirements and not to take any action that would cause Party A or its Affiliate to be in violation of the FCPA or any applicable anti-bribery and anti-corruption laws of other jurisdictions.

 

Article 5                                                Legal Person Status and Funding of JV Company

 

5.1                                The JV Company shall be an enterprise legal person under the PRC laws. The activities of the JV Company shall be governed and protected by the PRC laws.  The JV Company shall be a limited liability company. Subject to Section 32.2 hereof, each Party shall share profits and assume risks and losses with respect to the JV Company’s operations, in each case based on such Party’s shareholding percentage.

 

5.2                                The liability of each Party shall be limited to the amount it is obliged to contribute to the Registered Capital of the JV Company. Creditors of the JV Company shall have recourse only to the assets of the JV Company and shall not have the right to seek repayment from either of the Parties.

 

CHAPTER 3     BUSINESS OBJECTIVE AND BUSINESS SCOPE

 

Article 6                                                Business Objective

 

6.1                                The business objective of the JV Company’s establishment is to enhance the cooperation of the Parties, to develop, produce, promote and commercialize the biologics products in the PRC and any other markets selected by the JV Company, and to receive satisfied economic benefits.

 

Article 7                                                Business Scope

 

7.1                                The business scope of the JV Company is: Investment within the fields allowing foreign investment in accordance with laws (for foreign invested enterprises only); investment with enterprise’ own funds; pharmaceutical research and development; medical research and trial development; biologics manufacture; pharmaceutical research services;  biological medical technology research; biotechnology development services; biotechnology promotion services; biotechnology consulting, communication services;

 

12



 

biotechnology transfer services (not including operation prohibited by laws and regulations, not including operation in restricted or prohibited category of the catalog of industries for foreign investment; not involving state-operated trade management goods, goods involving quota or license management subject to application in accordance with relevant national regulations)

 

CHAPTER 4     TOTAL INVESTMENT AND REGISTERED CAPITAL

 

Article 8                                                Total Investment

 

8.1                                The total investment for the JV Company (the “ Total Investment ”) shall be [...***...].

 

Article 9                                                Registered Capital

 

9.1                                The registered capital of the JV Company (the “ Registered Capital ”) shall be [...***...], to which

 

(a)              Party A shall contribute (i) cash in United States Dollars with the amount equivalent to RMB200,000,000 (say, two hundred million Renminbi yuan ), and (ii) [...***...], to subscribe for [...***...] of the Registered Capital (representing 95% of the Registered Capital); [...***...], Party A shall make contribution to the JV Company with other valuable assets of Party A, so as to fulfill its contribution obligation [...***...].

 

(b)              Party B shall contribute cash in an amount of [...***...] to subscribe for the same amount of the Registered Capital (representing 5% of the Registered Capital).

 

Article 10                                         Payment of Capital Contributions

 

10.1                         The Parties shall, and shall procure the JV Company to, complete the registration and filing procedures with the relevant Registration Administration Authority for the transaction under the Capital Increase Agreement and obtain the updated Business License as soon as possible after the execution of this Contract, and each Party shall actually make the contribution to the Registered Capital of the JV Company pursuant to the Capital Increase Agreement.

 

10.2                         Unless otherwise agreed in writing by the Parties, Party A shall transfer [...***...] to the JV Company as the actual capital contribution not later than

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

13



 

[...***...].

 

10.3                         Notwithstanding the above provision, if either Party breaches this Contract and such breach causes the failure of actual contribution of [...***...] and (if required to be contributed pursuant to Section 9.1(a) hereunder) other assets of Party A into the JV Company within [...***...] after the execution date of the Capital Increase Agreement of Debt-to-Equity Conversion [...***...].

 

CHAPTER 5     SHAREHOLDER LOAN FROM PARTY B AND DEBT-TO-EQUITY CONVERSION

 

Article 11                                         Shareholder Loan from Party B

 

11.1                         Simultaneously with the contribution of [...***...] by Party B to the Registered Capital of the JV Company pursuant to Section 10.1 of this Contract and the Capital Increase Agreement, Party B shall, in accordance with the Shareholder Loan Contract executed on the date hereof, provide RMB900,000,000 in one lump-sum in cash as a shareholder loan to the JV Company (the “Shareholder Loan from Party B” ).

 

Article 12                                         Debt-to-Equity Conversion of the Shareholder Loan from Party B

 

12.1                         If [...***...], Party A shall, no later than [...***...], deliver a written notice to Party B requesting the commencement of the capital increase through debt-to-equity conversion (the date as set forth in the above written notice referred to as the “ Commencement Date of Debt-to-Equity Conversion ”), and the Parties shall promptly start the adjustment to the shareholding percentage and the Registered Capital of the JV Company in accordance with this Section 12.

 

(a)              [...***...];

 

(b)              [...***...].

 

12.2                         [...***...].

 

12.3                         [...***...].

 

12.4                         [...***...].

 

12.5                         [...***...].

 

12.6                         [...***...].

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

14



 

12.7                         If either Party breaches this Contract or any provision under the Capital Increase Agreement of Debt-to-Equity Conversion and such breach causes the failure of completion of the Debt-to-Equity Conversion within the time limit set forth in the above Section 12.6, the breaching Party shall pay [...***...] to the non-breaching Party as liquidated damages.

 

CHAPTER 6     BRANCH AND SUBSIDIARY OF JV COMPANY

 

Article 13                                         Branch and Subsidiary of JV Company

 

13.1                         Subject to the Applicable Laws, the JV Company can set up branches, liaison offices, subsidiaries, or other place of business within or outside the PRC according to the Board resolutions.

 

Article 14                                         [...***...]

 

14.1                         [...***...].

 

14.2                         [...***...].

 

14.3                         [...***...].

 

Article 15                                         BeiGene GZ Factory

 

15.1                         BeiGene Biologics established a manufacturing factory in Guangzhou, with the name being BeiGene Guangzhou Biologics Manufacturing Co., Ltd. (“ BeiGene GZ Factory ”), as the wholly-owned subsidiary of BeiGene Biologics. The initial registered capital of BeiGene GZ Factory is RMB1,000,000,000 (say, one billion Renminbi yuan ), the entirety of which shall be contributed by the JV Company in cash pursuant to the timetable set forth in the Articles of Association of BeiGene GZ Factory.

 

15.2                         BeiGene GZ Factory will establish the plants in the Sino-Singapore Guangzhou Knowledge City and purchase the state of the art manufacturing equipment to engage in, among others, the manufacture of biologics. After BeiGene GZ Factory is equipped with the proper production capacity and obtains all the government approvals and licenses (including, without limitation, the drug production permit and the GMP certification, etc.) required for production of drugs for [...***...] pursuant to the [...***...] as soon as practicable and within the reasonable time.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

15



 

15.3                         BeiGene GZ Factory will, through public auction, seek to acquire the land use right (the “ LUR ”) of a piece of industrial state-owned land located at [...***...] Sino-Singapore Guangzhou Knowledge City, applicable for the construction and operation of the Project. The acreage of such land shall be sufficient for the planned production capacity and operation of BeiGene GZ Factory (not less than 100,000 square meters), and for the construction of buildings for both plants and necessary auxiliary facilities. Party B shall, in accordance with Applicable Laws, exert its best efforts to assist BeiGene GZ Factory in obtaining the LUR, which shall be substantiated by the LUR certificate granted to BeiGene GZ Factory.

 

15.4                         For the purpose of construction of BeiGene GZ Factory, BeiGene GZ Factory will borrow the bank loan in the amount of not less than RMB1,000,000,000 (say, one billion Renminbi yuan ) from one or more commercial banks, and execute the relevant bank loan agreement(s) with such commercial bank(s) (the “ Bank Loan Agreement ”).

 

CHAPTER 7     RESPONSIBILITIES OF THE PARTIES

 

Article 16                                         Responsibilities of the Parties

 

In addition to those responsibilities otherwise provided herein, each Party’s responsibilities are listed as follows:

 

16.1                         The responsibilities of Party A shall include (but not limited to) the following:

 

(a)                                  To make payment of its capital contribution to the Registered Capital of the JV Company pursuant to the terms hereof;

 

(b)                                  To perform and comply with all kinds of obligations under the Project Documents executed as one party thereto;

 

(c)                                   To procure the JV Company to invest in BeiGene GZ Factory, and build and construct any plant, building and workshop as needed for the Project;

 

(d)                                  To provide the JV Company and its Subsidiary with the related experience and specialist knowledge in connection with the government regulatory requirements on and GMP standards regarding biologics companies,;

 

(e)                                   To provide the JV Company and its Subsidiary with the know-how dedicated to satisfy the logistics needs of biologics companies;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

16



 

(f)                                    To provide the JV Company and its Subsidiary with the know-how related to biologics engineering and working processes for biologics production;

 

(g)                                   To provide the JV Company and its Subsidiary with the expertise on business development and sales specific to the biologics sector;

 

(h)                                  To nominate at least one of (a) [...***...] or (b) the other top scientists agreeable to Party B as the Chief Science Officer (CSO) or other similar position of the JV Company;

 

(i)                                      To assist the JV Company and its Subsidiary in maintaining a high-standard technical team satisfying the needs for Business, keep such technical team generally stable, so as to maintain a leading position in the relevant industry; and

 

(j)                                     To make its best efforts to cause BeiGene GZ Factory to, assuming that BeiGene GZ Factory has been equipped with the relevant production capacity and has completed all the approval procedures and obtained all the permits required for the drug manufacture, obtain the ratification and/or approval from the competent Government Authority before [...***...] or any other time as agreed by the Parties on the contracting manufacture of [...***...].

 

16.2                         The responsibilities of Party B shall include (but not limited to) the following;

 

(a)                                  To make payment of its capital contribution (including the increased capital) to the Registered Capital of the JV Company pursuant to the terms hereof;

 

(b)                                  To assist the JV Company and BeiGene GZ Factory in applying for and obtaining all the Authorizations required for the establishment and operation of the JV Company, BeiGene GZ Factory and this Project;

 

(c)                                   To make its best efforts to cause BeiGene GZ Factory to, assuming that BeiGene GZ Factory has been equipped with the relevant production capacity and has completed all the approval procedures and obtained all the permits required for the drug manufacture, obtain the ratification and/or approval from the competent Government Authority before [...***...] or any other time as agreed by the Parties on the contracting manufacture of [...***...];

 

(d)                                  To assist the JV Company and BeiGene GZ Factory in applying for, obtaining and maintaining all other Authorizations required in connection with its operations, including, in particular, matters related

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

17



 

to employee health and safety and environmental protection, foreign exchange balance of the JV Company and BeiGene GZ Factory, and other matters regulated by the Government Authorities;

 

(e)                                   To assist BeiGene GZ Factory in obtaining all required Authorizations in acquiring LUR of the Project site, and carrying out the relevant constructions on the land;

 

(f)                                    To perform and comply with all obligations under the Project Documents executed as one party thereto;

 

(g)                                   To assist the JV Company and BeiGene GZ Factory in completing all procedures of importing various equipment and materials required for the construction and operation of the Project;

 

(h)                                  To assist in applying for the PRC visas or work permits for expatriates who provide services to the JV Company or BeiGene GZ Factory, or are employed by the JV Company or BeiGene GZ Factory, or serve as directors, supervisors or Management Personnel of the JV Company or BeiGene GZ Factory;

 

(i)                                      To assist the JV Company in applying for and obtaining all tariff reductions and exemptions, other tax reductions and exemptions and other preferential treatments of which the Project may possibly enjoy pursuant to the applicable laws and regulations;

 

(j)                                     To assist the JV Company in opening foreign currency account and RMB account at financial institutions;

 

(k)                                  To assist the JV Company in having effective communication and cooperation with the relevant Government Authorities; and

 

(l)                                      To prohibit any actions that may damage the reputation or goodwill of the JV Company.

 

16.3                         The Parties shall use their best reasonable efforts to cause the JV Company to comply with its obligations, including those arising under the Project Documents signed by the JV Company as one party.

 

18



 

CHAPTER 8     COMPLIANCE

 

Article 17                                         Compliance

 

17.1                         The JV Company shall strictly comply in all aspects with all Applicable Laws, including without limitation, the laws relating to the quality, safety and environment protection. The Parties shall cause the JV Company to abide by all the provisions of this Article 17.

 

17.2                         If, after the date of this Contract, the PRC government at the national, provincial or local level provides any enterprise similar to the JV Company with treatment more favorable than the terms under the Investment Agreement through any new laws, decrees, rules or regulations (including, without limitation, any orders, notices or opinions interpreting, clarifying or supplementing any such laws, decrees, rules or regulations now or hereafter in effect), then the Parties shall cooperate, take and procure the JV Company (and its Subsidiary) to take commercially reasonable actions, to strive for such favorable treatments.

 

17.3               The Parties shall procure that

 

(a)                        the JV Company (and its Subsidiary) will be aware of and familiar with the provisions of the FCPA and their purposes and the JV Company will take no action and make no payment (including without limitation promises to take action or to make payments) in violation of, or that might cause itself, any Party or any of their respective Affiliates to be in violation of, any of the FCPA or any applicable anti-corruption laws;

 

(b)                        the JV Company (and its Subsidiary) shall not directly or indirectly commit to pay, make any gift, payment, promise to pay or authorization of the payment of any money or anything of value, to any State Functionary or other Person (if the JV Company or its Subsidiary knows, or has reasonable grounds for believing, that the other Person would use such payment commitment, gift, payment, promise or authorization of payment for the benefit of such State Functionary or Immediate Family Member of a State Functionary), for the use or benefit of any State Functionary or Immediate Family Member of a State Functionary, for the purpose of influencing any act or decision or omission of any State Functionary in order to obtain, retain or manage any business, or to secure any improper benefit or advantage for, the JV Company, its Subsidiary or any other Person; and

 

(c)                         the JV Company (and its Subsidiary) shall adopt policies and procedures to implement the requirements of this Section 17.3, and the senior legal officer shall conduct regular trainings, no less than annual, on compliance with such policies and procedures.

 

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CHAPTER 9            THE BOARD AND SUPERVISORS

 

Article 18                                         Establishment of the Board

 

18.1                         The reorganization of the Board of Directors (the “ Board ”) of the JV Company pursuant to this Contract shall take effect on the Establishment Date.

 

Article 19                                         Composition of the Board

 

19.1                         The Board shall consist of five (5) directors (the “ Directors ”), of whom four (4) shall be appointed by Party A, and one (1) shall be appointed by Party B. Each Party may appoint or remove a Director appointed by it by written notice to the JV Company copied to the other Party.

 

19.2                         Upon BeiGene Biologics’ transformation into the JV Company, the term of the members of the initial Board shall be three (3) years commencing from the Establishment Date. For each session of the Board thereafter, each Director shall be appointed for a term of three (3) years. Each Director, upon expiration of each term, may serve consecutive terms if re-appointed by the Party that originally appointed such Director.

 

19.3                         The JV Company shall have one (1) Chairman of the Board (the “ Chairman ”). The Chairman is the legal representative of the JV Company and shall be appointed by Party A. The term of office of the Chairman shall comply with the provisions under Section 19.2. In case of removal of the Chairman during one term, the succeeding Chairman shall serve the remaining period of such term.

 

19.4                         Simultaneously with the execution of this Contract (or as soon as possible thereafter), each Party shall appoint each of its Directors, pursuant to provisions above, and notify the other Party of such appointments.

 

19.5                         No Director shall assume any personal liability for any acts performed in his or her capacity as a member of the Board unless any action or inaction of such Director constitutes willful misconduct, gross negligence or violation of the PRC criminal laws. With the exception of the preceding sentence, the JV Company shall indemnify each Director against any claims that may be brought against such Director in relation to acts performed in the capacity of a member of the Board.

 

19.6                         The JV Company shall not pay salary to any Director, except that the JV Company may pay salaries to Directors because they are concurrently Employees of the JV Company. The JV Company shall reimburse the

 

20



 

Directors for the expenses incurred by them in connection with their attendance at meetings of the Board, including without limitation, the travel expenses and accommodation expenses in compliance with relevant rules and Section 17.3 hereof, in accordance with the relevant operating rules of the JV Company.

 

Article 20                                         Powers and Duties of the Board

 

20.1                         The Board is the highest authority of the JV Company.

 

20.2                         Resolutions in respect of the following matters to be taken by the JV Company shall only be adopted upon the unanimous vote of all the Directors present in person or by proxy at a duly convened meeting of the Board or upon a unanimous written resolution signed by all the Directors, the approval by any Director of which shall not be unreasonably withheld or delayed and any rejection to which shall be based on due cause:

 

(a)                                  Amendment of the Articles of Association of JV Company;

 

(b)                                  Termination or dissolution of the JV Company;

 

(c)                                   Increase or reduction of the Registered Capital or the Total Investment of the JV Company (except for capital increase arising from Debt-to-Equity Conversion explicitly provided under Article 12 of this Contract);

 

(d)                                  Merger, division or modification of company form of the JV Company; or

 

(e)                                   Starting from [...***...], the proposal for dividends to be distributed to the Parties for any fiscal year being [...***...] based on the consolidated financial statement of the JV Company and its Subsidiaries.

 

20.3                         During the effectiveness and performance of the Shareholder Loan Contract, resolutions in respect of the following matters to be taken by the JV Company shall only be adopted upon the unanimous vote of all the Directors present in person or by proxy at a duly convened meeting of the Board or upon a unanimous written resolution signed by all the Directors, the approval by any Director of which shall not be unreasonably withheld or delayed and any rejection to which shall be based on due cause; notwithstanding the foregoing, this Section 20.3 shall cease to be effective once upon the closing of the Debt-to-Equity Conversion pursuant to this Contract and the Capital Increase

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Agreement of Debt-to-Equity Conversion or once upon the JV Company provides guarantee and completes the execution of necessary legal documents and completes the related registration of guarantee (if so required under Applicable laws) in accordance with Section 12.5 hereunder in the event that Party B serves the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion:

 

(a)                        [...***...];

 

(b)                        [...***...]; or

 

(c)                         [...***...].

 

20.4                         Except for the matters to be determined under Sections 20.2 and 20.3, all other matters that need to be determined by the Board shall be decided by the affirmative votes from a majority of all the Directors present in person or by proxy at a duly convened meeting of the Board.

 

Article 21                                         Board Meetings

 

21.1                         Board meetings shall be held at least once a quarter during the Joint Venture Term. The Board meetings shall be held at the legal address of the JV Company or at such other place as the Parties may agree upon. The Board meetings shall be convened and chaired by the Chairman. A special meeting of the Board shall be called by the Chairman (or, if the Chairman fails to do so, by any other Director solely) as soon as possible if it is proposed by two or more Directors (in no event later than the thirtieth (30 th ) day after such proposal).

 

21.2                         At the meeting of the Board, each Director shall have one (1) vote, for a total of five (5) votes when all Directors are present and voting, and the Chairman shall not have a casting vote.

 

21.3                         The first meeting of the Board shall be held [...***...] from the Establishment Date. The agenda of the first Board meeting may include, without limitation, the following (the Chairman may adjust and determine the final agenda through consultation):

 

(a)                                  Appointment of Management Personnel and the appointment of other management positions deemed appropriate by the Board;

 

(b)                                  Examination and approval of the JV Company’s general principles for R&D, operation, investment, procurement and specific plans for the implementation thereof;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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(c)                                   Approval of the delegation of authority to the General Manager and other Management Personnel in respect of daily management and operation of the JV Company;

 

(d)                                  Approval of the organizational structure of management and basic management rules of the JV Company;

 

(e)                                   Examination and approval of the JV Company’s annual operation plan, annual budget, capital expenditure plan;

 

(f)                                    Selection and engagement of the external auditor of the JV Company;

 

(g)                                   Examination and approval of the JV Company’s compensation to the Party which makes advance payment in accordance with Section 28.2 of this Contract; and

 

(h)                                  Any other matters as deemed necessary by the Board.

 

Article 22                                         Quorum

 

22.1                         A Board meeting shall be validly held provided that in total [...***...] of all Directors (it must contain one Director appointed by Party B) are present in person or by proxy at such meeting. Any resolution passed at the Board meeting shall be invalid if the required quorum is not met. If at any duly called meeting the quorum required above is not present, the Chairman shall (or, if the Chairman fails to do so, any Director solely shall), send notice to all Directors within [...***...] and call a second meeting on a day to be decided by the Chairman or the Director who calls such second meeting (as the case may be) (but in no event later than the [...***...] Business Day after the failed first meeting), at the place then designated and with the same agenda as set for the failed meeting pursuant to the procedures set forth herein. Unless otherwise provided by Applicable Law, if at any adjourned meeting the quorum is not present or [...***...], then the number of any Directors present at such meeting will constitute a quorum.

 

Article 23                                         Notice and Procedures for Board Meetings

 

23.1                         The Chairman shall deliver a written notice (in both English and Chinese) to each Director and Supervisor at least [...***...] prior to each regular Board meeting and at least [...***...] prior to each other Board meeting setting forth therein the time, place, agenda and other relevant information for the meeting, unless all Directors consent to a shorter notice period. The Director’s attending a Board meeting shall be deemed to have received the written notice or waive

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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his or her right to receive advance notice of such Board meeting. Any [...***...] Directors may propose in writing additional matters to be discussed at any Board meeting by submitting such matters to the other Directors and Supervisors at least [...***...] prior to the date scheduled for such Board meeting, and the Chairman (or, if the Chairman fails to do so, any other Director solely) shall include the additional matters in the agenda to be discussed at such Board meeting.

 

23.2                        (a)                       Directors may participate in a meeting of the Board by telephone or by        similar telecommunications equipment provided that each person participating can speak to and be heard by all other persons participating in the meeting. Attendance at a Board meeting by telephone in compliance with the preceding sentence shall be deemed to be the same as “present in person” at such meeting.

 

(b)                      If any Director is unable to attend a Board meeting, the Director may authorize [...***...] to attend such Board meeting and vote on his or her behalf by a written power of attorney provided to the Chairman at least [...***...] prior to such meeting; the vote by the representative at such Board meeting will be deemed a vote by the Director authorizing such representative.

 

23.3                         The Board shall procure all the decisions, resolutions and discussions on any matters at any Board meeting (including any written consent of Directors in lieu of meetings and any meeting held by telephone) and all minutes of any Board meeting to be recorded completely and accurately in both English and Chinese. The English and Chinese versions shall be equally authentic. The meeting minutes shall be signed by all Directors present at the meeting. The meeting minutes shall be distributed to all Directors as soon as the relevant Board meeting is concluded (and in no event later than the seventh (7 th ) day after the conclusion of the relevant Board meeting). If any Director disagrees with any content of the meeting minutes, such Director shall raise the issue with the Chairman immediately, and the Chairman after receiving the above disagreement shall make any necessary corrections to the minutes after consultation with other Directors and review of the specific discussions at the Board meeting. All Directors present at the meeting shall sign and return the undisputed meeting minutes within ten (10) Business Days of receipt of such minutes or the minutes subject to above corrections. The original signed minutes shall be kept on file at the JV Company’s principal office and copies of each such original minute shall be provided to each Director and Supervisor.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

24



 

Article 24                                         Supervisors

 

24.1                         During the effectiveness and performance of the Shareholder Loan Contract, each of Party A and Party B shall appoint one Supervisor (each, a “ Supervisor ”, and together, the “ Supervisors ”); notwithstanding the foregoing, Party B shall cease to have the right to appoint any Supervisor once upon the closing of the Debt-to-Equity Conversion pursuant to this Contract and the Capital Increase Agreement of Debt-to-Equity Conversion or once upon the JV Company provides guarantee and completes the execution of necessary legal documents and completes the related registration of guarantee (if so required under Applicable laws) in accordance with Section 12.5 hereunder in the event that Party B serves the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion. Each Party may appoint or remove a Supervisor appointed by it by written notice to the JV Company copied to the other Party.

 

24.2                         Upon BeiGene Biologics’ transformation into the JV Company, the term of the initial Supervisors shall be [...***...] years commencing from the Establishment Date. Each Supervisor thereafter shall be appointed for a term of [...***...] years. Subject to the above Section 24.1, each Supervisor, upon the expiry of each term, may serve consecutive terms if re-appointed by the Party that originally appointed such Supervisor.

 

24.3                         No Supervisor may concurrently serve as a Director or a Management Personnel of the JV Company.

 

Article 25                                         Powers and Duties of Supervisors

 

25.1                         The Supervisors may exercise the following powers:

 

(a)                                  to examine the financial affairs of the JV Company;

 

(b)                                  to examine the conduct of Directors and the Management Personnel during the performance of their duties and obligations to the JV Company;

 

(c)                                   to put forward proposals for the removal of any Director or the Management Personnel who violates Applicable Law, administrative regulations, the Articles of Association of JV Company or any resolution of the Board; and

 

(d)                                  to require any Director or the Management Personnel to make necessary corrections when their conduct harms the interest of the JV Company.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

25



 

25.2                         The Supervisors may attend meetings of the Board as non-voting attendees and may make recommendations and enquiries with respect to matters to be decided by the Board.

 

25.3                         The JV Company shall not pay salary to any Supervisor. The JV Company shall reimburse any Supervisor for reasonable costs and expenses (e.g., travel expenses and accommodation costs within reasonable limit) incurred for the purpose of performing his or her duties and obligations under this Contract in accordance with the relevant operating rules of the JV Company and Section 17.3 hereof.

 

CHAPTER 10                      MANAGEMENT OF THE JV COMPANY

 

Article 26                                         Management of the JV Company

 

26.1                         The JV Company shall set up a management system to undertake the daily operation and management of the JV Company under the leadership and supervision of the Board. The JV Company shall have one (1) general manager (“ General Manager ”) and several vice presidents (“ VP ”). Apart from that, the JV Company shall at least have the following major functions:

 

Function

 

Title of Functional Head

Operation

 

Chief Operating Officer

Finance

 

Chief Financial Officer

R&D

 

Chief Science Officer
Chief Medical Officer

Auditing

 

Two (2) Internal Auditors, including one (1) Internal Audit Director

 

For the avoidance of doubt, there will be only one leader for each function and the head of one function can serve as the leader of other function(s) concurrently if duly nominated and appointed pursuant to this Article 26.

 

26.2                         The General Manager shall report to the Board, and all other Management Personnel shall report to the General Manager.

 

26.3                         [...***...] shall be nominated by Party A and approved and appointed by the Board. Upon BeiGene Biologics’ transformation into the JV Company, the term of the initial General Manager shall be [...***...] years commencing from the Establishment Date, the term of the initial Management Personnel other than the General Manager shall be [...***...] years commencing from the Establishment Date. Each Management Personnel thereafter shall serve a term

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

26



 

of [...***...] years and may serve consecutive terms if re-nominated by Party A and re-approved by the Board.

 

26.4                         Except for the powers reserved to the Board according to this Contract and the Articles of Association of JV Company, the General Manager shall be responsible for the daily operation of the JV Company, including without limitation:

 

(a)          Implementing the annual business plan as approved by the Board;

 

(b)          Implementing the Board resolutions;

 

(c)           Recruiting and removing other Management Personnel pursuant to Section 26.8 of this Contract;

 

(d)          Recruiting and removing Employees of the JV Company other than the Management Personnel;

 

(e)           Formulating and submitting to the Board for approval the internal organizational and management structure of the JV Company;

 

(f)            submitting to the Board for approval the annual investment plan, the financial statements, the annual report, the annual employee policy, and the employee compensation plan and any other reports and plans which need approval by the Board from time to time; and

 

(g)           Other powers as delegated by the Board pursuant to this Contract and the Articles of Association of JV Company.

 

If the General Manager is not a Director, the Board may require the General Manager to attend meetings of the Board as a non-voting observer, provided that the General Manager shall not attend such portions of meetings concerned with the General Manager’s individual performance or compensation.

 

26.5                         During the effectiveness and performance of the Shareholder Loan Contract, Party B has the right to nominate [...***...] for approval and appointment by the Board. After BeiGene Biologics is transformed into the JV Company, the initial VP and Internal Auditor above shall serve a term of [...***...] years, and the VP and Internal Auditor thereafter shall serve a term of [...***...] years and may serve consecutive terms if re-nominated by Party B and re-approved by the Board. Notwithstanding the foregoing, after the closing of the Debt-to-Equity Conversion in accordance with this Contract and the Capital Increase Agreement of Debt-to-Equity Conversion or after the JV Company provides guarantee and completes the execution of necessary legal documents

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

27



 

and completes the related registration of guarantee (if so required under Applicable laws) in accordance with Section 12.5 hereunder in the event that Party B serves the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion , the Board of the JV Company shall no longer be obliged to appoint the VP and Internal Auditor nominated by Party B.

 

26.6                         [...***...] nominated by Party B pursuant to Section 26.5 above shall be responsible for the coordination and communication of the JV Company with Guangzhou Development District and other relevant governmental authorities, as well as other duties as authorized by the Board of JV Company, and shall not participate in the daily operation and management of the JV Company which is outside the above scope of duties.

 

26.7                         The Internal Auditor shall be responsible for internal auditing of major financial and operational matters of the JV Company (and the Subsidiary). In case material financial issues are identified, the Internal Auditor shall have the right to request the Supervisors to initiate investigation on the relevant matters provided that the interruption arising from such investigation to the ordinary operation of the JV Company and the Subsidiary shall be minimized.

 

26.8                         All Management Personnel other than those to be appointed and removed by Board shall be appointed and removed by the General Manager. After BeiGene Biologics is transformed into the JV Company, the initial Management Personnel shall serve a term of [...***...] years, and thereafter they shall serve a term of [...***...] years, and they may serve consecutive terms if re-appointed by the General Manager.

 

26.9                         Save as otherwise arranged based on the mutual consents of the Parties, the Management Personnel shall work for the JV Company on a full-time basis, and may not serve concurrently in any capacity for entities whose business directly competes with that of the JV Company in the JV Company’s permitted territory of business and may not participate in any business in competition with the business of the JV Company in its territory of business.

 

For the avoidance of doubt, it shall be permitted for Management Personnel of the JV Company at the same time to hold board seats or management positions with any of the Parties and/or their respective Affiliates and to serve concurrently as the management personnel for BeiGene GZ Factory [...***...].

 

26.10                  The JV Company’s seal shall be kept in the principal office of the JV Company and used in accordance with the relevant provisions of this Contract, applicable PRC law, the Articles of Association of JV Company and the relevant internal rules and guidelines of the JV Company.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

28



 

26.11                  Without prejudice to the above provisions, during the effectiveness and performance of the Shareholder Loan Contract, Party B shall also have the right to nominate [...***...]. The General Manager shall employ such staff member upon Party B’s nomination. The specific responsibilities of such staff member shall be defined by the Chief Financial Officer. For the avoidance of doubt, such staff member shall not be deemed as a member of the Management Personnel of the JV Company. Notwithstanding the aforesaid provisions, after the closing of the Debt-to-Equity Conversion in accordance with this Contract and the Capital Increase Agreement of Debt-to-Equity Conversion or after the JV Company provides guarantee and completes the execution of necessary legal documents and completes the related registration of guarantee (if so required under Applicable laws) in accordance with Section 12.5 hereunder in the event that Party B serves the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion, the General Manager shall no longer be obliged to employ [...***...] nominated by Party B.

 

26.12                  The salary and welfare of various levels of Management Personnel and the aforementioned working staff of the JV Company shall be in line with the normal standard of salary and welfare of the same level of Management Personnel or working staff of the JV Company.

 

Article 27                                         Operation and Management of BeiGene GZ Factory

 

27.1                         The shareholders’ meeting (or the shareholder’s resolution) shall be the highest authority of BeiGene GZ Factory. The decision-making mechanism, composition of the board of directors, appointment and positions of management personnel of BeiGene GZ Factory shall be governed by the Articles of Association of BeiGene GZ Factory.

 

27.2                         The Parties agree, subject to the Articles of Association of BeiGene GZ Factory, during the effectiveness and performance of the Shareholder Loan Contract, Party B shall have the right to nominate through the JV Company [...***...] of BeiGene GZ Factory. Such [...***...] shall be responsible for the coordination and communication of BeiGene GZ Factory with Guangzhou Municipal Development and Reform Commission, Guangzhou Development District and other relevant governmental authorities as well as other duties as authorized by the board of BeiGene GZ Factory, and shall not participate in the daily operation and management of BeiGene GZ Factory which is outside the above scope of duties. Party B shall have the right to nominate through the JV Company [...***...] of BeiGene GZ Factory, who shall be responsible for [...***...]. During the effectiveness and performance of the Shareholder Loan

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

29



 

Contract, Party B shall also have the right to nominate through the JV Company [...***...]. Notwithstanding the aforesaid provisions, after the closing of the Debt-to-Equity Conversion in accordance with this Contract and the Capital Increase Agreement of Debt-to-Equity Conversion or after the JV Company provides guarantee and completes the execution of necessary legal documents and completes the related registration of guarantee (if so required under Applicable laws) in accordance with Section 12.5 hereunder in the event that Party B serves the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion, BeiGene GZ Factory shall no longer be obliged to appoint/employ the VP, Internal Auditor or cashier nominated by Party B.

 

27.3                         The salary and welfare of various levels of management personnel and the aforementioned working staff of BeiGene GZ Factory shall be in line with the normal standard of salary and welfare of the same level of management personnel or working staff of BeiGene GZ Factory.

 

CHAPTER 11                 EXPENSES

 

Article 28                                         Costs and Expenses of the Parties

 

28.1                         Any costs and expenses incurred with respect to the negotiation, delivery or performance of this Contract and the Project Documents, including without limitation, costs relating to professional accounting and legal advisors, shall be borne by each Party itself.

 

28.2                         The Parties shall procure the JV Company to confirm from time to time, the advances that each Party has made in direct connection with the establishment and operation of the JV Company and/or BeiGene GZ Factory prior to the payment of cash contribution by the Parties to the JV Company in accordance with Section 10.1 hereof and compensate as soon as possible each Party for such related advances, including, without limitation, the costs and expenses relating to feasibility study, project application report, environmental impact and safety assessment, project design, discussion meetings on the design, the travelling and accommodation expenses incurred by the future management personnel for the establishment of the JV Company and/or BeiGene GZ Factory.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

30



 

CHAPTER 12                 LABOR MANAGEMENT

 

Article 29                                         Labor Management

 

29.1                         The employment, dismissal, salary, labor insurance, welfare benefits, bonus and punishment of Employees shall be implemented pursuant to the Labor Law of the People’s Republic of China , the Labor Contract Law of the People’s Republic of China , as amended from time to time, and other applicable PRC laws and regulations.

 

All material policies concerning the employment, dismissal, salary, labor insurance, welfare benefits, bonuses and punishment of the Employees shall be prepared by the Management Personnel in charge of human resources matters and the General Manager and approved by the Board. The JV Company shall enter into a labor contract with each Employee in accordance with the relevant laws, regulations and rules.

 

29.2                         The labor contract shall contain the following restrictive clauses:

 

(a)                                           Employees may not disclose, abuse or be permitted to disclose any confidential information of the JV Company;

 

(b)                                           Employees may not (i) work for any entities who compete with the JV Company; (ii) participate in any activity that may prejudice the interest of the JV Company or any of its Affiliates; or (iii) engage in any activity that may interfere with the performance of their respective duty to the JV Company;

 

(c)                                            During their service and within [...***...] after the termination of labor relationship with the JV Company, the Management Personnel and the key technical staff shall not engage in any activity competing with the business of the JV Company or any of its Affiliates, including, without limitation, soliciting customers or employees of the JV Company or its Affiliates; and

 

(d)                                           Any intellectual property conceived, discovered, generated, or otherwise developed by any Employees in the course of such person’s employment with the JV Company shall be the exclusive property of the JV Company.

 

29.3                         The trade union of the JV Company shall be set up in accordance with the Law of the People’s Republic of China on Trade Unions .

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

31



 

CHAPTER 13                 TAXATION, FINANCES AND ACCOUNTING

 

Article 30                                         Taxes

 

30.1                         The JV Company shall pay all taxes validly levied, and shall enjoy such exemptions from taxation and other tax benefits as may be available to it, in accordance with Applicable Laws. All Employees shall pay individual income tax levied in accordance with Applicable Laws.

 

30.2                         It is understood by the Parties that the JV Company will apply for the most favorable and preferential treatment in respect of taxation, customs duties and other levies imposed by the relevant Government Authorities which are available under the PRC laws from time to time prevailing, and the JV Company, with the assistance of Party B and any of its Affiliates, shall use its best endeavors to obtain such treatment.

 

Article 31                                         Mandatory Funds

 

31.1                         The JV Company shall establish funds as required by the PRC laws (the “ Mandatory Funds ”). The amount to be allocated to the Mandatory Funds in each fiscal year during which the JV Company is profitable shall be determined by the Board based on the business operation status of the JV Company and in accordance with Applicable Laws.

 

Article 32                                         Distributions

 

32.1                         The amount of profits to be distributed to the Parties shall be determined and resolved by the Board in accordance with Section 32 hereof.

 

32.2                         Unless otherwise agreed by the Parties in writing and subject to the requirements of Applicable Laws, the distributable profits, if to be distributed by the JV Company, shall be distributed between the Parties pro rata to each Party’s subscription percentage in the Registered Capital of the JV Company.

 

32.3                         Without prejudice to other provisions herein, no Party shall be entitled to an amount of distribution from the JV Company in proportion to that of unpaid contributions, so long as it is in default in the payment of any portion of its contribution to the Registered Capital and such default has not been cured by such Party pursuant to the provisions of this Contract.

 

Article 33                                         Further Funding

 

33.1                         If there is any need for further funding by the JV Company, the Parties shall promptly start the negotiation of an appropriate arrangement to satisfy such funding need, including:

 

32



 

(a)                             Increasing the amount of Registered Capital of the JV Company to be contributed in the amount of the funding need; or

 

(b)                             If mutually agreed by both Parties, making available to the JV Company shareholder loans in the amount of the funding need; or

 

(c)                              Causing the JV Company to borrow loans in its own name from financial institutions which provide the most favorable and competitive financing and financial terms from perspective of the JV Company.

 

33.2                         Notwithstanding anything to the contrary under Section 33.1, until the earlier of (i) [...***...] and (ii) [...***...], the only financing way for the JV Company and/or BeiGene GZ Factory shall be (i) [...***...], or (ii) [...***...]. The guarantee provided by the JV Company and/or BeiGene GZ Factory to secure the shareholder loan from one Party shall not be more favorable than that from the other Party.

 

33.3                         In the case of Section 33.1(a) above, both Parties shall take all necessary actions to facilitate any such increase of the JV Company’s Registered Capital and/or Total Investment, including, without limitation, obtaining all required Authorizations for such increase. Unless otherwise agreed by both Parties, any increase in the Registered Capital shall be subscribed by the Parties in proportion to their respective shareholding percentage of the Registered Capital immediately prior to any such increase.

 

33.4                         Both Parties confirm that, notwithstanding any other provisions hereunder, if before [...***...] the JV Company intends to increase the Registered Capital and a party other than either Party hereto or any of its Affiliates intends to subscribe such additional capital, and if the price for each RMB yuan of the Registered Capital for such capital increase is equal to or higher than the price (i.e., RMB 1) of each RMB yuan of the Registered Capital of the JV Company subscribed by Party B at the date hereof, then Party B shall have the obligation to procure the Director appointed by it to approve such capital increase. It is further agreed that, if the shareholding percentage in the JV Company acquired by the third party through the above capital increase is not higher than the shareholding percentage then held by Party B after such capital increase, the arrangement in respect of the number of director(s) of the JV Company to be appointed by such third party at the Board and the power of such third party and its appointed director within the Board shall not be more favorable than those then enjoyed by Party B.

 

33.5                         It is confirmed by both Parties that, notwithstanding any other provisions

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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hereunder, [...***...] the JV Company intends to increase the Registered Capital and a party other than either Party hereto or any of its Affiliates intends to subscribe such increased capital, any if the post-money valuation of the JV Company for such capital increase is [...***...], Party B shall have the obligation to procure the Director appointed by it to approve such capital increase.

 

Article 34                                         Accounting

 

34.1                         The accounting year of the JV Company shall start on January 1 and end on December 31 for each year. The first accounting year of the JV Company shall commence from the Establishment Date, and end on December 31 of that same year. The final accounting year of the JV Company shall commence on January 1 of the year that the JV Company is terminated and end on the day that the JV Company is terminated. The matters that are expressly stipulated in the Accounting Law of the People’s Republic of China as financial and accounting matters that shall be determined by an enterprise itself, and are related to the production and operation of the enterprise, are to be discussed and decided by the Board.

 

34.2                         The accounting system and procedures to be adopted by the JV Company shall be developed by the Chief Financial Officer, under the supervision of the General Manager, and submitted to the Board for approval. The JV Company shall adopt accounting systems in conformity with the GAAP of the PRC, and prepare and maintain in reasonable detail complete, fair, accurate and appropriate financial and accounting books and records satisfactory to the Parties and the Board and in accordance with relevant PRC enterprise accounting systems and financial systems, as well as the requirements of the FCPA. Without limiting the foregoing, the Parties shall cause the JV Company to maintain a system of internal accounting controls that provides reasonable assurance that: (a) its transactions are executed in accordance with management’s authorization; (b) its transactions are recorded as necessary to permit the preparation of financial statements in conformity with the GAAP of the PRC and to maintain the relevant records of its assets and accountabilities; (c) the recorded accountabilities and assets are compared with existing accountabilities and assets at reasonable intervals and appropriate action is taken with respect to any differences; and (d) it does not maintain off-the-books accounts or more than one set of books, records, or accounts. All financial reports shall be written both in Chinese and in English.

 

34.3                         The JV Company shall use RMB as its currency for bookkeeping. For the purposes of preparing the JV Company’s accounting statements, subscription of the Registered Capital, profit distribution and other reasons, any necessary

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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conversion, exchange and transaction shall be calculated using the median rate in the inter-bank foreign exchange market for the relevant foreign exchange against RMB published by the PRC People’s Bank of China on the date of such transaction.

 

34.4                         Each Party is entitled to inspect and make copies of the accounting records, account books and supporting evidence for making bookkeeping entries of the JV Company during normal office hours, with reasonable prior notice and subject to the non-disruption of the JV Company’s operations. The Parties shall cause the JV Company to give each Party access to information and personnel relevant to any review by such Party of the financial and operating conditions of the JV Company, within the scope of a reasonable request.

 

34.5                         The JV Company shall complete and submit statistic reports or data to any appropriate Government Authority required by the Statistics Law of the People’s Republic of China .

 

34.6                         Subject to compliance with all applicable laws and regulations of China, the JV Company shall provide, information, reports or other materials in connection with the operation of its business at such times and in such forms as either Party may reasonably request and as may be required to enable such Party or any of its Affiliates to prepare in a timely manner financial or other reports (including without limitation tax returns) required by Applicable Law, regulatory authority or stock exchange.

 

Article 35                                         Financial Auditing

 

35.1                         The audit of the JV Company shall be conducted by certified public accountants registered in the PRC (the “ Company Auditor ”) and the auditing reports shall be submitted to the Board and the Management Personnel. The Company Auditor shall be an experienced, internationally reputable, and cost-effective certified public accounting firm capable of delivering auditing and accounting services that will satisfy both PRC domestic and international accounting standards (i.e. one of the “big four” international accounting firms). The cost of engaging the Company Auditor shall be borne by the JV Company. Engagement and dismissal of the Company Auditor of the JV Company shall be resolved by the Board.

 

35.2                         Without prejudice to Section 35.1 above, each Party shall have the right, at its own cost, through its own auditors or by involving a third party auditor, to (a) conduct annual auditing of the JV Company; or (b) conduct special auditing on material matters as agreed upon by the Parties; provided that the interruption arising from such auditing to the ordinary operation of the JV

 

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Company shall be minimized.

 

Article 36                                         Information

 

36.1                         For the purpose of information disclosure and/or consolidated financial statements of the parent company of Party A, a public listed company in the US, the JV Company shall:

 

(a)                                  no later than [...***...] after the end of each month or quarter, or such other time as required by Party A, provide Party A with the following documentation of the JV Company, which shall be prepared in the English language with figures expressed in United States Dollars in accordance with the US GAAP: (i) unaudited consolidated balance sheet as of the end of such month or quarter; and (ii) unaudited consolidated income statement as of the end of such month or quarter, for the period from the beginning of the accounting year to the end of such month or quarter, as well as comparisons to the previous year for such month or quarter and year to date for the JV Company;

 

(b)                                  within [...***...] from the end of each accounting year, or no later than such earlier time if so required by Party A in order to meet the regulatory requirements on the Affiliates of Party A, provide audited financial statements for the preceding accounting year, which shall be prepared in the English language, with figures expressed in United States Dollars in accordance with the US GAAP. Such financial statements shall be audited by the Company Auditor in accordance with the auditing standards of the Public Company Accounting Oversight Board of US; and

 

(c)                                   upon written request by Party A, prepare and deliver responses in writing to inquiries raised by Party A or regulatory authority, which are necessary for Party A or its Affiliates to comply with any US GAAP and/or regulatory reporting requirements.

 

36.2                         For the purpose of investigation or auditing on Party B by the national or local state-owned assets auditing department and/or discipline inspection and supervision department, upon Party B’s written request, to the extent of the equity and debt financing provided by Party B, the JV Company will disclose such information as deemed appropriate by the JV Company with respect to the compliance of the use of such funds, provided that the normal operation of the JV Company shall not be affected.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Article 37                                         Bank Account and Foreign Exchange

 

37.1                         The JV Company shall open and maintain RMB bank accounts and foreign exchange bank accounts. Authorized signatories and bank authorization letters for all bank accounts are subject to the approval of the Board. All foreign exchange matters of the JV Company shall be handled in accordance with the Applicable Law.

 

CHAPTER 14                 INSURANCE

 

Article 38                                         Insurance

 

38.1                         The JV Company shall purchase from reputable insurers all necessary insurance coverage that is customarily required to be purchased by equity joint venture enterprises in the PRC of a similar nature to protect itself adequately against potential risks. All insurance coverage for loss of or damage to the property of or the potential liabilities exposed to the JV Company shall be maintained at the levels comparable to those customarily maintained by equity joint venture enterprises in the PRC of a similar nature, and shall be purchased in accordance with Applicable Law and on reasonable commercial terms. The details for the insurance shall be proposed specifically by the General Manager for review and approval by the Board.

 

CHAPTER 15                 JOINT VENTURE TERM

 

Article 39                                         Joint Venture Term

 

39.1                         The term of the JV Company (the “ Joint Venture Term ”) shall be fifty (50) years commencing from the Establishment Date unless otherwise terminated or extended by the Parties pursuant to the terms hereof.

 

39.2                         If any Party intends to extend the Joint Venture Term, such Party shall, at least [...***...] prior to the expiration of the initial Joint Venture Term (or any extension thereof), notify and negotiate with the other Party so as to determine whether the current Joint Venture Term will be extended. The Parties shall assist in undertaking the application and registration procedures for such extension to Government Authorities.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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CHAPTER 16                 CONFIDETIALITY

 

Article 40                                         Confidentiality

 

40.1                         In this Section 40, the “ Confidential Information ” means all information (including, without limitation, financial, price and cost information) disclosed (whether in writing, orally or by another means and whether directly or indirectly) by a party or its Affiliates (the “ Disclosing Party ”) to the other party or its Affiliates (the “ Receiving Party ”) or obtained by the Receiving Party from the JV Company or its Subsidiary whether at, before or after the date of this Contract, including information relating to the Disclosing Party or the JV Company or its Subsidiary’s business, affairs, clients, customers, suppliers, products, operations, technology, intellectual property, financial information, processes, plans or intentions, know-how, design rights, trade secrets and market opportunities. In particular, both Parties acknowledge that Party A or its relevant Affiliate will license to the JV Company or its Subsidiary for use of certain intellectual property for the purpose of operation and charge royalty for such license; as such, the aforementioned “intellectual property” in this Section shall not only include the intellectual property developed and possessed by the relevant entity by itself, but also include the intellectual property which is owned by other Person but the rights of disposal of which are acquired by such relevant entity through license or other means.

 

40.2                         The Receiving Party shall, and shall ensure that each of its Affiliates shall:

 

(i)                                      keep the Confidential Information confidential as it treats its own confidential information;

 

(ii)                                   not use Confidential Information except for use by the relevant party for the performance of its obligations under this Contract or any other Project Document;

 

(iii)                                not disclose Confidential Information to any person except with the prior written consent of the Disclosing Party or in accordance with Sections 40.3 and 40.4; and

 

(iv)                               exert its best efforts to prevent the use or disclosure of Confidential Information.

 

40.3                         During the term of this Contract, the Receiving Party may disclose Confidential Information to any of its directors, other officers and employees (a “ Recipient ”) to the extent that (a) the disclosure is reasonably necessary for the purposes of the execution and performance of this Contract or any other Project Document, and (b) the Receiving Party shall ensure that a Recipient is aware of and complies with the Receiving Party’s obligations of confidentiality under this Contract as if the Recipient were a party to this Contract.

 

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40.4                         When required by Applicable Law, the Receiving Party may disclose Confidential Information to Government Authorities, after reasonable notice to and discussion with the Disclosing Party, and based on the principle of minimal disclosure to the extent permitted by Applicable Laws. However, notwithstanding the terms of this Section 40, in the event that either Party or the JV Company is aware that the other Party or the JV Company (in connection with the business of the JV Company) has violated any Applicable Law in respect of environmental, health and safety, anti-corruption, or anti-unfair competition, such discovering Party or the JV Company may, after reasonable notice to and discussion with the other Party, make any appropriate disclosures to the relevant Government Authorities.

 

40.5                         Sections 40.2 to 40.4 shall not apply to the Confidential Information which the Receiving Party can prove:

 

(i)                                      has become part of the public domain other than by action or inaction of the Receiving Party;

 

(ii)                                   has been furnished or made known to the Receiving Party by third parties (other than those acting on behalf of the Disclosing Party) as a matter of legal right and without restriction on disclosure or use;

 

(iii)                                has been in the possession of the Receiving Party prior to disclosure by the Disclosing Party and was not previously acquired by the Receiving Party directly or indirectly from the Disclosing Party; or

 

(iv)                               is independently developed by the Receiving Party without access to the Confidential Information received hereunder.

 

40.6                         Upon request by the Disclosing Party, the Receiving Party shall, and shall ensure each of its Affiliates to, at its own expense, promptly take such steps as may be necessary to avoid, prevent, stop and/or remedy any breach by it and/or a Recipient of its obligations under this Section, and/or provide all assistance to the Disclosing Party in any action against the Recipient.

 

40.7                         The obligations under this Section 40 in respect of confidentiality shall continue in full force and effect for a period of five (5) years after the expiry or termination of this Contract.

 

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CHAPTER 17                 ANNOUNCEMENT

 

Article 41                                         Announcement

 

41.1                         Subject to compliance with Section 41.2, no announcement or circular in connection with the existence or any content of the Project, the existence or the subject matter or any content of any Project Document shall be made or issued by or on behalf of either Party, or caused or allowed by either Party to be made or issued, to the public without the prior written approval of the other Party, such approval not to be unreasonably withheld or delayed.

 

41.2                         Section 41.1 shall not apply to any announcement or circular required by law or the rules of any regulatory body or stock exchange with jurisdiction over the Disclosing Party; provided however that the Party with an obligation to make an announcement or issue a circular shall consult with the other Party insofar as is reasonably practicable before complying with such an obligation on any part of the announcement relating to the identification of such other Party and its activities.

 

CHAPTER 18                 DEADLOCK RESOLUTION

 

Article 42                                         Deadlock Resolution

 

42.1                         If the Board fails to reach a resolution or decision on any of the items under Section 20.2, which is required to be unanimously approved by all the Directors present in person or by proxy at a duly convened meeting of the Board or upon a unanimous written resolution signed by all the Directors pursuant to this Contract and the Articles of Association of JV Company and has been properly brought to it for discussion after [...***...] of Board meeting, then a deadlock (the “ Deadlock ”) shall be deemed to have occurred.

 

42.2                         Either Party may send a written notice (the “ Deadlock Notice ”) to the other Party of the existence of a Deadlock and the issue on which Deadlock has arisen. The Deadlock Notice shall specify in reasonable detail the nature of the issue giving rise to such Deadlock.

 

42.3                         Each Party shall, within [...***...] of delivery or receipt of the Deadlock Notice, as the case may be, promptly appoint a fully authorized senior negotiation representative (the “ Senior Representative ”) to deal with the Deadlock and shall notify the other Party of such appointment. A Senior Representative, with respect to either Party, shall be a representative of such Party who is not a Director, Management Personnel or Employee of the JV Company, and does not directly or indirectly report to any Director or Management Personnel of the JV Company, and is appointed and authorized directly by such Party’s board of directors or legal representative or senior

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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management. The Senior Representatives of the Parties shall enter into good faith negotiations and make commercially reasonable efforts to resolve the Deadlock within [...***...] of the date of the Deadlock Notice. Any solution plan for the Deadlock agreed by all of the Senior Representatives shall be deemed as final and the Parties shall cause their appointed Directors to vote for such plan at the next relevant Board meeting.

 

42.4                         If the Parties cannot reach any agreement on any Deadlock by the last day of the [...***...] period set forth in Section 42.3, the Party giving the Deadlock Notice shall have the right to terminate the Contract by giving the termination notice contemplated in Section 44.2.

 

42.5                         Notwithstanding any Deadlock, the Parties must, so far as it is reasonably practicable, continue to perform and comply with their respective obligations under this Contract which are not subject to the Deadlock, until the procedure described in Article 42 has been completed.

 

CHAPTER 19                 EQUITY TRANSFER, DEFAULT, TERMINATION AND LIQUIDATION

 

Article 43                                         Equity Transfer

 

43.1                         General principles for Transfer of equity interest in the JV Company

 

(a)                        Any action to sell, assign or otherwise transfer (for the avoidance of doubt, including any Transfer caused by Party A exercising the Call Option pursuant to Section 44.5, the “ Transfer ”) the equity interest in the JV Company shall not become effective unless upon compliance with all applicable provisions of this Section 43 (or other sections in this Contract if applicable).

 

(b)                        Without prejudice to the other provisions of this Contract, in each case of a Transfer under this Contract, each Party shall take, and shall cause to be taken, all necessary actions in a timely manner, and execute or cause to be executed all the necessary documents, to procure the closing of the Transfer within [...***...] or such other time period as agreed upon between the Parties (the “ Closing Period ”) from the first written notice from the Party calling the Transfer according to this Contract, including, without limitation, entry into an equity transfer agreement, the amendments to this Contract and the Articles of Association of JV Company, procuring Directors appointed by it in the Board to adopt resolutions and take other actions to approve the Transfer, and providing other assistance to the JV Company in obtaining the required approvals

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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from the Government Authority and completing registrations and filings with the relevant Registration Administration Authority.

 

(c)                        The Person acquiring the equity interest owned by a Party in the JV Company pursuant to this Contract, if not already a Party, shall execute an amendment to this Contract pursuant to which the acquiring Person shall become bound as a Party to this Contract (which shall specify the change in equity of the JV Company and the required and minimal amendment relating to the Transfer).

 

(d)                        Without prior written consent from Party A, Party B shall not transfer all or any part of the equity of the JV Company to any Person engaged in any activity in the scope of Business, including without limitation, the person and entity who operate no actual business within the scope of the Business but directly or indirectly Control the foresaid Person (collectively as a “ Competitor ”).

 

(e)                         Before the completion of the Debt-to-Equity Conversion pursuant to Article 12 hereof and the terms and conditions under the Capital Increase Agreement of Debt-to-Equity Conversion or (in the case of Party B choosing not to initiate the Debt-to-Equity Conversion) the delivery by Party B of the written notice under Section 12.4 (b) mandating no longer to initiate the Debt-to-Equity Conversion, without prejudice to any other provision under this Contract, neither Party may sell any part of the equity in the JV Company to any party other than the Parties hereto or any of their respective Affiliates.

 

(f)                          If Party B fails to perform the above item (d) or (e), or Party A fails to perform the above item (e), without prejudice and in addition to other rights and remedies available to the non-defaulting Party under Applicable Law or this Contract (including, without limitation, the non-defaulting Party’s right to indemnification under Article 46 and Party A’s right to terminate this Contract under Section 44.3), the non-defaulting Party shall have the right to deliver a reasonably detailed notice of breach to the defaulting Party and, if the defaulting Party fails to perform such obligation or cure such breach within [...***...] of its receipt of such notice, the defaulting Party shall, within [...***...] after the expiry of said [...***...] period, pay the non-defaulting Party a liquidated damages equivalent to [...***...] of the capital gain arising from such invalid Transfer (irrespective of the actual collection of the purchase price for such invalid Transfer). The payment of aforesaid liquidated damages shall not affect the defaulting Party’s obligation of specific performance to unwind the transfer of the equity interest that has been assigned due to the breach of this Contract and to restore the shareholding status prior to such

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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invalid Transfer.

 

43.2                         Transfer to a Third Party

 

Subject to Section 43.1, if at any time any Party (the “ Transferring Party ”) intends to Transfer all or part of its equity interest in the JV Company to a Person that is not its Affiliate, then:

 

(a)                        the Transferring Party shall give the other Party (the “ Non-transferring Party ”) a written notice of its intention to make the Transfer (the “ Transfer Notice ”), which Transfer Notice shall include (i) its intention to Transfer all or part of its equity interest in the JV Company (the “ Transferred Equity ”); (ii) the full name and registered business scope of the Person to which it proposes to Transfer the Transferred Equity (the “ Potential Buyer ”); and (iii) the proposed Transfer consideration of the Transferred Equity and the material terms and conditions upon which the proposed Transfer is to be made.

 

(b)                        The Non-transferring Party shall have an option for a period of [...***...] days from its receipt of the Transfer Notice (the “ Offering Period ”) to select (x) to purchase the Transferred Equity in its entirety at the same price and subject to the same terms and conditions as described in the Transfer Notice; or (y) not to exercise its purchase option under this Section 43.3 and to consent to the Transfer to the Potential Buyer.

 

(i)                            In the case of (x), the Parties shall enter into a written agreement providing for the closing of the Transfer of the Transferred Equity from the Transferring Party to the Non-transferring Party within the Closing Period.

 

(ii)                         In case of (y) or that the Non-transferring Party fails to give written notice before the expiration of the Offering Period or that the Non-transferring Party, after exercising its purchase option, fails to complete the Transfer of the Transferred Equity within the Closing Period (other than as a result of the breach of the Transferring Party), the Transferring Party may, during the subsequent [...***...] period, enter into a written agreement with the Potential Buyer to Transfer to it the Transferred Equity on terms and conditions not substantially more favorable to the Potential Buyer than those terms and conditions described in the Transfer Notice.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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43.3                         Transfer to an Affiliate

 

Subject to Section 43.1, each Party may Transfer all or part of the equity in the JV Company it owns to one of its Affiliate, provided that such Affiliate shall have full power and capability (including but not limited to the sufficient and adequate financial resources) to duly perform this Contract and all other Project Documents which will be assigned to such Affiliate together with the intended transfer of the equity interest in the JV Company and to assume all responsibilities and liabilities as a shareholder of the JV Company. Each Party undertakes to ensure that any such Affiliate to which it Transfers its equity interest in the JV Company shall immediately, upon such Affiliate ceasing to be an Affiliate of such Party, transfer all of such equity interest which such Affiliate then owns to such Party (or to another of such Party’s Affiliate).

 

43.4                         Neither Party may, except with prior written consent of the other Party:

 

(a)                        pledge any of its equity interest in the JV Company;

 

(b)                        enter into any agreement in respect of the votes attached to its equity interest in the JV Company; or

 

(c)                         transfer any economic interests in respect of its equity interest without transferring in full such equity interests in compliance with the term hereof.

 

Article 44                                         Early Termination

 

44.1                         This Contract may be terminated earlier than the expiration of the Joint Venture Term by the agreement between the Parties so made in writing.

 

44.2                         Prior to expiration of the Joint Venture Term and within [...***...] months of the occurrence of the related early termination event below, either Party shall have the right to unilaterally terminate this Contract by serving the other Party with a [...***...] prior written notice in which one of the subsequent actions to be taken as set forth in Section 44.4 shall be specified:

 

(a)          In the event that this Contract is not effective by the Long Stop Date; provided that, if the aforementioned event occurs due to the breach of one Party or any of its Affiliates of any Project Document, such Party shall not be entitled to the aforementioned unilateral termination right;

 

(b)          in the event of the other Party’s failure to contribute the registered capital it subscribes for in cash in accordance with Section 10.1, and failure to rectify within [...***...] upon receipt of such Party’s written notice requiring the rectification;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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(c)           in the event of the other Party’s breach of any provision under Article 12 and/or Article 10 hereof, causing failure to complete the Debt-to-Equity Conversion and/or Party A’s contribution of [...***...] within [...***...] from the un-cancelled and effective Commencement Date of Debt-to-Equity Conversion; or

 

(d)          if the other Party is brought into liquidation or bankruptcy proceeding or a receiver or administrator is appointed on its assets, or a substantial portion of its assets is sealed up, seized, forfeited or enforced by any Government Authority and not released within [...***...].

 

44.3                         Notwithstanding any provision to the contrary in this Contract, prior to the expiration of the Joint Venture Term and within [...***...] of the occurrence of the related early termination event below, Party A and only Party A shall have the right to unilaterally terminate this Contract by serving Party B with a [...***...] prior written notice in which one of the subsequent actions to be taken as set forth in Section 44.4 shall be specified:

 

(a)          if Party B fails to make available the Shareholder Loan from Party B for the JV Company to draw down within the time limit set forth under Section 11.1, and fails to rectify within [...***...] upon receipt of the written notice from Party A or the JV Company;

 

(b)          if Party B breaches its obligation regarding Transfer of equity under Section 43.1(d), and fails to restore to the original status per Party A’s request within [...***...] from the written notice of default by Party A (which shall be without any prejudice to the remedy under Section 43.1(f));

 

(c)           in the event of change of control over Party B, which results in the Control of Party B by any Competitor directly or indirectly; or

 

(d)          in the event of the material breach of the Investment Agreement by the Administrative Committee of Sino-Singapore Guangzhou Knowledge City, and the Administrative Committee of Sino-Singapore Guangzhou Knowledge City fails to cure such breach within [...***...] upon receipt of Party A’s notice or such breach is not curable.

 

44.4                         Consequence of Termination of this Contract

 

(a)          If any event of Section 44.2 (except for Section 44.2(a)) or 44.3 leading to the termination right of Party A, at the selection of Party A as specified in the termination notice in writing, Party A may:

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

45



 

(i)                  exercise the Call Option; or

 

(ii)               dissolve the JV Company, and initiate liquidation of the JV Company in accordance with Article 45.

 

(b)          If any event under Section 44.2 (except for Section 44.2(a)) leading to the termination right of Party B, at the selection of Party B as specified in the termination notice in writing, Party B may sell all of its equity interest in the JV Company to a third party that is not its Affiliate. For the avoidance of doubt, Party B’s Transfer of the equity to any third party in accordance with this section shall be subject to the provisions under Section 43.1(d) and Section 43.2.

 

If, within [...***...] of the occurrence of the related early termination event, both Parties have served the termination notice based on the same or different event, the termination notice firstly specifying the selection of Call Option shall prevail; otherwise the first termination notice shall prevail.

 

44.5                         In the event that Party A has the right to unilaterally terminate this Contract pursuant to Section 44.2 (except for Section 44.2(a)) and Section 44.3, Party B hereby irrevocably grants to Party A the right to purchase all of its equity interest in the JV Company by Party A or any Person designated by Party A at the Market Price, in which case Party B is obliged to sell or cause to be sold all the equity interest in the JV Company at the Market Price (the “ Call Option ”).

 

44.6                         The selection of Call Option as specified in the related termination notice, shall be deemed as the notice to exercise the respective option. The exercising of Call Option shall be conducted in a way in compliance with all Applicable Laws.

 

44.7                         In the event that Party A exercises Call Option pursuant to Section 44.4(a) or Party B transfers the equity to third party pursuant to Section 44.4(b), if such transaction must be conducted in a state-owned equity exchange through public auction under Applicable Laws, then the Parties shall exert their best efforts to initiate and complete the foresaid procedures in accordance with the Applicable Laws. The price of all the equity held by Party B in the JV Company which is determined through such public auction procedure or similar equity valuation procedure shall be regarded as the “ Market Price ”. Based on the Market Price and under the same terms and conditions, Party A shall be entitled to the right of first refusal under Section 43.2.

 

44.8                         Once the termination notice has been issued effectively pursuant to this

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Contract, each Party hereto agrees to urge its respective Director to vote for terminating this Contract, and, if the JV Company will be dissolved based on any agreement of this Contract, the Parties shall cooperate with good will to acquire all the required Authorization to initiate the dissolution and liquidation of the JV Company.

 

44.9                         If the Transfer as a result of exercising the Call Option is not closed within the Closing Period (except where the failure to timely close the Transfer is due to Party A’s fault), the JV Company shall be dissolved and liquidated in accordance with Article 45 upon the written request of Party A.

 

44.10                  In the event that any Party Transfers its equity to the other Party or the third Party, and during such time period of equity Transfer, the Parties shall make commercially reasonable efforts to ensure the regular business operation of JV Company within most possible scope. Any Party shall not encumber the business operation of JV Company.

 

44.11                  Article 28 (Costs and Expenses of the Parties), Article 40 ( Confidentiality), Article 41 (Announcement), Article 45 (Liquidation), Article 46 (Indemnification), Article 47 (Force Majeure), Article 48 (Governing Law), Article 49 (Arbitration), Article 50 (Notice) will remain effective after the termination of this Contract.

 

Article 45                                         Liquidation

 

45.1                         At the expiration of the Joint Venture Term, or in the event that the JV Company is to be dissolved pursuant to any provisions of this Contract, a liquidation committee shall be established to represent the JV Company in all matters concerning the liquidation of the JV Company’s assets in accordance with Applicable Law. The liquidation committee shall have the rights, powers and duties conferred by this Contract and by Applicable Law. The rules and procedures of the liquidation committee shall, subject to the express requirements of this Contract and under Applicable Law, be decided by the Board.

 

45.2                         The liquidation committee shall conduct a thorough examination of the JV Company’s assets and liabilities, propose a valuation of the assets of the JV Company and the basis of calculation and formulate a liquidation plan that will provide for the orderly discharge of the liabilities of the JV Company and reasonable maximization of the value of the assets of the JV Company. The liquidation plan shall be approved by the Parties and, unless otherwise agreed herein, shall ensure that the Parties have substantially equal opportunity with third parties to bid for or purchase all or a portion of the JV Company’s assets.

 

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Notwithstanding the foregoing, both Parties agree that, commencing from the initiation date of the liquidation of JV Company in accordance with this Article 45, Party A shall have the preemptive right over Party B and/or any third party to purchase the equity interest in any Subsidiary then held by the JV Company and any intellectual property rights owned by the JV Company and/or its Subsidiary based on the same terms and conditions. If, at the time Party A exercising its preemptive right to purchase the then equity interest in BeiGene GZ Factory held by the JV Company pursuant to this Section 45.2, the guarantee (if any) provided by Party B for the bank loan under the Bank Loan Agreement is not yet discharged, Party A shall take appropriate measures (including, without limitation, through taking over the relevant guarantee obligation) so as to release Party B from such contingent liability arising from the provided guarantee.

 

45.3                         Any valuation of the assets of the JV Company during or in respect of its liquidation shall be made on the basis of open market value on arm’s length commercial terms between a willing seller and a willing buyer and shall, unless the liquidation committee otherwise decides in accordance with its rules and procedures, be carried out by an independent appraiser which is of international repute and has presence in the PRC and is acceptable to the Board.

 

45.4                         All proceeds from the disposal of the assets of the JV Company pursuant to this Section 45 shall be applied to effect payments, in the following order of priority, to:

 

(i)                                      the liquidation costs and expenses, including reasonable remuneration payable to members of the liquidation committee who are not employees, management personnel or directors of a Party or the JV Company;

 

(ii)                                   salaries, social insurance premiums or welfare expenses due and payable to Employees of the JV Company;

 

(iii)                                taxes and other government charges due and payable;

 

(iv)                               fines and other financial penalties resulting from criminal, civil, or regulatory enforcement actions by Government Authorities against the JV Company resulting from the business of the JV Company, or fines and penalties against either Party relating to errors in financial statements or books and records that are not the result of willful misconduct or gross negligence by such Party or the Director or Management Personnel appointed or nominated by such Party;

 

(v)                                  all other outstanding liabilities of the JV Company; and

 

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(vi)                               the Parties in proportion to their respective shareholding percentage.

 

45.5                         On completion of all liquidation procedures, the liquidation committee shall submit the JV Company’s approval certificate and Business License to the relevant Government Authority and Registration Administration Authority.

 

CHAPTER 20                 INDEMNIFICATION

 

Article 46                                         Indemnification

 

46.1                         Without prejudice to any other provision regarding the specific default remedy in this Contract, each Party shall be liable to the other Party for all Losses arising out of or in connection with the default by such Party in the performance of its obligations under this Contract or any untrue, incomplete or incorrect representation or warranty made by such Party in this Contract.

 

46.2                         For the purpose of clarity, with respect to any breach under any Project Document, if either Party and/or any its Affiliates and/or the JV Company (or any of its Subsidiaries) has been indemnified in accordance with this Contract or any other Project Document (as the case may be), such party shall not file any claim based on the same breach or event in accordance with any other Project Document or this Contract (as the case may be), and shall not be entitled to double recovery or multiple recovery.

 

CHAPTER 21                 FORCE MAJEURE

 

Article 47                                         Event of Force Majeure

 

47.1                         To the extent either Party is prevented by an Event of Force Majeure from full, timely and proper performance of any of its obligations under this Contract, such contractual obligation shall be suspended while the Event of Force Majeure subsists and the due date for performance thereof shall be automatically extended, and such Party shall not be deemed as breaching this Contract during the extension time period and therefore needless of indemnifying the other Party.

 

The affected Party must, within [...***...] from the occurrence of such Event of Force Majeure or the recovery of communication conditions, both by facsimile and by express mail, notify the other Party of the details of such Event of Force Majeure and of the explicit explanation concerning its inability

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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to perform or inability to fully, timely and properly perform its obligations and relating obligation scope under this Contract due to the occurrence of such Event of Force Majeure.

 

47.2                         The Party encountering an Event of Force Majeure shall make all reasonable and possible efforts promptly to eliminate or reduce the adverse impact of such Event of Force Majeure, and to resume performance of all obligations after the impact of such Event of Force Majeure is eliminated or reduced.

 

CHAPTER 22                 GOVERNING LAW

 

Article 48                                         Governing Law

 

48.1                         The execution, effectiveness, performance, termination, liability of breach, and interpretation of this Contract as well as all the articles, sections, appendices, exhibits (including, without limitation, the interpretation of dispute resolution article hereunder) shall be governed by the laws of the PRC.

 

CHAPTER 23                 DISPUTE RESOLUTION

 

Article 49                                         Arbitration

 

49.1                         The Parties shall attempt to resolve through friendly consultations any dispute, controversy or claim arising out of or in connection with this Contract, including any question regarding the existence, validity, interpretation, breach or termination of this Contract (a “ Dispute ”).  If a Dispute arises, either Party may give written notice to the other Party, which notice shall set out brief details of the Dispute.

 

49.2                         If a Dispute has not been resolved through friendly consultations within [...***...] after the first written notice of such Dispute has been given by either Party, such Dispute shall be submitted to the [...***...] and finally settled by arbitration in [...***...] in accordance with the [...***...] Arbitration Rules in force at the time the Dispute is submitted for arbitration, which rules are deemed to be incorporated as part of this Contract by reference into this Section. The venue of arbitration shall be in [...***...]. The English and Chinese texts of this Contract shall be referred to in the arbitration, and all proceedings in such arbitration shall be conducted in Chinese. The arbitration award shall be rendered in English and Chinese, and both language versions shall be equally effective. The arbitration award shall be final and binding on both Parties from the day it is made. The costs of arbitration shall be borne by

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

50



 

the losing Party, unless otherwise specified in the arbitration award.

 

49.3                         The arbitration tribunal shall consist of three arbitrators. Each of Party A and Party B shall appoint one arbitrator, and the third arbitrator, who shall preside as chairman, shall be appointed by [...***...]. If either Party fails to appoint its arbitrator within [...***...] from the date of receipt of the notice of arbitration, the chairman of [...***...] shall appoint such arbitrators.

 

49.4                         During the course of any arbitration proceedings, all provisions of this Contract shall, to the most feasible and practicable extent, be implemented continuously by the Parties except for those provisions which are the subject of any Dispute referred to arbitration in accordance with this Section 49.

 

49.5                         Party B hereby confirms that, it shall not claim for immunity, on the grounds of its identity as state-owned enterprise, from the arbitration under this Article 49.

 

CHAPTER 24                 NOTICE

 

Article 50                                         Notice

 

50.1                         Any notices, requests, demands, claims and other communications hereunder shall be in writing in both the English and Chinese languages and shall be delivered personally, sent by facsimile, internationally recognized overnight courier, or mailed by registered mail (return receipt requested, postage prepaid) or email, to the Parties at the legal addresses or at such address of a Party as specified by it by a notice sent in accordance with this section.

 

50.2                         The contact information of both Parties is as follows,

 

Party A

 

BeiGene (Hong Kong) Co., Limited

 

 

 

Legal Address:

 

13/F, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong

 

 

 

Addressee:

 

John V. Oyler

 

 

 

Tel:

 

[...***...]

 

 

 

Fax:

 

[...***...]

 

 

 

E-mail:

 

[...***...]

 

Party A

 

Guangzhou GET Technology Development Co., Ltd.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Legal Address:

 

Room 901, No. 273 Science City, Science Road, Hi-Tech Industry Development Zone, Guangzhou, PRC

 

 

 

Addressee:

 

Yan Yibin

 

 

 

Tel:

 

[...***...]

 

 

 

Fax:

 

[...***...]

 

 

 

E-mail:

 

[...***...]

 

50.3                         Either Party may change its address or contact information for receipt of notices at any time by giving written notice of such change to the other Party. Changes of the addressee, address or of any of the above information of one Party shall be promptly communicated to the other Party, as provided herein; if such communication has not been received in accordance with Section 50.4, the notice or communication delivered to the addressees or at the addresses above shall be deemed to have been regularly sent and received.

 

50.4                         All such notices and other communications shall be deemed to have been received: (1) in the case of personal delivery, on the date of such delivery; (2) in the case of mailing and overnight mail, on the date of receipt; and (3) in the case of facsimile transmission, when confirmed by a facsimile machine report; (4) in the case of email, on the date of the corresponding email reaching to receiving party’s email server, provided that the Party sending the notice shall deliver a copy of the notice in any of the other three ways mentioned above immediately (not later than the third Business Day) after sending the email.

 

CHAPTER 25                 EFFECTIVENESS

 

Article 51                                         Effectiveness of the Contract

 

51.1                         This Contract shall take effect from the Establishment Date.

 

CHAPTER 26                 MISCELLANEOUS

 

Article 52                                         Further Assurance

 

52.1                         Other relevant matters not specifically addressed by this Contract shall be discussed and may be agreed by the Parties and, if so, separate legal documents shall be signed by the Parties accordingly.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Article 53                                         Language

 

53.1                         This Contract is made and executed in ten (10) originals in Chinese and ten (10) originals in English, of which Party A shall keep two (2) originals in Chinese and two (2) originals in English, and Party B shall keep four (4) originals in Chinese and four (4) originals in English. The other originals shall be kept by the JV Company to be used for obtaining the requisite approvals from Government Authority and to complete the registration and filing with relevant Registration Administration Authority. The two language versions shall have equal validity and legal effect.

 

Article 54                                         Waiver and Amendment

 

54.1                         Any provision hereof may be amended or waived, but only if such amendment or waiver is in writing and is signed by both Parties. Unless otherwise explicitly provided in this Contract, no failure or delay of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power and privilege. The rights and remedies provided herein shall be cumulative and shall not exclude any rights or remedies under law.

 

Article 55                                         Successors and Assigns

 

55.1                         This Contract, when applicable, shall be binding upon and shall inure to the benefit of each Party hereto and their respective permitted heirs, successors and assigns.

 

Article 56                                         Severability

 

56.1                         If an authority of competent jurisdiction holds that any part of this Contract not essentially affecting the purpose hereof is illegal, invalid or unenforceable, then the remaining provisions or portions thereof shall remain in full force and effect and shall constitute the agreement between the Parties with respect to the subject matter hereof. To the extent permitted under Applicable Law, the Parties shall replace any illegal, invalid or unenforceable provision of this Contract with a valid provision having the same commercial effect.

 

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Article 57                                         Entire Agreement

 

57.1                         The appendices hereto shall constitute the integral part of this Contract. This Contract and the other Project Documents constitute the entire agreement between the Parties and supersedes all prior discussions, negotiations and agreements between the Parties with respect to the subject matter hereof. This Contract shall include this Contract and its appendices as amended, varied, supplemented, replaced and/or restated in any manner from time to time.

 

57.2                         In the case of any discrepancy between this Contract and the Articles of Association of JV Company, this Contract shall prevail and the Parties shall amend the Articles of Association of JV Company to rectify the discrepancy. In the event of any conflict between this Contract’s appendices and the main body of this Contract, the main body of this Contract shall prevail.

 

[The rest of the page is intentionally left blank]

 

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Appendix 12.6 Form Capital Increase Agreement of Debt-to-Equity Conversion

 

This Capital Increase Agreement (this “ Agreement ”) is entered into on [  ] by and among:

 

BeiGene (Hong Kong) Co., Limited, a limited liability company incorporated under the laws of Hong Kong, with its registered place of business at 13/F, Gloucester Tower, The Landmark, 15 Queen’s Road, Central, Hong Kong (“ BeiGene ”);

 

Guangzhou GET Technology Development Co., Ltd., a limited liability company incorporated under the laws of the People’s Republic of China (the “ PRC ” or “ China ”), with its registered place of business at Room 901, No.237 Science Avenue, Science City, Guangzhou High-tech Industrial Development Zone, Guangzhou, the PRC (“ GET ”); and

 

BeiGene Biologics Co., Ltd., a limited liability company incorporated under the laws of the PRC, with its registered place of business at Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, Guangzhou (the “ Company ” or “ BeiGene Biologics ”);

 

BeiGene, GET and the Company are individually referred to as a “ Party ” and collectively as the “ Parties ” hereinafter.

 

Whereas , the Company is a limited liability company incorporated on [...***...] under the laws of the PRC, and was converted to a Sino-foreign joint venture enterprise on [              , 2017], with the detailed information of the Company immediately prior to the date hereof being set forth in Appendix 1 attached hereto; as of the date hereof, the total investment of the Company is RMB[  ], and the registered capital of the Company is RMB[  ], with BeiGene and GET respectively holding [  ]% and [  ]% of the equity interest in the Company;

 

Whereas , GET and the Company entered into a Shareholder Loan Contract on March 7, 2017 (the “ Shareholder Loan Contract ”), pursuant to which, GET provided a shareholder loan to the Company with the principal of RMB900,000,000 (say, nine hundred million Renminbi yuan ) on [            , 2017]; as of the date hereof, the aggregate amount of the outstanding principal with the accrued interest of such shareholder loan is RMB[   ];

 

Whereas , BeiGene and GET entered into an Amended Equity Joint Venture Contract Regarding BeiGene Biologics Co., Ltd. on April 11, 2017 (the “ Joint Venture Contract ”), pursuant to which, GET will carry out a capital increase to the Company in the form of debt-to-equity conversion by using, in whole or in part, the aggregate amount of the principal and interest of the shareholder loan under the Shareholder

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Loan Contract pursuant to Article 12 of the Joint Venture Contract;

 

Whereas , to perform the provisions under the Joint Venture Contract, the Company is willing to issue the Increased Registered Capital, and GET is willing to subscribe for the Increased Registered Capital in the form of debt-to-equity conversion, in accordance with the terms and conditions hereof (this “ Capital Increase ”).

 

Therefore , on basis of the premises and mutual obligations hereof, it is agreed by the Parties as follows:

 

1.                                               Definitions

 

1.1                                        Unless otherwise provided under the terms hereof, the following terms shall have the following respective meanings:

 

Affiliate ” has the meaning set forth in the Joint Venture Contract. For the purposes of this Agreement only, the Company, and other entity under its Control from time to time, shall not be regarded as an Affiliate of either BeiGene or GET;

 

Applicable Law ” means, to any Person, any laws applicable to such Person, or any laws, regulations, rules, guidelines, instructions, treaties, judgments, decrees, orders, notices, rulings, and decisions promulgated by any government authorities, regulatory administrations or stock exchanges which enjoy jurisdiction over such Person;

 

[...***...] ” has the meaning set forth in Section 9.2;

 

Closing Date ” shall be the issuance date recorded on the updated business license acquired by the Company for the Capital Increase;

 

Confidential Information ” has the meaning set forth in Section 7.1;

 

Capital Increase ” has the meaning set forth in Whereas Clause;

 

Debt-to-Equity Amount ” has the meaning set forth in Section 2.2;

 

Disclosing Party ” has the meaning set forth in Section 7.1;

 

Increased Registered Capital ” has the meaning set forth in Section 2.1;

 

Joint Venture Contract ” has the meaning set forth in Whereas Clause;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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Losses ” for the purpose of this Agreement, means any and all judgments, liquidations, orders, claims, litigations or causes of action, taxes, debts, losses, damages (not including any indirect, incidental or consequential damages), interests, fines, punishments, fees and expenses (including reasonable attorney, accountant and other fees and expenses);

 

Project Documents ” has the meaning set forth in the Joint Venture Contract;

 

Person ” means any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, consortium, unincorporated organization, other entity or government authority;

 

PRC ” or “ China ” has the meaning set forth in the Preamble, and for the purpose of this Agreement, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan;

 

Receiving Party ” has the meaning set forth in Section 7.1;

 

Recipient ” has the meaning set forth in Section 7.1;

 

RMB ” or “ Renminbi ” means the lawful currency of the PRC;

 

Shareholder Loan Contract ” has the meaning set forth in Whereas Clause.

 

1.2                                        When a reference is made in this Agreement to an Article, Section, Clause, Exhibit, Appendix, Schedule, Recitals or Preamble, such reference is to such items as they relate to this Agreement and such items shall be deemed to form an integral part of this Agreement.

 

1.3                                        The table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

 

1.4                                        Whenever the words “include”, “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”.

 

3



 

1.5                                        The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

1.6                                        The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms.

 

1.7                                        Any law defined or referred to herein or in any agreement or instrument that is referred to herein means such law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor laws.

 

1.8                                        A reference to a document is a reference to such document as modified or amended from time to time.

 

1.9                                        Unless otherwise explicitly provided, the dates and times referred to herein are in Beijing time.

 

2.                                               Capital Increase Subscription

 

2.1                                        In accordance with the terms and conditions hereof, the registered capital of the Company shall be increased by RMB[   ] (the “ Increased Registered Capital ”). From the Closing Date, the registered capital of the Company shall be increased to RMB[   ], and the total investment shall be increased to RMB[   ].

 

2.2                                        The Increased Registered Capital of the Company shall be subscribed by GET in the form of debt-to-equity conversion by using the principal and accrued interest of the shareholder loan under the Shareholder Loan Contract in an aggregated amount of RMB[   ] (the “ Debt-to-Equity Amount ”).

 

2.3                                        From the Closing Date, the shareholding proportions and corresponding registered capital of BeiGene and GET in the Company are as follows:

 

Shareholder
Name

 

Shareholding
Proportion

 

Subscribed
Registered
Capital (RMB)

 

Form of
Contribution

 

Time for Actual
Contribution

BeiGene

 

[   ]%

 

[...***...]

 

1.          Cash in USD with an amount equivalent to RMB200,000,000

 

Cash in USD with an amount equivalent to [...***...] has been paid on [ , 2017];
Cash in USD with an amount equivalent to [...***...] has been paid

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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on [   ] [Note: if [...***...] has not been paid as of the date hereof, this sentence should be accordingly adjusted.]

 

 

 

 

 

 

[...***...]

 

Contributed on [   ]

GET

 

[   ]%

 

[...***...]

 

Cash in RMB

 

Paid-in on [      , 2017]

 

 

 

 

[     ]

 

Debt-to-Equity Conversion

 

Pursuant to Section 3.1 hereof

 

3.                                               Capital Contribution

 

3.1                                        Contribution by GET of Increased Registered Capital

 

The Debt-to-Equity Amount of GET shall be deemed to have been contributed to the Company on the Closing Date. It is agreed by each Party that, RMB[   ] of the Debt-to-Equity Amount shall be booked as the registered capital of the Company from the Closing Date, and the other remaining RMB[   ] shall be booked as the capital reserves of the Company.

 

3.2                                        The Company shall engage an accounting firm qualified to provide capital verification services according to PRC laws, to verify the capital contribution of GET within [...***...] after the Closing Date and to issue the capital verification report. The Company shall issue one or more capital contribution certificates signed by the chairman of the board of the Company to GET on the basis of the capital verification report within [...***...] after receipt of such report. The Company shall keep a capital contribution register at its main place of business, and shall update the register immediately after the issuance of capital contribution certificate to GET.

 

3.3                                        Upon the execution of this Agreement, each Party shall immediately take all necessary actions (including causing the directors appointed by it in the Company to approve the relevant resolutions of the board of directors) and sign all necessary documents, to complete all government registration, filing and other procedures required for this Capital Increase as soon as possible, including without limitation, the foreign investment enterprise filing with commercial department, the registration of change with administration of industry and commerce. The following information shall be included in the updated business license and the corresponding registration documents for this Capital Increase: (a) the registered capital of the Company changed to RMB[  ], (b) the total paid-in capital of the Company changed to RMB[   ],

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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(c) the total investment changed to RMB[  ]. From the Closing Date, unless otherwise provided hereof or agreed by each Party or under the Applicable Laws, GET shall enjoy full rights and interests as the shareholder as to the newly subscribed equity of the Company hereunder.

 

4.                                               Representations and Warranties

 

4.1                                        In addition to any representations and warranties otherwise made in this Agreement, each Party hereby represents and warrants to the other Parties that on the date hereof:

 

(i)                                      it is a corporate entity duly organized and validly existing under the laws of the jurisdiction of its incorporation and is in compliance with all requirements of laws of the jurisdiction of its incorporation;

 

(j)                                     it has full corporate power and authority, and all necessary authorizations (to GET, including the approval/filing of State-owned Assets Supervision and Administration Commission) and third party consents to enter into this Agreement and to perform its obligations under this Agreement, and has taken all necessary actions to authorize its entry into and performance of this Agreement;

 

(k)                                  its representative(s) have been fully authorized to sign this Agreement on its behalf;

 

(l)                                      this Agreement shall constitute its legal, valid, binding and enforceable obligations once this Agreement becomes effective ;

 

(m)                              the execution, delivery and performance of this Agreement will not violate in any way its business license, certificate of incorporation, corporate constitutional documents, or any applicable laws, rules, decrees, authorizations or approvals, or any provisions of any contractual arrangements to which it is a party or is otherwise bound;

 

(n)                                  no directors or employees of any Party have received, requested, offered, or given anything of value, nor any financial or other advantages, in connection with the negotiation, execution, delivery, or performance of this Agreement;

 

(o)                                  no litigation or legal proceeding of any arbitrator or government authority is pending (or, to the knowledge of such Party, threatened) against such Party that may lead to or cause material adverse effect to: (a) its execution and delivery of this Agreement; and (b) its

 

6



 

performance of this Agreement; and

 

(p)                                  in any proceedings taken by any Person in its jurisdiction of incorporation in relation to this Agreement or the transactions contemplated hereby, it will not be entitled to claim for itself or any of its assets immunity from arbitration, suit, execution, attachment or other legal process.

 

4.2                                        Each Party further undertakes that, all the representations and warranties made by the Party under Section 4.1 shall remain true and accurate until the Closing Date, unless the Party notifies the other Parties otherwise in writing.

 

5.                                               Liabilities for Breach

 

5.1                                        Subject to Section 5.3 below, without prejudices to any other liability of breach under this Agreement or any Applicable Laws, each Party shall be responsible for all direct Losses of the other Parties arising out of or in connection with its breach of obligations hereunder or any untrue, incomplete or inaccurate representation or warranty made by such Party hereunder.

 

5.2                                        Subject to Section 5.3 below, without prejudices to any remedies enjoyed by any Party under this Agreement or any Applicable Laws, the liability of breach set forth in Section 12.7 of the Joint Venture Contract shall apply.

 

5.3                                        For the purpose of clarity, with respect to any breach under any Project Document, if either Party and/or its Affiliate and/or the Company (or its any subsidiary) has been indemnified in accordance with this Agreement or any other Project Document, then such Party shall not file any claim based on the same breach in accordance with any other Project Document, and shall not be entitled to double recovery or multiple recovery.

 

6.                                               Termination of Agreement

 

6.1                                        This Agreement may be terminated by the agreement among the Parties so made in writing.

 

6.2                                        Prior to the Closing Date and within [...***...] of the occurrence of the related early termination event below, any Party shall have the right to unilaterally terminate this Agreement by serving the other Parties with a [...***...] prior written notice:

 

(a)              in the event of any other Party’s material breach of this Agreement, and such other Party fails to rectify within [...***...] upon the receipt of such Party’s notice or the breach is not remediable; or

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

7



 

(b)              if the Closing Date has not occurred within [...***...] from the date hereof; provided that, if the aforementioned event occurs due to the breach of one Party or its Affiliates of this Agreement, such Party shall not be entitled to the aforementioned unilateral termination right.

 

6.3                                        If this Agreement is terminated according to this Section 6, all further obligations of the Parties hereunder shall terminate, and no Party shall take further responsibility to each other Party. However, the aforementioned provision shall not affect the existing rights and obligations of each Party accrued before the termination date.

 

6.4                                        Section 6 (Termination of Agreement), Section 7 (Confidentiality), Section 8 (Governing Law), Section 9 (Arbitration), Section 10 (Miscellaneous) shall remain effective after termination of this Agreement.

 

7.                                               Confidentiality

 

7.1                                        Under this Section 7, “Confidential Information” means all information (including, without limitation, financial, price and cost information) disclosed (whether in writing, orally or by another means and whether directly or indirectly) by a Party or any of its Affiliates (“ Disclosing Party ”) to any other Party or any of its Affiliates (“ Receiving Party ”) or obtained by the Receiving Party from the Company whether before or after the date hereof, including information relating to the Disclosing Party or the Company’s business, affairs, clients, customers, suppliers, products, operations, technology, intellectual property, financial information, processes, plans or intentions, know-how, design rights, trade secrets and market opportunities.

 

7.2                                        The Receiving Party shall, and shall ensure that each of its Affiliates shall:

 

(v)                                  keep the Confidential Information confidential as it treats its own confidential information;

 

(vi)                               not use Confidential Information except for use by the relevant Party for the performance of its obligations under this Agreement or any other Project Document;

 

(vii)                            not disclose Confidential Information to any person except with the prior written consent of the Disclosing Party or in accordance with Sections 7.3 and 7.4; and

 

(viii)                         exert its best efforts to prevent the use or disclosure of Confidential

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

8



 

Information.

 

7.3                                        During the term of this Agreement, the Receiving Party may disclose Confidential Information to any of its directors, other officers and employees (a “ Recipient ”) to the extent that (1) the disclosure is reasonably necessary for the purposes of this Agreement or any other Project Document, and (2) the Receiving Party shall ensure that a Recipient is aware of and complies with the Receiving Party’s obligations of confidentiality under this Agreement as if the Recipient was a party to this Agreement.

 

7.4                                        When required by Applicable Law, the Receiving Party may disclose Confidential Information to government authorities, after reasonable notice to and discussion with the Disclosing Party, and based on the principle of minimal disclosure to the extent permitted by Applicable Law. However, notwithstanding the terms of this Section 7, in the event that any Party is aware that another Party (in connection with the business of the Company) has violated any Applicable Law in respect of environmental, health and safety, anti-corruption, or anti-unfair competition, such Party may, after reasonable notice to and discussion with the other Parties, make any appropriate disclosures to relevant government authorities.

 

7.5                                        Sections 7.2 to 7.4 shall not apply to Confidential Information which the Receiving Party can prove:

 

(v)                                  has become part of the public domain other than by action or inaction of the Receiving Party;

 

(vi)                               has been furnished or made known to the Receiving Party by third parties (other than those acting on behalf of the Disclosing Party) as a matter of legal right and without restriction on disclosure or use;

 

(vii)                            has been in the possession of the Receiving Party prior to disclosure by the Disclosing Party and was not previously acquired by the Receiving Party directly or indirectly from the Disclosing Party; or

 

(viii)                         is independently developed by the Receiving Party without access to the Confidential Information received hereunder.

 

7.6                                        Upon request by the Disclosing Party, the Receiving Party shall, and shall ensure each of its Affiliates to, at its own expense, promptly take such steps as may be necessary to avoid, prevent, stop and/or remedy any breach by it and/or a Recipient of its obligations under this Section, and/or provide all assistance to the Disclosing Party in any action against the Recipient.

 

9



 

7.7                                        The obligations in this Section 7 in respect of confidentiality shall continue in full force and effect for a period of [...***...] after the expiry or termination of this Agreement.

 

8.                                               Governing Law

 

8.1                                        The execution, effectiveness, performance, termination, liability of breach, and interpretation of this Agreement as well as all the articles, appendices, exhibits (including, without limitation, the interpretation of dispute resolution article hereunder) shall be governed by the laws of the PRC.

 

9.                                               Arbitration

 

9.1                                        The Parties shall endeavor to resolve through friendly consultations any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding the existence, validity, interpretation, breach or termination of this Agreement (the “ Dispute ”).  If a Dispute arises, any Party may give written notice to the other Parties, which notice shall set out brief details of the Dispute.

 

9.2                                        If a Dispute has not been resolved through friendly consultations within sixty (60) days after first written notice of such Dispute has been given by any Party, such Dispute shall be submitted to the [...***...] and finally settled by arbitration in [...***...] in accordance with the [...***...] Arbitration Rules in force at the time the Dispute is submitted for arbitration, which rules are deemed to be incorporated as part of this Agreement by reference into this Section. The seat of arbitration shall be in [...***...]. The English and Chinese texts of this Agreement shall be referred to in the arbitration, and all proceedings in such arbitration shall be conducted in Chinese. The arbitration award shall be rendered in English and Chinese versions, and both versions shall be equally effective. The arbitration award shall be final and binding on all the Parties from the day it is made. The costs of arbitration shall be borne by the losing Party, unless otherwise specified in the arbitration award.

 

9.3                                        The arbitration tribunal shall consist of three arbitrators. BeiGene and BeiGene Biologics shall jointly appoint one arbitrator, GET shall appoint another, and the third arbitrator, who shall preside as chairman, shall be appointed by [...***...]. If any Party fails to appoint its arbitrator within [...***...] days from the date of receipt of the notice of arbitration, the chairman of [...***...] shall appoint such arbitrator.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

10



 

9.4                                        During the course of any arbitration proceedings, all provisions of this Agreement shall, to the most feasible and practicable extent, be implemented continuously by the Parties except for those provisions which are the subject of any Dispute referred to arbitration in accordance with this Section 9.

 

9.5                                        GET hereby confirms that, it shall not claim for immunity, on the grounds of its identity as state-owned enterprise, from the arbitration under this Article 9.

 

10.                                        Miscellaneous

 

10.1                                 This Agreement shall take effect on the date of affixation of signature and corporate seal by the duly authorized representative of each Party.

 

10.2                                 Each Party shall undertake the expenses and costs occurred in course of the negotiation, delivery or performance of this Agreement at its own expense, including but not limited to the expense in relation to hiring professional accountants and legal councils.

 

10.3                                 This Agreement is made and executed in 10 originals in Chinese and 10 originals in English, of which each Party shall keep 2 originals in Chinese and 2 originals in English, and the rest 4 originals shall be kept by BeiGene Biologics for the filing and registration procedures in relation to this Capital Increase. The two language versions shall have equal validity and legal effect.

 

10.4                                 Any provision hereof may be amended or waived, but only if such amendment or waiver is in writing and is signed by each Party. Unless otherwise explicitly provided in this Agreement, no failure or delay of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power and privilege. The rights and remedies provided herein shall not exclude any rights or remedies under law.

 

10.5                                 This Agreement, when applicable, shall be binding upon and shall inure to the benefit of each Party hereto and to their respective permitted heirs, successors and assigns.

 

10.6                                 If an authority of competent jurisdiction holds that any part of this Agreement not essentially affecting the purpose hereof is illegal, invalid or unenforceable, then the remaining provisions or portions thereof shall remain in full force and effect and shall constitute the agreement among the Parties with respect to the subject matter hereof. To the extent permitted under

 

11



 

Applicable Law, the Parties shall replace any illegal, invalid or unenforceable provision of this Agreement with a valid provision having the same commercial effect.

 

10.7                                 The appendices hereto shall constitute the integral part of this Agreement.  This Agreement and the other Project Documents constitute the entire agreement among the Parties and supersedes all prior discussions, negotiations and agreements among the Parties with respect to the subject matter hereof. This Agreement shall include this Agreement and its appendices as amended, varied, supplemented, replaced and/or restated in any manner from time to time.

 

12



 

IN WITNESS HEREOF, each Party of this Agreement has caused its duly authorized representative to sign this Agreement on the date specified on the first page hereof.

 

BeiGene (Hong Kong) Co., Limited

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

Guangzhou GET Technology Development Co., Ltd. (Seal)

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

BeiGene Biologics Co., Ltd. (Seal)

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

13



 

Appendix 20.3 Project Funds Use Plan

 

[...***...]

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

1



 

IN WITNESS HEREOF, each Party of this Contract has caused its duly authorized representatives to sign this Contract on the date specified on the first page hereof.

 

Party A: BeiGene (Hong Kong) Co., Limited (Seal)

 

 

 

Signed by:

 /s/ John Victor Oyler

 

 

 

 

Name: John Victor Oyler

 

 

 

Title: Founder & CEO

 

 

 

 

 

Party B: Guangzhou GET Technology Development Co., Ltd., (Seal)

 

 

 

Signed by:

 /s/ Yibin Yan

 

 

 

 

Name: Yibin Yan

 

 

 

Title: Chairman & Legal Representative

 

 

Signature Page to Joint Venture Contract

 


Exhibit 10.2

 

Execution Version

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[...***...].” A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE U.S. SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

Amended Capital Increase Agreement

 

with respect to

 

BeiGene Biologics Co., Ltd.

 

among

 

BeiGene (Hong Kong) Co., Limited

 

and

 

Guangzhou GET Technology Development Co., Ltd.

 

and

 

BeiGene Biologics Co., Ltd.

 

April 11, 2017

 



 

This Amended Capital Increase Agreement (this “ Agreement ”) is entered into on April 11, 2017 by and among:

 

BeiGene (Hong Kong) Co., Limited , a limited liability company incorporated under the laws of Hong Kong, with its registered place of business at 13/F, Gloucester Tower, The Landmark, 15 Queen’s Road, Central, Hong Kong (“ BeiGene ”)

 

Guangzhou GET Technology Development Co., Ltd. , a limited liability company incorporated under the laws of the People’s Republic of China (“ PRC ” or “ China ”), with its registered place of business at Room 901, No.237 Science Avenue, Science City, Guangzhou High-tech Industrial Development Zone, the PRC (“ GET ”); and

 

BeiGene Biologics Co., Ltd. , a limited liability company incorporated under the laws of the PRC, with its registered place of business at Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, Guangzhou (the “ Company ”);

 

BeiGene, GET and the Company are individually referred to as a “ Party ” and collectively as the “ Parties ” hereinafter.

 

Whereas , the Company is a foreign invested enterprise incorporated on [...***...] under the laws of the PRC, with detailed information of the Company immediately prior to the date hereof set forth in Appendix 1 attached hereto; as of the date hereof, the registered capital of the Company is [...***...], and BeiGene owns 100% of the equity interest in the Company;

 

Whereas , an Investment Agreement (the “ Investment Agreement ”) was entered into between BeiGene and the Administrative Committee of Sino-Singapore Guangzhou Knowledge City on March 7, 2017, according to which, the Administrative Committee of Sino-Singapore Guangzhou Knowledge City designates GET to subscribe the additional registered capital of the Company jointly with BeiGene;

 

Whereas , to endeavor to achieve the cooperation purpose specified in the Investment Agreement, the Company is willing to issue according to the terms and conditions hereof, and BeiGene and GET are willing to subscribe for the additional registered capital of the Company according to the terms and conditions hereof (the “ Capital Increase ”); after the Capital Increase, the Company will be converted to a Sino-foreign joint venture enterprise;

 

Whereas , a Capital Increase Agreement with respect to BeiGene Biologics Co., Ltd. was executed by BeiGene, GET and the Company on March 7, 2017. After the signing thereof, the Parties, through friendly negotiation, decide to make amendments to certain provisions under such Capital Increase Agreement and therefore enter into

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

2



 

this Amended Capital Increase Agreement.

 

Therefore, on basis of the premises and mutual obligations hereof, it is agreed by the Parties as follows:

 

1.                                               Definitions

 

1.1                                        Unless otherwise provided under the terms hereof, the following terms shall have the following respective meanings:

 

Affiliates ” has the meaning set forth in the Joint Venture Contract. For the purposes of this Agreement only, the Company, and other entity under its Control from time to time, shall not be regarded as an Affiliate of either BeiGene or GET;

 

Applicable Law ” means, to any Person, any laws applicable to such Person, or any laws, regulations, rules, guidelines, instructions, treaties, judgments, decrees, orders, notices, rulings, and decisions promulgated by any government authorities, regulatory administrations or stock exchanges which enjoy jurisdiction over such Person;

 

Bank Loan Agreement ” has the meaning set forth in the Joint Venture Contract;

 

[...***...] ” means [...***...];

 

[...***...] ” has the meaning set forth in Section 9.2;

 

Closing Date ” has the meaning set forth in Section 3.5;

 

Confidential Information ” has the meaning set forth in Section 7.1;

 

Default Amount ” has the meaning set forth in Section 5.1;

 

Capital Increase ” has the meaning set forth in Whereas Clause;

 

Disclosing Party ” has the meaning set forth in Section 7.1;

 

Investment Agreement ” has the meaning set forth in Whereas Clause;

 

Joint Venture Contract ” means the “Amended Equity Joint Venture Contract for the Establishment of BeiGene Biologics Co., Ltd.” entered into between BeiGene and GET on the date hereof;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

3



 

Losses ” for the purpose of this Agreement, means any and all judgments, liquidations, orders, claims, litigations or causes of action, taxes, debts, losses, damages (not including any indirect, incidental or consequential damages), interests, fines, punishments, fees and expenses (including reasonable attorney, accountant and other fees and expenses) ;

 

Project Documents ” has the meaning set forth in the Joint Venture Contract;

 

Person ” means any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, consortium, unincorporated organization, other entity or government authority.

 

PRC ” or “ China ” has the meaning set forth in the Preamble, and for the purpose of this Agreement, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan;

 

Receiving Party ” has the meaning set forth in Section 7.1;

 

Recipient ” has the meaning set forth in Section 7.1;

 

RMB or “ Renminbi ” means the lawful currency of the PRC;

 

Business Day ” means any day other than a Saturday, Sunday, or a statutory holiday in the PRC.

 

1.2                                        When a reference is made in this Agreement to an Article, Section, Clause, Exhibit, Appendix, Schedule, Recitals or Preamble, such reference is to such items as they relate to this Agreement and such items shall be deemed to form an integral part of this Agreement.

 

1.3                                        The table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

 

1.4                                        Whenever the words “include”, “includes” or “including” are used in this Agreement, they are deemed to be followed by the words “without limitation”.

 

4



 

1.5                                        The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

1.6                                        The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms.

 

1.7                                        Any law defined or referred to herein or in any agreement or instrument that is referred to herein means such law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor laws.

 

1.8                                        A reference to a document is a reference to such document as modified or amended from time to time.

 

1.9                                        Unless otherwise explicitly provided, the dates and times referred to herein are in Beijing time.

 

2.                                               Capital Increase Subscription

 

2.1                                        In accordance with the terms and conditions hereof, the registered capital of the Company shall from the Closing Date be increased to [...***...], and the total investment shall be increased to [...***...].

 

2.2                                        The original and additional registered capital of the Company shall be subscribed by BeiGene and GET respectively according to the following provisions and the time limit provided hereof:

 

(a)              BeiGene shall subscribe for the additional registered capital, and, upon closing of this Capital Increase, contribute 95% of the Company’s registered capital with (i) cash in US Dollars with an amount equivalent to RMB200,000,000 (say, two hundred million Renminbi yuan , inclusive of its paid-in capital on or before the Closing Date) and (ii) [...***...], BeiGene shall make contribution to the Company with other valuable assets of BeiGene, so as to fulfill its contribution obligation (for the purpose of clarity, if valuation is required for the contribution of such other assets, the valuation method for such assets should be in line with that for [...***...]).

 

(b)              GET shall subscribe for the additional registered capital, and, upon closing of this Capital Increase, contribute 5% of the Company’s registered capital in RMB cash of [...***...].

 

2.3                                        From the Closing Date, the shareholding proportions and corresponding

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

5



 

registered capital of BeiGene and GET in the Company are as follows:

 

Shareholder
Name

 

Shareholding
Proportion

 

Subscribed
Registered
Capital (RMB)

 

Form of Contribution

 

Time for Actual
Contribution

BeiGene

 

95%

 

[...***...]

 

1.          Cash in USD with amount equal to RMB200,000,000;

 

Pursuant to Section 3.1 hereof

 

 

 

 

 

 

2.          [...***...]

 

Pursuant to Section 3.2 hereof

GET

 

5%

 

[...***...]

 

Cash in RMB

 

Pursuant to Section 3.1 hereof

 

3.                                               Capital Contribution

 

3.1                                        Capital Contribution in Cash

 

(a)              Subject to Section 3.3 hereof, BeiGene shall in one lump-sum pay certain amount of US Dollars cash so as to make its paid-in capital reaching [...***...], and GET shall make all its RMB cash contributions of [...***...] in one lump-sum, in each case not later than the third (3) Business Day after the Closing Date. Each Party shall deposit the respective cash contribution into the RMB or foreign exchange account designated by the Company in writing. BeiGene’s cash contribution shall be converted to RMB on the basis of the medium foreign exchange rate issued by the People’s Bank of China on the date BeiGene makes contribution to the Company’s registered capital.

 

(b)              Subject to Section 3.3 hereof, BeiGene shall pay US Dollars in cash with an amount equivalent to [...***...] to the Company within thirty-six (36) months after the Closing Date, so as to fulfill all the cash contribution obligations of BeiGene.

 

3.2                                        Unless otherwise agreed in writing by both BeiGene and GET, BeiGene shall transfer [...***...] to the Company as the actual capital contribution not later than [...***...].

 

3.3                                        As to the obligation to pay the registered capital of any Party, unless all the Project Documents have come into effect and have been fully performed pursuant thereto by all the parties to each of the Project Documents (other

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

6



 

than the Party obliged to make capital contribution hereunder or any of its Affiliates) at the time of capital contribution, the Party has no obligation to make the capital contribution. For the avoidance of doubt, no Party shall be exempted from the obligation to contribute the registered capital of the Company as a result of the failure of such Party (or any of its Affiliates) to fulfill its obligations under any Project Document to which such Party (or any of its Affiliate, as the case may be) is a party. For the purpose of this Section 3.3 only, if the [...***...] fails to be executed and effective by the due date of the capital contribution in cash set forth in Section 3.1(a), a [...***...] that may be issued by the [...***...] shall be deemed the [...***...], and the failure to issue such [...***...] by the [...***...] shall not exempt GET from any obligation hereunder to make its capital contribution or postpone the due date of GET’s capital contribution under this Agreement.

 

3.4                                        The Company shall engage an accounting firm qualified to provide capital verification services according to PRC laws, to verify the capital contribution of each Party within [...***...] after the payment of each contribution and to issue the capital verification report. The Company shall issue one or more capital contribution certificates signed by the chairman of the board of the Company to each Party on the basis of the capital verification report within [...***...] after receipt of such report. The Company shall keep a capital contribution register at its main place of business, and shall update the register immediately after the issuance of capital contribution certificate to any Party.

 

3.5                                        Upon the execution of this Agreement, each Party shall immediately take all necessary actions and sign all necessary documents, to complete all government registration, filing and other procedures required for this Capital Increase as soon as possible, including without limitation, the foreign investment enterprise filing with commercial department, the registration of change with administration of industry and commerce. The Parties agree that the issuance date recorded on the updated business license acquired by the Company shall be the closing date of this Capital Increase (the “ Closing Date ”) and the following information shall be included in the updated business license and the corresponding registration documents: (a) the registered capital of the Company changed to [...***...], (b) the total investment changed to [...***...], (c) the Company changed to Sino-foreign joint venture enterprise, and (d) BeiGene and GET jointly registered as shareholders of the Company. From the Closing Date, unless otherwise provided hereof or in the Joint Venture Contract or under the Applicable Laws, BeiGene and GET shall enjoy full rights and interests as shareholders as to the newly subscribed equity hereunder.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

7



 

4.                                               Representations and Warranties

 

4.1                                        In addition to any representations and warranties otherwise made in this Agreement, each Party hereby represents and warrants to the other Parties that on the date hereof:

 

(a)                      it is a corporate entity duly organized and validly existing under the laws of the jurisdiction of its incorporation and is in compliance with all requirements of laws of the jurisdiction of its incorporation;

 

(b)                      it has full corporate power and authority, and all necessary authorizations (to GET, including the approval/filing of State-owned Assets Supervision and Administration Commission) and third party consents to enter into this Agreement and to perform its obligations under this Agreement, and has taken all necessary actions to authorize its entry into and performance of this Agreement;

 

(c)                       its representative(s) have been fully authorized to sign this Agreement on its behalf ;

 

(d)                      this Agreement shall constitute its legal, valid, binding and enforceable obligations once this Agreement becomes effective ;

 

(e)                       the execution, delivery and performance of this Agreement will not violate in any way its business license, certificate of incorporation, corporate constitutional documents, or any applicable laws, rules, decrees, authorizations or approvals, or any provisions of any contractual arrangements to which it is a party or is otherwise bound;

 

(f)                        no directors or employees of any Party have received, requested, offered, or given anything of value, nor any financial or other advantages, in connection with the negotiation, execution, delivery, or performance of this Agreement;

 

(g)                       no litigation or legal proceeding of any arbitrator or government authority is pending (or, to the knowledge of such Party, threatened) against such Party that may lead to or cause material adverse effect to: (a) its execution and delivery of this Agreement; and (b) its performance of this Agreement; and

 

(h)                      in any proceedings taken by any Person in its jurisdiction of incorporation in relation to this Agreement or the transactions contemplated hereby, it will not be entitled to claim for itself or any of its assets immunity from arbitration, suit, execution, attachment or

 

8



 

other legal process.

 

4.2                                        Each Party further undertakes that, all the representations and warranties made by such Party under Section 4.1 shall remain true and accurate until the date each Party completes its actual contribution according to Section 3.1 hereof or the Closing Date (whichever comes later), unless such Party notifies the other Parties otherwise in writing.

 

5.                                               Liabilities for Breach

 

5.1                                        If any Party fails to make all or part of its cash contribution to the Registered Capital in accordance with Section 3.1 hereof (“ Default Amount ”), it shall pay overdue interest based on the Default Amount to the Company at [...***...] from the due date of the contribution to the date of actual payment of contribution, and in any event shall correct the breach within [...***...] from receipt of the notice from the other Party specifying such breach.

 

5.2                                        If, upon the expiration of the [...***...] period provided under the aforesaid Section 5.1, all or part of the Default Amount remains unpaid, the non-breaching Party shall be entitled to any remedies under this Agreement or relevant Applicable Laws. BeiGene and GET hereby agree that, if necessary, they will ensure all the directors of the Company appointed by them to vote for such remedies, and will make efforts in good faith to acquire all necessary authorizations required to implement such remedies

 

5.3                                        Without prejudices to any other liability of breach under this Agreement or any Applicable Laws, each Party shall be responsible for all direct Losses of the other Parties arising out of or in connection with its breach of obligations hereunder or any untrue, incomplete or inaccurate representation or warranty made by such Party hereunder.

 

5.4                                        For the purpose of clarity, with respect to any breach under any Project Document, if either Party and/or its Affiliate and/or the Company (or its any subsidiary) has been indemnified in accordance with this Agreement, then such Party shall not file any claim based on the same breach in accordance with any other Project Document, and shall not be entitled to double recovery or multiple recovery.

 

6.                                               Termination of Agreement

 

6.1                                        This Agreement may be terminated by the agreement among the Parties so made in writing.

 

6.2                                        Prior to the Closing Date and within [...***...] of the occurrence of the related early termination event below, any Party shall have the right to

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

9



 

unilaterally terminate this Agreement by serving the other Parties with [...***...] prior written notice:

 

(a)              in the event of any other Party’s material breach of this Agreement, and such other Party fails to rectify within [...***...] upon the receipt of such Party’s notice or the breach is not remediable; for the avoidance of doubt, any Party’s breach of Section 3.1 hereof shall be regarded as material breach; or

 

(b)              if the Closing Date has not occurred by May 31, 2017; provided that, if the aforementioned event occurs due to the breach of one Party or its Affiliates of this Agreement or other Project Documents, such Party shall not be entitled to the aforementioned unilateral termination right.

 

6.3                                        If this Agreement is terminated according to this Section 6, all further obligations of the Parties hereunder shall terminate, and no Party shall take further responsibility to each other Party. However, the aforementioned provision shall not affect the existing rights and obligations of each Party accrued before the termination date.

 

6.4                                        Section 6 (Termination of Agreement), Section 7 (Confidentiality), Section 8 (Governing Law), Section 9 (Arbitration), Section 10 (Miscellaneous) shall remain effective after termination of this Agreement.

 

7.                                               Confidentiality

 

7.1                                        Under this Section 7, “Confidential Information” means all information (including, without limitation, financial, price and cost information) disclosed (whether in writing, orally or by another means and whether directly or indirectly) by a Party or any of its Affiliates (“ Disclosing Party ”) to any other Party or any of its Affiliates (“ Receiving Party ”) or obtained by the Receiving Party from the Company whether before or after the date hereof, including information relating to the Disclosing Party or the Company’s business, affairs, clients, customers, suppliers, products, operations, technology, intellectual property, financial information, processes, plans or intentions, know-how, design rights, trade secrets and market opportunities.

 

7.2                                        The Receiving Party shall, and shall ensure that each of its Affiliates shall:

 

(i)                          keep the Confidential Information confidential as it treats its own confidential information;

 

(ii)                       not use Confidential Information except for use by the relevant Party

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

10



 

for the performance of its obligations under this Agreement or any other Project Document;

 

(iii)                    not disclose Confidential Information to any person except with the prior written consent of the Disclosing Party or in accordance with Sections 7.3 and 7.4; and

 

(iv)                   exert its best efforts to prevent the use or disclosure of Confidential Information.

 

7.3                                        During the term of this Agreement, the Receiving Party may disclose Confidential Information to any of its directors, other officers and employees (a “ Recipient ”) to the extent that (1) the disclosure is reasonably necessary for the purposes of this Agreement or any other Project Document, and (2) the Receiving Party shall ensure that a Recipient is aware of and complies with the Receiving Party’s obligations of confidentiality under this Agreement as if the Recipient was a party to this Agreement.

 

7.4                                        When required by Applicable Law, the Receiving Party may disclose Confidential Information to government authorities, after reasonable notice to and discussion with the Disclosing Party, and based on the principle of minimal disclosure to the extent permitted by Applicable Law. However, notwithstanding the terms of this Section 7, in the event that any Party is aware that another Party (in connection with the business of the Company) has violated any Applicable Law in respect of environmental, health and safety, anti-corruption, or anti-unfair competition, such Party may, after reasonable notice to and discussion with the other Parties, make any appropriate disclosures to relevant government authorities.

 

7.5                                        Sections 7.2 to 7.4 shall not apply to Confidential Information which the Receiving Party can prove:

 

(i)                                      has become part of the public domain other than by action or inaction of the Receiving Party;

 

(ii)                                   has been furnished or made known to the Receiving Party by third parties (other than those acting on behalf of the Disclosing Party) as a matter of legal right and without restriction on disclosure or use;

 

(iii)                                has been in the possession of the Receiving Party prior to disclosure by the Disclosing Party and was not previously acquired by the Receiving Party directly or indirectly from the Disclosing Party; or

 

(iv)                               is independently developed by the Receiving Party without access to

 

11



 

the Confidential Information received hereunder.

 

7.6                                        Upon request by the Disclosing Party, the Receiving Party shall, and shall ensure each of its Affiliates to, at its own expense, promptly take such steps as may be necessary to avoid, prevent, stop and/or remedy any breach by it and/or a Recipient of its obligations under this Section, and/or provide all assistance to the Disclosing Party in any action against the Recipient.

 

7.7                                        The obligations in this Section 7 in respect of confidentiality shall continue in full force and effect for a period of [...***...] after the expiry or termination of this Agreement.

 

8.                                               Governing Law

 

8.1                                        The execution, effectiveness, performance, termination, liability of breach, and interpretation of this Agreement as well as all the articles, appendices, exhibits (including, without limitation, the interpretation of the dispute resolution article hereunder) shall be governed by the laws of the PRC.

 

9.                                               Arbitration

 

9.1                                        The Parties shall endeavor to resolve through friendly consultations any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding the existence, validity, interpretation, breach or termination of this Agreement (the “ Dispute ”).  If a Dispute arises, any Party may give written notice to the other Parties, which notice shall set out brief details of the Dispute.

 

9.2                                        If a Dispute has not been resolved through friendly consultations within [...***...] after first written notice of such Dispute has been given by either Party, such Dispute shall be submitted to the [...***...] and finally settled by arbitration in [...***...] in accordance with the [...***...] Arbitration Rules in force at the time the Dispute is submitted for arbitration, which rules are deemed to be incorporated as part of this Agreement by reference into this Section. The seat of arbitration shall be in Beijing. The English and Chinese texts of this Agreement shall be referred to in the arbitration, and all proceedings in such arbitration shall be conducted in Chinese. The arbitration award shall be rendered in English and Chinese versions, and both versions shall be equally effective. The arbitration award shall be final and binding on all the Parties from the day it is made. The costs of arbitration shall be borne by the losing Party, unless otherwise specified in the arbitration award.

 

9.3                                        The arbitration tribunal shall consist of three arbitrators. BeiGene and the

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

12



 

Company shall jointly appoint one arbitrator, GET shall appoint another, and the third arbitrator, who shall preside as chairman, shall be appointed by [...***...]. If any Party fails to appoint its arbitrator within [...***...] from the date of receipt of the notice of arbitration, the chairman of [...***...] shall appoint such arbitrator.

 

9.4                                        During the course of any arbitration proceedings, all provisions of this Agreement shall, to the most feasible and practicable extent, be implemented continuously by the Parties except for those provisions which are the subject of any Dispute referred to arbitration in accordance with this Section 9.

 

9.5                                        GET hereby confirms that, it shall not claim for immunity, on the grounds of its identity as state-owned enterprise, from the arbitration under this Section 9.

 

10.                                        Miscellaneous

 

10.1                                 This Agreement shall take effect on the date of affixation of signature and corporate seal by the duly authorized representative of each Party.

 

10.2                                 Each Party shall undertake the expenses and costs occurred in the course of the negotiation, delivery or performance of this Agreement at its own expense, including but not limited to the expense in relation to hiring professional accountants and legal councils.

 

10.3                                 This Agreement is made and executed in 10 originals in Chinese and 10 originals in English, of which each Party shall keep 2 originals in Chinese and 2 originals in English, and rest 4 originals shall be kept by the Company for the filing and registration procedures in relation to this Capital Increase. The two language versions shall have equal validity and legal effect.

 

10.4                                 Any provision hereof may be amended or waived, but only if such amendment or waiver is in writing and is signed by each Party. Unless otherwise explicitly provided in this Agreement, no failure or delay of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power and privilege. The rights and remedies provided herein shall not exclude any rights or remedies under law.

 

10.5                                 This Agreement, when applicable, shall be binding upon and shall inure to the benefit of each Party hereto and to their respective permitted heirs, successors and assigns.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

13



 

10.6                                 If an authority of competent jurisdiction holds that any part of this Agreement not essentially affecting the purpose hereof is illegal, invalid or unenforceable, then the remaining provisions or portions thereof shall remain in full force and effect and shall constitute the agreement among the Parties with respect to the subject matter hereof. To the extent permitted under Applicable Law, the Parties shall replace any illegal, invalid or unenforceable provision of this Agreement with a valid provision having the same commercial effect.

 

10.7                                 The appendices hereto shall constitute the integral part of this Agreement.  This Agreement and the other Project Documents constitute the entire agreement among the Parties and supersedes all prior discussions, negotiations and agreements among the Parties with respect to the subject matter hereof. This Agreement shall include this Agreement and its appendices as amended, varied, supplemented, replaced and/or restated in any manner from time to time.

 

[The rest of the page is intentionally left blank]

 

14



 

Appendix I Basic Information of the Company

 

Company Name

 

BeiGene Biologics Co., Ltd.

Registration No.

 

[...***...]

Company Type

 

Limited Liability Company (wholly invested by Taiwan, Hong Kong or Macau Investor)

Registered Capital

 

[...***...]

Legal Representative

 

John Victor Oyler

Registered Address

 

Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, Guangzhou

Establishment Date

 

[...***...]

Business Scope

 

Biologics Manufacture

Sole Shareholder

 

BeiGene (HongKong) Co., Limited

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

15



 

IN WITNESS HEREOF, each Party of this Agreement has caused its duly authorized representative to sign this Agreement on the date specified on the first page hereof.

 

BeiGene (Hong Kong) Co., Limited (Seal)

 

 

 

Signed by:

/s/ John Victor Oyler

 

Name: John Victor Oyler

 

Title: Founder & CEO

 

 

 

Guangzhou GET Technology Development Co., Ltd. (Seal)

 

 

 

Signed by:

/s/ Yibin Yan

 

Name: Yibin Yan

 

Title: Chairman & Legal Representative

 

 

 

BeiGene Biologics Co., Ltd. (Seal)

 

 

 

Signed by:

/s/ John Victor Oyler

 

Name: John Victor Oyler

 

Title: Legal Representative

 

 

Signature Page to Capital Increase Agreement

 


Exhibit 10.3

 

Execution Version

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND
REPLACED WITH “[...***...].” A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECRETARY OF THE U.S. SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.

 

Shareholder Loan Contract

 

with respect to

 

BeiGene Biologics Co., Ltd

 

between

 

Guangzhou GET Technology Development Co., Ltd.

 

and

 

BeiGene Biologics Co., Ltd

 

Date: March 7, 2017

 



 

 

This Shareholder Loan Contract (“this Contract ”) is entered into on March 7, 2017 by and between:

 

Guangzhou GET Technology Development Co., Ltd. , a limited liability company incorporated under the laws of the People’s Republic of China (the “ PRC ” or “ China ”), with its registered place of business at Room 901, No.237 Science Avenue, Science City, Guangzhou High-tech Industrial Development Zone, the PRC (“ GET ”); and

 

BeiGene Biologics Co., Ltd. , a limited liability company incorporated under the laws of the PRC, with its registered place of business at Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, Guangzhou, PRC (the “ Company ” or “ BeiGene Biologics ”).

 

GET and the Company are individually referred as a “ Party ” and collectively as the “ Parties ” hereinafter.

 

WHEREAS:

 

(1)                        As of the date of this Contract, BeiGene Biologics is a foreign invested enterprise registered in Sino-Singapore Guangzhou Knowledge City under the PRC law by BeiGene (Hong Kong) Co., Limited (“ BeiGene ”);

 

(2)                        A Capital Increase Agreement with respect to BeiGene Biologics Co., Ltd., (the “ Capital Increase Agreement ”) is entered into by and among BeiGene, GET and BeiGene Biologics on the date hereof, and an Equity Joint Venture Contract regarding BeiGene Biologics Co., Ltd. (the “ Joint Venture Contract ”) is entered into by and between BeiGene and GET on the date hereof. Pursuant to the Capital Increase Agreement and the Joint Venture Contract, BeiGene and GET will jointly subscribe for the additional registered capital of BeiGene Biologics and convert BeiGene Biologics from a wholly foreign owned enterprise to a Sino-foreign equity joint venture enterprise. Upon the completion of the aforesaid capital increase, BeiGene will hold 95% equity interest in BeiGene Biologics and GET will hold 5% equity interest in BeiGene Biologics;

 

(3)                        BeiGene Biologics will engage in R&D (including, without limitation, clinical research and fundamental research projects) and manufacturing of biologics ([...***...]). BeiGene Biologics has established its wholly owned subsidiary BeiGene Guangzhou Biologics Manufacturing Co., Ltd. (“ BeiGene GZ

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

1



 

Factory ”) in Sino-Singapore Guangzhou Knowledge City. By purchasing the state of the art biologics manufacturing equipment, BeiGene GZ Factory intends to construct a factory, on the land to be acquired by itself in Sino-Singapore Guangzhou Knowledge City, to be capable for commercial manufacturing of biologics (collectively referred to as the “ Project ”);

 

(4)                        In accordance with and subject to the Joint Venture Contract, in order to support the construction and operation of the Project, GET agrees to provide a shareholder loan to BeiGene Biologics, and BeiGene Biologics agrees to accept such shareholder loan, in accordance with the terms and conditions of this Contract.

 

Therefore , on basis of the premises and mutual obligations hereof, it is agreed by the Parties as follows:

 

Article 1 Definitions and Interpretations

 

1.1                                In this Contract, the following terms shall have the following respective meanings:

 

Affiliate ” has the meaning set forth in the Joint Venture Contract;

 

BeiGene ” has the meaning set forth in the Preamble hereof;

 

BeiGene GZ Factory ” has the meaning set forth in the Preamble hereof;

 

[...***...] ” means [...***...];

 

Business Day ” means any day other than a Saturday, Sunday, or a statutory holiday in the PRC;

 

Capital Increase Agreement ” has the meaning set forth in the Preamble hereof;

 

[...***...] ” has the meaning set forth in Section 10.2 hereof;

 

CFDA ” has the meaning set forth in the Joint Venture Contract;;

 

Debt-to-Equity Conversion ” has the meaning set forth in the Joint Venture Contract;

 

Capital Increase Agreement of Debt-to-Equity Conversion ” has the meaning set forth in the Joint Venture Contract;

 

Dispute ” has the meaning set forth in Section 10.1 hereof;

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

2



 

Amount of Misappropriation ” has the meaning set forth in Section 7.3 hereof;

 

Joint Venture Contract ” has the meaning set forth in the Preamble hereof;

 

Person ” means any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, consortium, unincorporated organization, other entity or a government authority;

 

Project ” has the meaning set forth in the Preamble hereof;

 

PRC ” or “ China ” has the meaning set forth in the Preamble, and for the purpose of this Contract, excludes Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan;

 

Repayment Day ” has the meaning set forth in Section 5.1 hereof;

 

RMB ” or “ Renminbi ” means the lawful currency of the PRC;

 

Shareholder Loan ” has the meaning set forth in Section 2.1 hereof;

 

Special Audit ” has the meaning set forth in Section 7.3 hereof.

 

1.2                                When a reference is made in this Contract to an Article, Section, Clause, Exhibit, Appendix, Schedule, Recitals or Preamble, such reference is to such items as they relate to this Contract and such items shall be deemed to form an integral part of this Contract.

 

1.3                                The table of contents and headings in this Contract are for reference purposes only and do not affect in any way the meaning or interpretation of this Contract.

 

1.4                                Whenever the words “include”, “includes” or “including” are used in this Contract, they are deemed to be followed by the words “without limitation”.

 

1.5                                The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Contract, refer to this Contract as a whole and not to any particular provision of this Contract.

 

1.6                                The definitions contained in this Contract are applicable to the singular as well as the plural forms of such terms.

 

1.7                                Any law defined or referred to herein or in any contract or instrument that is referred to herein means such law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor

 

3



 

laws.

 

1.8                                A reference to a document is a reference to such document as modified or amended from time to time.

 

1.9                                Unless otherwise explicitly provided, the dates and times referred to herein are in Beijing time.

 

Article 2 Loan

 

2.1                                GET shall provide a shareholder loan in the total amount of RMB900,000,000 (say, nine hundred million Renminbi yuan ) (the “ Shareholder Loan ”) to BeiGene Biologics in accordance with the timeline set forth in Section 4.1 hereof.

 

2.2                                Restriction on usage: the Shareholder Loan under this Contract shall only be used for the Project purpose, including the construction of BeiGene GZ Factory, and R&D and clinical trials to be carried out by BeiGene Biologics[...***...].

 

2.3                                The term of the Shareholder Loan under this Contract shall be 72 calendar months commencing from the actual drawdown date.

 

Article 3 Interest Rate

 

3.1                                The annual interest rate of the Shareholder Loan under this Contract shall be 8% and the compound interest shall not apply. Subject to Section 5.2 hereunder, no interest shall be due and payable prior to the Repayment Day of the Shareholder Loan.

 

3.2                                The Shareholder Loan interest under this Contract shall be calculated from the actual drawdown date, based on the actual balance of the Shareholder Loan and the lending days (including the first day, excluding the last day) and assuming 365 days for one year.

 

Article 4 Drawdown of Shareholder Loan

 

4.1                                The Shareholder Loan hereunder shall be provided by GET in one lump-sum and the drawdown of principal shall not be later than March 31, 2017. GET

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

4



 

shall deposit the Shareholder Loan in RMB cash to the account designated by the Company in writing.

 

4.2                                If BeiGene Biologics needs to postpone the drawdown date, BeiGene Biologics shall serve a written notice to GET [...***...] before the drawdown date set forth in Section 4.1, which notice shall specify the reason for postponing the drawdown and the new drawdown date. GET shall provide the Shareholder Loan on the date specified in such notice. BeiGene Biologics shall indemnify GET for its interest loss as the result of the postpone of drawdown (i.e., the difference of the amount of interest calculated pursuant to Article 3 hereof with respect to the postponed amount of Shareholder Loan during the postponed period exceeding the interest for the same amount of Shareholder Loan during the same time period by applying the current deposit interest rate).

 

4.3                                BeiGene Biologics shall submit the following documents to or assist GET in completing the following matters:

 

a)                   At the same time with drawdown, the issuance of the receipt of drawdown in accordance with the form set forth in Appendix 1 hereof, and

 

b)                   Not later than the drawdown, all the registered capital of the Company subscribed by BeiGene which is due for contribution (if any) has been fully contributed by BeiGene in accordance with the Capital Increase Agreement and the Joint Venture Contract.

 

4.4                                The actual drawdown date and the Repayment Day of the Shareholder Loan shall be subject to the receipt to be issued in accordance with Article 4.3(a). The receipt shall constitute an integral part of this Contract. Except for the actual drawdown date and Repayment Day, if there is any inconsistency between the receipt and this Contract, this Contract shall prevail.

 

Article 5 Repayment

 

5.1                                Subject to Article 4.4, the repayment date of the Shareholder Loan under this Contract shall be March 30, 2023 (the “ Repayment Day ”). On the Repayment Day, BeiGene Biologics shall be obliged to repay all the outstanding principal and interest of the Shareholder Loan in one lump-sum.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

5



 

5.2                                When GET completes the Debt-to-Equity Conversion with all or part of the amount of the Shareholder Loan with the accrued interest pursuant to Article 12 of the Joint Venture Contract and the Capital Increase Agreement of Debt-to-Equity Conversion, BeiGene Biologics shall be regarded as having repaid the Shareholder Loan in advance to the extent of the converted amount. For the avoidance of doubt, the above-mentioned amount can be deemed as the repayment to both the principal and the interest of Shareholder Loan, but shall be deemed as repayment to the interest first. Unless otherwise agreed by the Parties in writing, the balance on top of the converted Shareholder Loan (with accrued interest) after the Debt-to-Equity Conversion in accordance with Article 12 of the Joint Venture Contract shall be repaid by BeiGene Biologics on the Repayment Day.

 

5.3                                The Company shall have the right to make early repayment at any time and there shall be no limit on the times and amount of the early repayment; provided however that , unless otherwise agreed by the Parties in writing, before the closing of the Debt-to-Equity Conversion under the Capital Increase Agreement of Debt-to-Equity Conversion, BeiGene Biologics shall not make early repayment in any method other than the Debt-to-Equity Conversion.

 

5.4                                The Parties agree that BeiGene Biologics or any of its Affiliates will not provide guarantee for the Shareholder Loan under this Contract. Notwithstanding the foregoing, upon occurrence of the circumstance prescribed in Section 12.5 of the Joint Venture Contract, the Parties may, within the period set forth in Section 12.5 of the Joint Venture Contract, [...***...] as for the Shareholder Loan, and complete the execution of necessary legal documents and the related registration of guarantee if so required by applicable laws:

 

[...***...].

 

For the avoidance of doubt, both Parties shall carry out the negotiation based on the above candidate plans by following the sequence of priority set forth above. If the Parties fail to reach any agreement on any guarantee arrangement or repayment method within [...***...] of the commencement of negotiation, BeiGene Biologics shall [...***...], and shall procure the execution of necessary legal documents and complete the related registration of such guarantee, if so required, within the period set forth in Section 12.5 of the Joint Venture Contract.

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

6



 

Article 6 Representations and Warranties

 

6.1                                In addition to any representations and warranties otherwise made in this Contract, each Party hereby represents and warrants to the other Party that on the date hereof:

 

a)                   it is a corporate entity duly organized and validly existing under the laws of the jurisdiction of its incorporation and is in compliance with all requirements of laws of the jurisdiction of its incorporation;

 

b)                   it has full corporate power and authority, and all necessary authorizations (to GET, including the approval/filing of State-owned Assets Supervision and Administration Commission) and third party consents to enter into this Contract and to perform its obligations under this Contract, and has taken all necessary actions to authorize its entry into and performance of this Contract;

 

c)                    its representative(s) have been fully authorized to sign this Contract on its behalf;

 

d)                   this Contract shall constitute its legal, valid, binding and enforceable obligations once this Contract become effective;

 

e)                    the execution, delivery and performance of this Contract will not violate in any way its business license, certificate of incorporation, corporate constitutional documents, or any applicable laws, rules, decrees, authorizations or approvals, or any provisions of any contractual arrangements to which it is a party or is otherwise bound;

 

f)                     no directors or employees of either Party have received, requested, offered, or given anything of value, nor any financial or other advantages, in connection with the negotiation, execution, delivery, or performance of this Contract;

 

g)                    no litigation or legal proceeding of any arbitrator or government authority is pending (or, to the knowledge of such Party, threatened) against such Party that may lead to or cause material adverse effect to: (a) its execution and delivery of this Contract; and (b) its performance of this Contract; and

 

h)                   in any proceedings taken by any Person in its jurisdiction of incorporation in relation to this Contract or the transactions contemplated hereby, it will not be entitled to claim for itself or any of

 

7



 

its assets immunity from arbitration, suit, execution, attachment or other legal process.

 

6.2                                BeiGene Biologics undertakes that it shall:

 

a)                   use the Shareholder Loan for the purpose provided hereunder;

 

ii.                     submit the audited financial report of BeiGene Biologics of the fiscal year to GET within [...***...] after the end of every fiscal year or a later time otherwise agreed by the Parties;

 

iii.                  allow GET to participate in the management of BeiGene Biologics in accordance with Chapters 9 and 10 of the Joint Venture Contract; and

 

iv.                 upon the occurrence of any event that will give rise to a [...***...] which may materially jeopardize the capability of BeiGene Biologics to repay the Shareholder Loan, notify GET in writing within [...***...] of the occurrence of such event.

 

6.3                                GET undertakes to timely and fully extend the Shareholder Loan pursuant to the provisions hereof.

 

Article 7 Breach of Contract

 

7.1                                In the event that GET fails to grant the loan in full according to the timetable set forth in Section 4.1 hereof, GET shall promptly rectify, and pay [...***...] of the overdue amount to BeiGene Biologics as the liquidated damage for each day during the time period from the due date provided in Section 4.1 to the actual drawdown date of the entire Shareholder Loan.

 

7.2                                In the event that BeiGene Biologics fails to repay the principle and interest of the Shareholder Loan in full according to the time limit set forth in Section 5.1 hereof, BeiGene Biologics shall promptly rectify, and pay [...***...] of the overdue amount to GET as the liquidated damage for each day during the time period from the Repayment Day provided in Section 5.1 to the actual full repayment day.

 

7.3                                The Parties agree that, to ensure the Shareholder Loan being used for this Project, in the sole event that [...***...], GET may [...***...] send a written notice to BeiGene Biologics to request the initiation of a special audit (the “ Special Audit ”). The Parties shall, within [...***...] from the issuance of the

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

8



 

aforesaid notice by GET, jointly engage an internationally reputable accounting firm, to complete the Special Audit and deliver the Special Audit report to both Parties simultaneously within [...***...] of the engagement of such firm in accordance with this section. The Special Audit shall be conducted in the way that the disturbance to normal operation of BeiGene Biologics [...***...] shall be minimized. The expenses of the Special Audit shall be borne by GET.

 

If the aforementioned Special Audit report identifies that the total amount of (i) the expenses invested by BeiGene Biologics [...***...] into the clinical research and development of [...***...] (including without limitation, [...***...]) within [...***...] after the actual drawdown date of the Shareholder Loan and (ii) the amount of “cash and cash equivalents” recorded in the cash flow statement of BeiGene Biologics as of the end of [...***...] is less than [...***...], the balance of the actual expenses up to [...***...] (the “ Amount of Misappropriation ”) shall be recovered and supplemented into the research and development of [...***...]; meanwhile, BeiGene shall be obliged to:

 

(i)                  pay the liquidated damage equivalent to [...***...]; or

 

(ii)               upon the request of GET, include the foregoing liquidated damage in the amount subject to the Debt-to-Equity Conversion based on the Post-Money Fair Market Value (as defined in the Joint Venture Contract) calculated pursuant to Section 12.2 of the Joint Venture Contract, given that the liquidated damage set forth in the aforesaid item (i) reaches or exceeds [...***...] and has not been paid in full by BeiGene Biologics in cash.

 

7.4                                For the purpose of clarity, with respect to any breach under any Project Document, if either Party and/or any of its Affiliates has been indemnified in accordance with this Contract, then such Party shall not file any claim based on the same breach or event in accordance with any other Project Document, and shall not be entitled to double recovery or multiple recovery.

 

Article 8 Acceleration

 

8.1                                In the event of early termination of the Joint Venture Contract in accordance with the terms thereof, the Repayment Day hereunder shall be automatically due at the date of termination of the Joint Venture Contract. For the avoidance of doubt, however, provided that a transfer of the equity interest in

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

9



 

BeiGene Biologics under Section 44.4 of the Joint Venture Contract occurs after the early termination thereof pursuant to Article 44 of the Joint Venture Contract, it shall not be a breach on the part of BeiGene Biologics under Section 7.2 hereof if BeiGene Biologics, until the completion of the aforesaid equity transfer, fails to pay the outstanding balance of the Shareholder Loan’s principal and accrued interest due and payable at such accelerated Repayment Day, and accordingly BeiGene Biologics shall not be subject to the liquidated damage payable to GET in accordance with Section 7.2 hereof, though the interest shall be continuously accrued and calculated during such period pursuant to the provisions of this Contract.

 

Article 9 Governing Law

 

9.1                                The execution, effectiveness, performance, termination, liability of breach, and interpretation of this Contract as well as all the articles, appendices, exhibits (including, without limitation, the interpretation of the dispute resolution article hereunder) shall be governed by the Laws of the PRC.

 

Article 10 Dispute Resolution

 

10.1                         The Parties shall endeavor to resolve through friendly consultations any dispute, controversy or claim arising out of or in connection with this Contract, including any question regarding the existence, validity, interpretation, breach or termination of this Contract (the “ Dispute ”).  If a Dispute arises, any Party may give written notice to the other Party, which notice shall set out brief details of the Dispute.

 

10.2                         If a Dispute has not been resolved through friendly consultations within [...***...] after first written notice of such Dispute has been given by either Party, such Dispute shall be submitted to the [...***...] and finally settled by arbitration in [...***...] in accordance with the [...***...] Arbitration Rules in force at the time the Dispute is submitted for arbitration, which rules are deemed to be incorporated as part of this Contract by reference into this Article. The seat of arbitration shall be in Beijing. The English and Chinese texts of this Contract shall be referred to in the arbitration, and all proceedings in such arbitration shall be conducted in Chinese. The arbitration award shall be rendered in English and Chinese versions, and both versions shall be equally effective. The arbitration award shall be final and binding on

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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both Parties from the day it is made. The costs of arbitration shall be borne by the losing Party, unless otherwise specified in the arbitration award.

 

10.3                         The arbitration tribunal shall consist of three arbitrators. BeiGene Biologics and GET shall each appoint one arbitrator, and the third arbitrator, who shall preside as chairman, shall be appointed by [...***...]. If any Party fails to appoint its arbitrator within [...***...] from the date of receipt of the notice of arbitration, the [...***...] shall appoint such arbitrators.

 

10.4                         During the course of any arbitration proceedings, all provisions of this Contract shall, to the most feasible and practicable extent, be implemented continuously by the Parties except for those provisions which are the subject of any Dispute referred to arbitration in accordance with this Article 10.

 

10.5                         GET hereby confirms that, it shall not claim for immunity, on the grounds of its identity as state-owned enterprise, from the arbitration under this Article 10.

 

Article 11 Miscellaneous

 

11.1                         This Contract shall take effect on the date of affixation of signature and corporate seal by the duly authorized representative of each Party. This Contract shall terminate on the date of the full repayment of the Shareholder Loan in accordance with the provisions hereof.

 

11.2                         Each Party shall undertake the expenses and costs occurred in the course of the negotiation, delivery or performance of this Contract at its own expense, including but not limited to the expense in relation to hiring professional accountants and legal councils.

 

11.3                         This Contract is made and executed in 4 originals in Chinese and 4 originals in English, of which each Party shall keep 2 originals in Chinese and 2 originals in English. The two language versions shall have equal validity and legal effect.

 

11.4                         Any provision hereof may be amended or waived, but only if such amendment or waiver is in writing and is signed by both Parties. Unless otherwise explicitly provided in this Contract, no failure or delay of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power and

 


* Confidential Information, indicated by [...***...], has been omitted from this filing and filed separately with the U.S. Securities and Exchange Commission.

 

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privilege. The rights and remedies provided herein shall not exclude any rights or remedies under law.

 

11.5                         This Contract, when applicable, shall be binding upon and shall inure to the benefit of each Party hereto and to their respective permitted heirs, successors and assigns.

 

11.6                         If an authority of competent jurisdiction holds that any part of this Contract not essentially affecting the purpose hereof is illegal, invalid or unenforceable, then the remaining provisions or portions thereof shall remain in full force and effect and shall constitute the agreement between the Parties with respect to the subject matter hereof. To the extent of permitted under applicable law, the Parties shall replace any illegal, invalid or unenforceable provision of this Contract with a valid provision having the same commercial effect.

 

11.7                         The appendices hereto shall constitute the integral part of this Contract. This Contract and other Project Documents (as defined in the Joint Venture Contract) constitute the entire agreement among the Parties and supersedes all prior discussions, negotiations and agreements between the Parties with respect to the subject matter hereof. This Contract shall include this Contract and its appendices as amended, varied, supplemented, replaced and/or restated in any manner from time to time.

 

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Appendix 1 Receipt of Shareholder Loan

 

Lender: Guangzhou GET Technology Development Co., Ltd.

Address: Room 901, No.237 Science Avenue, Science City, Guangzhou High-tech Industrial Development Zone, the PRC

 

Borrower: BeiGene Biologics Co., Ltd.

Address: Zibian Room 168, No.333 Jiufo Jianshe Road, Sino-Singapore Guangzhou Knowledge City, the PRC

 

Drawdown Date: March [   ], 2017    Repayment Date: March [ ], 2023

 

The Lender and the Borrower hereby acknowledge and confirm that,

 

Pursuant to the Shareholder Loan Contract enter into by and between the Lender and the Borrower on March 7, 2017, the Lender, on the foregoing Drawdown Date, deposited the shareholder loan of RMB900,000,000 (say NINE HUNDRED MILLION Renminbi yuan ) in RMB cash to the borrower’s following bank account                          . The Borrower received such amount in full on March [], 2017. The accrual of interest arising from the shareholder loan shall start from the Drawdown Date (which is inclusive) mentioned above.

 

Guangzhou GET Technology Development Co., Ltd. (Seal)

 

Signature:

 

 

Name:

Title:

 

BeiGene Biologics Co., Ltd. (Seal)

 

Signature:

 

 

Name:

Title:

 

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IN WITNESS HEREOF, each Party of this Contract has caused its duly authorized representative to sign this Contract on the date specified on the first page hereof.

 

Guangzhou GET Technology Development Co., Ltd. (Seal)

 

Signature:

/s/ Yibin Yan

 

Name:  Yibin Yan

Title: Chairman & Legal Representative

 

BeiGene Biologics Co., Ltd. (Seal)

 

Signature:

/s/ John Victor Oyler

 

Name: John Victor Oyler

Title: Legal Representative

 

14


Exhibit 31.1

 

CERTIFICATIONS

 

I, John V. Oyler, certify that:

 

1.               I have reviewed this Quarterly Report on Form 10-Q of BeiGene, Ltd.;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2017

 

 

 

/s/ John V. Oyler

 

John V. Oyler

 

Chief Executive Officer and Chairman

 

(Principal Executive Officer)

 

 

1


Exhibit 31.2

 

CERTIFICATIONS

 

I, Howard Liang, certify that:

 

1.               I have reviewed this Quarterly Report on Form 10-Q of BeiGene, Ltd.;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)           disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 10, 2017

 

 

 

/s/ Howard Liang

 

Howard Liang

 

Chief Financial Officer and Chief Strategy Officer

 

(Principal Financial and Accounting Officer)

 

 

1


Exhibit 32.1

 

CERTIFICATION

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of BeiGene, Ltd., an exempted company incorporated in the Cayman Islands with limited liability (the “Company”), does hereby certify, to such officer’s knowledge, that:

 

The Quarterly Report on Form 10-Q for the three months ended March 31, 2017 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 10, 2017

By:

/s/ John V. Oyler

 

John V. Oyler

 

Chief Executive Officer and Chairman

 

(Principal Executive Officer)

 

 

Date: May 10, 2017

By:

/s/ Howard Liang

 

Howard Liang

 

Chief Financial Officer and Chief Strategy Officer

 

(Principal Financial and Accounting Officer)

 

1