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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

	For the quarterly period ended June 30, 2018

	OR

☐	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	98-1209416
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

c/o Mourant Ozannes Corporate Services (Cayman) Limited
94 Solaris Avenue, Camana Bay
Grand Cayman
Cayman Islands	KY1-1108
(Address of principal executive offices)	(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 ☒ No ☐

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 ☒ No ☐

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	☒		Accelerated Filer	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

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

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

As of August 8, 2018, 767,163,184 ordinary shares, par value $0.0001 per share, were outstanding, of which 578,529,211 ordinary shares were held in the form of 44,502,247 American Depositary Shares, each representing 13 ordinary shares.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BEIGENE, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

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


		As of
		June 30,	December 31,
	Note	2018	2017
		$	$
		(unaudited)	(audited)
Assets
Current assets:
Cash and cash equivalents		438,420	239,602
Restricted cash	5	31,591	—
Short-term investments	5	931,208	597,914
Accounts receivable		33,171	29,428
Unbilled receivable		12,702	—
Inventories	6	6,322	10,930
Prepaid expenses and other current assets	12	63,293	35,623
Total current assets		1,516,707	913,497
Property and equipment, net	7	90,510	62,568
Land use right, net	9	12,132	12,465
Intangible assets, net	10	6,875	7,250
Goodwill	4	109	109
Deferred tax assets	11	16,071	7,675
Other non-current assets	12	11,452	42,915
Total non-current assets		137,149	132,982
Total assets		1,653,856	1,046,479
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		85,878	69,779
Accrued expenses and other payables	12	75,037	49,598
Deferred revenue, current portion		15,302	12,233
Tax payable	11	1,151	9,156
Current portion of long-term bank loan	13	9,067	9,222
Total current liabilities		186,435	149,988
Non-current liabilities:
Long-term bank loan	13	51,467	9,222
Shareholder loan	14	149,217	146,271
Deferred revenue, non-current portion		18,297	24,808
Other long-term liabilities	12	21,772	31,959
Total non-current liabilities		240,753	212,260
Total liabilities		427,188	362,248
Commitments and contingencies	22
Equity:
Ordinary shares (par value of US$0.0001 per share; 9,500,000,000 shares authorized; 701,563,184 shares issued and outstanding as of June 30, 2018 (December 31, 2017: 592,072,330 shares))		70	59
Additional paid-in capital		1,804,942	1,000,747
Accumulated other comprehensive income /(loss)	18	3,114	(480)
Accumulated deficit		(594,929)	(330,517)
Total BeiGene, Ltd. shareholders’ equity		1,213,197	669,809
Noncontrolling interest	19	13,471	14,422
Total equity	19	1,226,668	684,231
Total liabilities and equity		1,653,856	1,046,479

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

BEIGENE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)


		Three Months Ended		Six Months Ended
		June 30,		June 30,
	Note	2018	2017	2018	2017
		$	$	$	$
Revenues
Product revenue, net	15	31,426	—	54,676	—
Collaboration revenue	3	21,378	—	30,672	—
Total revenues		52,804	—	85,348	—
Expenses
Cost of sales - product		(6,256)	—	(10,806)	—
Research and development		(164,251)	(47,245)	(273,951)	(90,018)
Selling, general and administrative		(45,160)	(10,777)	(74,075)	(19,546)
Amortization of intangible assets		(187)	—	(375)	—
Total expenses		(215,854)	(58,022)	(359,207)	(109,564)
Loss from operations		(163,050)	(58,022)	(273,859)	(109,564)
Interest income (expense), net		1,892	(1,982)	3,444	(1,796)
Other income (expense), net		75	(475)	804	438
Loss before income tax expense		(161,083)	(60,479)	(269,611)	(110,922)
Income tax benefit (expense)	11	3,368	(201)	6,780	(381)
Net loss		(157,715)	(60,680)	(262,831)	(111,303)
Less: net loss attributable to noncontrolling interests		(828)	(135)	(1,348)	(135)
Net loss attributable to BeiGene, Ltd.		(156,887)	(60,545)	(261,483)	(111,168)
Net loss per share attributable to BeiGene, Ltd.
Basic and diluted (in dollars)	16	(0.22)	(0.12)	(0.38)	(0.22)
Weighted-average shares used in net loss per share calculation
Basic and diluted (in shares)	16	698,506,891	517,663,736	684,586,086	517,054,109
Net loss per American Depositary Share (“ADS”)
Basic and diluted (in dollars)		(2.92)	(1.52)	(4.97)	(2.80)
Weighted-average ADSs used in net loss per share calculation
Basic and diluted (in ADSs)		53,731,299	39,820,287	52,660,468	39,773,393

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

BEIGENE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

(Unaudited)


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
	$	$	$	$
Net loss	(157,715)	(60,680)	(262,831)	(111,303)
Other comprehensive loss, net of tax of nil:
Foreign currency translation adjustments	2,033	554	2,305	644
Unrealized holding gain, net	719	19	1,048	7
Comprehensive loss	(154,963)	(60,107)	(259,478)	(110,652)
Less: comprehensive loss attributable to noncontrolling interests	(870)	(108)	(1,326)	(108)
Comprehensive loss attributable to BeiGene, Ltd.	(154,093)	(59,999)	(258,152)	(110,544)

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

BEIGENE, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)


		Six Months Ended June 30,
	Note	2018	2017
		$	$
Operating activities:
Net loss		(262,831)	(111,303)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		4,580	1,404
Share-based compensation expenses	17	36,037	13,074
Acquired in-process research and development	1	10,000	—
Non-cash interest expense		4,115	2,232
Deferred income tax benefits		(8,413)	(4,059)
Other non-cash income		(2,336)	(3)
Changes in operating assets and liabilities:
Accounts receivable		(3,743)	—
Unbilled receivable		3,605	—
Inventories		4,608	—
Prepaid expenses and other current assets		(27,669)	(5,036)
Other non-current assets		(3,694)	(139)
Accounts payable		10,308	13,242
Accrued expenses and other payables		25,439	130
Tax payable		(8,005)	2,302
Deferred revenue		(3,442)	—
Other long-term liabilities		(197)	559
Net cash used in operating activities		(221,638)	(87,597)
Investing activities:
Purchases of property and equipment		(20,309)	(8,881)
Payment for the acquisition of land use right		—	(12,124)
Purchases of investments		(1,198,922)	(27,646)
Proceeds from sale or maturity of available-for-sale securities		869,011	161,900
Purchase of in-process research and development	1	(10,000)	—
Net cash used in (provided by) investing activities		(360,220)	113,249
Financing activities:
Proceeds from public offering, net of underwriter discount		758,001	—
Payment of public offering cost		(414)	—
Proceeds from long-term loan	13	42,315	—
Proceeds from short-term loan		—	2,470
Repayment of short-term loan		—	(2,470)
Capital contribution from noncontrolling interest		—	14,527
Proceeds from shareholder loan	14	—	132,757
Proceeds from option exercises		10,582	316
Net cash provided by financing activities		810,484	147,600
Effect of foreign exchange rate changes, net		1,783	240
Net increase in cash, cash equivalents, and restricted cash		230,409	173,492
Cash, cash equivalents, and restricted cash at beginning of period		239,602	87,514
Cash, cash equivalents, and restricted cash at end of period		470,011	261,006
Supplemental cash flow disclosures:
Cash and cash equivalents		438,420	261,006
Restricted cash		31,591	—
Income taxes paid		11,842	746
Interest expense paid		667	618
Non-cash activities:
Acquisitions of equipment included in accounts payable		8,006	1,373
Changes in operating assets and liabilities adjusted through accumulated deficit		2,291	—

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

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. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies

Description of business

BeiGene, Ltd. (the “Company”) is a commercial-stage biopharmaceutical company focused on developing and commercializing innovative molecularly targeted and immuno-oncology drugs for the treatment of cancer. The Company’s internally-developed lead drug candidates are currently in late-stage clinical trials, and it is marketing three in-licensed drugs in China from which it has been generating product revenue since September 2017.

The Company was incorporated under the laws of the Cayman Islands as an exempted company with limited liability in October 2010. The Company completed its initial public offering (“IPO”) on the NASDAQ Global Select Market in February 2016 and has completed subsequent follow-on public offerings and a sale of ordinary shares to Celgene Switzerland LLC (“Celgene Switzerland”) in a business development transaction, as described in Note 20, Shareholders’ Equity. On August 8, 2018, the Company completed an IPO on the Stock Exchange of Hong Kong Limited (“HKEx”) and a global offering in which it raised approximately $870,107 in net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses. Effective August 8, 2018, the Company was dual-listed in both the U.S. and Hong Kong.

As at June 30, 2018, the Company’s subsidiaries are as follows:


			Percentage of
		Date of	Ownership by
Name of Company	Place of Incorporation	Incorporation	the Company		Principal Activities
BeiGene (Hong Kong) Co., Limited.	Hong Kong	November 22, 2010	100	%	Investment holding
BeiGene (Beijing) Co., Ltd. ("BeiGene Beijing")	The People’s Republic of China (“PRC” or “China”)	January 24, 2011	100	%	Medical and pharmaceutical research
BeiGene AUS PTY LTD.	Australia	July 15, 2013	100	%	Clinical trial activities
BeiGene 101	Cayman Islands	August 30, 2012	100	%	Medical and pharmaceutical research
BeiGene (Suzhou) Co., Ltd. (“BeiGene (Suzhou)”)	PRC	April 9, 2015	100	%	Medical and pharmaceutical research and manufacturing
BeiGene USA, Inc. ("BeiGene (USA)")	United States	July 8, 2015	100	%	Clinical trial activities
BeiGene Biologics Co., Ltd. ("BeiGene Biologics")	PRC	January 25, 2017	95	%	Biologics manufacturing
BeiGene (Shanghai) Co., Ltd. (“BeiGene (Shanghai)”)*	PRC	September 11, 2015	95	%	Medical and pharmaceutical research
BeiGene Guangzhou Biologics Manufacturing Co., Ltd. ("BeiGene Guangzhou Factory")*	PRC	March 3, 2017	95	%	Biologics manufacturing
BeiGene (Guangzhou) Co., Ltd. (“BeiGene Guangzhou”)	PRC	July 11, 2017	100	%	Medical and pharmaceutical research
BeiGene Pharmaceutical (Shanghai) Co., Ltd. ("BeiGene Pharmaceutical (Shanghai)")	PRC	December 15, 2009	100	%	Medical and pharmaceutical consulting, marketing and promotional services
BeiGene Switzerland GmbH (“BeiGene Switzerland”)	Switzerland	September 1, 2017	100	%	Research development, manufacturing, and commercial activities
BeiGene Ireland Limited	Republic of Ireland	August 11, 2017	100	%	Clinical trial activities

* Wholly-owned by BeiGene Biologics

Basis of presentation and consolidation

The accompanying condensed consolidated balance sheet as of June 30, 2018, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2018 and 2017, the

condensed consolidated statements of cash flows for the six months ended June 30, 2018 and 2017, 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, 2017 (“Annual Report”).

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 and six months ended June 30, 2018 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. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.

Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries which are not attributable, directly or indirectly, to the controlling shareholders. The Company consolidates BeiGene Biologics under the voting model and recognizes the minority shareholder’s equity interest as a noncontrolling interest in its consolidated financial statements (as described in Note 8).

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, estimating sales rebates and returns allowance to arrive at net product revenues, identifying separate accounting units and the best estimate of selling price of each deliverable in the Company’s revenue arrangements, variable consideration in revenue arrangements (including evaluations of the the expected value and the most likely value method to estimate variable payments based on the type of variable consideration), estimating the fair value of net assets acquired in business combinations, assessing the impairment of long-lived assets, share-based compensation expenses, inventory, realizability of deferred tax assets and the fair value of financial instruments. Management bases the estimates on historical experience, known trends and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.

Recent accounting pronouncements

New accounting standards which have been adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. Subsequently, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which adjusted the effective date of ASU 2014-09; ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies identifying performance obligations and licensing implementation guidance and illustrations in ASU 2014-09; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new revenue standard in ASU 2014-09; ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments

to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior Securities and Exchange Commission, or SEC, Staff Announcements and Observer Comments (SEC Update), which codifies recent announcements by the SEC staff; and ASU No. 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update), which adds ASC 606-10-S25-1 as a result of SEC Release 33-10403, or collectively, the Revenue ASUs. The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance. The accounting standard is effective for interim and annual periods beginning after December 15, 2017, with an option to early adopt for interim and annual periods beginning after December 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

On January 1, 2018, the Company adopted the new standard using the modified retrospective method.

The Revenue ASUs apply to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under the Revenue ASUs, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of the Revenue ASUs, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope the Revenue ASUs, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The impact to the Company on adoption of the Revenue ASUs relates to variable consideration related to its collaboration agreement with Celgene and the anticipated opt-in to certain clinical trials that are to be run by the Company, and funded by Celgene. Under Topic 605, even though the Company believed it was probable that the performance obligation related to the variable consideration would be satisfied as of December 31, 2017, the variable consideration was not realizable because formal notice had not been received. Upon its adoption of the Revenue ASUs, the Company determined it was probable that Celgene would opt-in to the clinical trials as of December 31, 2017 such that the variable consideration was not constrained, and therefore, the related revenue would have been recognized. In March 2018, the Company obtained formal notice of opt-in by Celgene.

The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 resulted in an increase of $16,307 to both unbilled receivables and the opening balance of accumulated deficit. Please refer to the “Adoption of New Accounting Standards” section below for a tabular presentation of the impact.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted ASU 2016-16 during the first quarter of 2018 using the modified retrospective adoption method. In 2017, BeiGene (Hong Kong) Co., Limited’s contribution of BeiGene Shanghai to BeiGene Biologics (and subsequent receipt of a related government grant) resulted in tax expenses $28,588, which were reflected as other non-current assets in the Company’s December 31, 2017 balance sheet. The related government subsidy of $9,990, which was received in 2017, was reflected as other long-term liabilities in the Company’s December 31, 2017 balance sheet. The adoption of this accounting standard resulted in an adjustment to

Impact of adopted accounting standards

The cumulative effect of changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of the revenue ASUs and ASU 2016-16 were as follows:


	Balance at	Adjustments	Adjustments	Balance at
	December 31,	Due to	Due to	January 1,
	2017	Revenue ASUs	ASU 2016-16	2018
	$	$	$	$
Assets:
Unbilled receivable	—	16,307	—	16,307
Other non-current assets	42,915	—	(28,588)	14,327

Liabilities:
Other long-term liabilities	31,959	—	(9,990)	21,969

Equity:
Accumulated other comprehensive loss	(480)	—	263	(217)
Accumulated deficit	(330,517)	16,307	(19,236)	(333,446)
Noncontrolling interest	14,422	—	375	14,797

New accounting standards which have not yet been adopted

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. As of June 30, 2018, the Company had non-cancellable operating lease commitments of $38,275. The Company is in the process of evaluating its leasing arrangements to determine what extent these contractual commitments will affect the recognition of the related right-of-use assets and liabilities for future lease payments in the consolidated balance sheet. Some of the commitments under short term leases may be exempted from the recognition of relevant assets or liabilities under ASU 2016-02. The Company does not expect that the adoption of ASU 2016-02 will result in significant impact on the operating performance, cash flows and net assets of the Group, but does expect that a certain portion of these operating lease commitments will be required to be recognized on the balance sheet as right-of-use assets and lease liabilities under ASU 2016-02.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows companies the option to reclassify to retained earnings the tax effects related to items in accumulated other comprehensive income (loss) as a result of the Tax Cuts and Jobs Act that was enacted in the United States on December 22, 2017. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. This guidance should be applied either in the period of adoption or retrospectively to each period in which the effects of the change in the U.S. federal income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not expect the impact of this guidance to have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This update also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in

a grantor’s own operations by issuing share-based payment awards. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the financial statement impact of adoption.

Significant accounting policies

For a more complete discussion of the Company’s significant accounting policies and other information, the consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report for the year ended December 31, 2017.

Acquired in-process research and development expense

The Company has acquired rights to develop and commercialize product candidates. Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as acquired in-process research and development in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. Royalties owed on sales of the products licensed pursuant to the agreements are expensed in the period the related revenues are recognized.

Except for the changes to the Company’s significant accounting policies related to the adoption of the Revenue ASUs and ASU 2016-16, and the accounting for the acquisition of in-process research and development expense, there have been no other material changes to the Company’s significant accounting policies as of and for the three and six months ended June 30, 2018, as compared to the significant accounting policies described in the Annual Report.

2. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

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

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in market with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and considers an inactive market to be one in which there are infrequent or few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers.

The following tables present the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis using the above input categories as of June 30, 2018 and December 31, 2017:


	Quoted Price
	in Active	Significant
	Market for	Other	Significant
	Identical	Observable	Unobservable
	Assets	Inputs	Inputs
As of June 30, 2018	(Level 1)	(Level 2)	(Level 3)
	$	$	$
Short-term investment (Note 5):
U.S. treasury securities	903,415	—	—
U.S. agency securities	17,621	—	—
Time deposits	10,172	—	—
Cash equivalents
U.S. treasury securities	9,988	—	—
Money market funds	127,423	—	—
Total	1,068,619	—	—


	Quoted Price
	in Active	Significant
	Market for	Other	Significant
	Identical	Observable	Unobservable
	Assets	Inputs	Inputs
As of December 31, 2017	(Level 1)	(Level 2)	(Level 3)
	$	$	$
Short-term investment (Note 5):
U.S. treasury securities	561,327	—	—
U.S. agency securities	17,663	—	—
Time deposits	18,924	—	—
Cash equivalents
Money market funds	44,730	—	—
Total	642,644	—	—

The Company had no liabilities measured and recorded at fair value on a recurring basis as of June 30, 2018 or December 31, 2017.

3. Research and Development Collaborative Arrangements

Celgene and Celgene Switzerland

On July 5, 2017, the Company entered into a license agreement with Celgene Switzerland pursuant to which the Company granted to the Celgene parties an exclusive right to develop and commercialize the Company’s investigational PD-1 inhibitor, tislelizumab (BGB-A317), in all fields of treatment, other than hematology, in the United States, Europe, Japan and the rest of world other than Asia (the “PD-1 License Agreement”). In connection with the closing of the transactions on August 31, 2017, the Company, Celgene and Celgene Switzerland amended and restated the PD-1 License Agreement (the “A&R PD-1 License Agreement”) to, among other things, clarify the parties’ responsibilities relating to the conducting and funding of certain global registration clinical trials and clarify the scope of the regulatory materials transferred by BeiGene to Celgene.

Under the terms of the A&R PD-1 License Agreement, Celgene agreed to pay the Company $263,000 in upfront non-refundable fees, of which $92,050 was paid in the third quarter of 2017 and the remaining $170,950 was paid in December 2017. In addition, subsequent to the completion of the research and development phase of the collaboration, the Company may be eligible to receive product development milestone payments based on the successful achievement of development and regulatory goals, commercial milestone payments based on the successful achievement of commercialization goals, and royalty payments based on a predetermined percentage of Celgene and Celgene

Switzerland’s aggregate annual net sales of all products in their territory for a period not to exceed the latest of the expiration of the last valid patent claim, the expiration of regulatory exclusivity or 12 years from the date of the first commercial sale on a product-by-product and country-by-country basis. The Company allocated $13,000 of upfront fees to the fair value of assets related to the Company’s acquisition of Celgene Shanghai, a wholly-owned subsidiary of Celgene Holdings East Corporation established under the laws of China, which was completed contemporaneously with the A&R PD-1 License Agreement.

In addition to the exclusive right to develop and commercialize tislelizumab, the terms of the A&R PD-1 License Agreement provide Celgene with the right to collaborate with the Company on the development of tislelizumab for specified indications, including required participation on a joint development committee and a joint steering committee as well as a joint commercialization committee upon achievement of commercialization. The joint development and joint steering committees are formed by an equal number of representatives from the Company and Celgene and are responsible for reviewing and approving the development plan and budget for the development of tislelizumab for clinical studies associated with specified indications. Celgene will reimburse the Company for certain research and development costs based on external cost, plus agreed upon markup for the development of tislelizumab related to the clinical trials that Celgene opts into, as outlined in the development plan.

The following table summarizes total collaboration revenue recognized for the three and six months ended June 30, 2018 and 2017:

The following table summarizes total collaboration revenue recognized for the three and six months ended June 30, 2018 and 2017:
	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
	$	$	$	$
Reimbursement of research and development costs	18,175	—	25,730	—
Research and development service revenue	3,203	—	4,942	—
Total	21,378	—	30,672	—

For the three and six months ended June 30, 2018, the Company recognized collaboration revenue of $21,378 and $30,672, respectively. The Company recognized $18,175 and $25,730 of research and development reimbursement revenue for the three and six months ended June 30, 2018 for the trials that Celgene has opted into. In addition, $16,307 of reimbursement that was billed to Celgene was included as an adjustment to beginning accumulated deficit. The $1,703 and $3,442 of research and development services revenue, respectively, for the three and six months ended June 30, 2018, reflect the recognition of upfront consideration that was allocated to R&D services at the time of the collaboration and is recognized from deferred revenue over the term of the respective clinical studies for the specified indications.

In May 2018, the Company achieved the milestone related to its collaboration agreement with Merck KGaA for dosing patients in the first Phase 3 clinical trial of pamiparib in the PRC Territory, and the related $1,500 milestone payment was recognized as research and development services revenue for the three months ended June 30, 2018.

The Company did not have any collaboration revenue for the three and six months ended June 30, 2017.

4. Business Combination

On August 31, 2017, BeiGene HK acquired 100% of the equity interests of Celgene Shanghai, a wholly-owned subsidiary of Celgene Holdings East Corporation established under the laws of the PRC, for total consideration of $28,138. BeiGene HK made an initial cash payment of $4,532, and issued non-cash consideration of $23,606, related to the discount on ordinary shares issued to Celgene, pursuant to the Share Subscription Agreement dated July 5, 2017 by and between the Company and Celgene Switzerland (the “Share Subscription Agreement”). See Note 20 for further description of the Share Subscription Agreement.

Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The preliminary

fair values of goodwill, intangible assets and other net assets were $109, $7,500 and $20,529, respectively. These preliminary amounts are subject to subsequent adjustment as the Company obtain additional information to finalize certain components of working capital.

5. Restricted Cash and Short-term Investments

The Company’s restricted cash balance of $31,591 as of June 30, 2018 consisted of BeiGene Guangzhou Factory’s secured deposits held in designated bank accounts for issuance of letter of credit, and restricted cash deposits as security for the long-term bank loan (Note 13).

Short-term investments as of June 30, 2018 consisted of the following available-for-sale debt securities and time deposits:


		Gross	Gross	Fair Value
	Amortized	Unrealized	Unrealized	(Net Carrying
	Cost	Gains	Losses	Amount)
	$	$	$	$
U.S. treasury securities	902,771	644	—	903,415
U.S. agency securities	17,612	9	—	17,621
Time deposits	10,172	—	—	10,172
Total	930,555	653	—	931,208

Short-term investments as of December 31, 2017 consisted of the following available-for-sale debt securities and time deposits:


		Gross	Gross	Fair Value
	Amortized	Unrealized	Unrealized	(Net Carrying
	Cost	Gains	Losses	Amount)
	$	$	$	$
U.S. treasury securities	561,733	—	406	561,327
U.S. agency securities	17,651	12	—	17,663
Time deposits	18,924	—	—	18,924
Total	598,308	12	406	597,914

Contractual maturities of all debt securities as of June 30, 2018 were within one year. The Company does not consider the investment in U.S. treasury securities or U.S. agency securities to be other-than-temporarily impaired at June 30, 2018.

6. Inventories

The Company’s inventory balance of $6,322 and $10,930 as of June 30, 2018 and December 31, 2017, consisted entirely of finished goods product purchased from Celgene for distribution in the PRC.

7. Property and Equipment

Property and equipment consisted of the following:


	As of
	June 30,	December 31,
	2018	2017
	$	$
Laboratory equipment	17,986	15,596
Leasehold improvements	16,272	15,298
Manufacturing equipment	15,534	15,737
Office equipment	1,718	1,597
Electronic equipment	1,260	1,244
Computer software	1,238	598
Construction in progress	53,738	26,125
Property and equipment, at cost	107,746	76,195
Less accumulated depreciation	(17,236)	(13,627)
Property and equipment, net	90,510	62,568

As of June 30, 2018 and December 31, 2017, construction in progress of $53,738 and $26,125 primarily related to the buildout of the Guangzhou manufacturing facility. In the three months ended June 30, 2018, assets totaling $971 related to the Suzhou facilities were transferred to laboratory equipment, manufacturing equipment and leasehold improvements from construction in progress. Depreciation expense for the three and six months ended June 30, 2018 was $2,099 and $4,083, respectively. Depreciation expense for the three and six months ended June 30, 2017 was $540 and $1,404, respectively.

8. Manufacturing Facility in Guangzhou

On March 7, 2017, BeiGene HK 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. BeiGene HK and GET entered into an Equity Joint Venture Contract (the “JV Agreement”). Under the terms of the JV Agreement, BeiGene HK agreed to make an initial cash capital contribution of RMB200,000 and a subsequent contribution of certain rights to one or more biologics assets in exchange for a 95% equity interest in BeiGene Biologics. GET agreed to provide a cash capital contribution of RMB100,000 to BeiGene Biologics, representing a 5% equity interest in BeiGene Biologics. In addition, BeiGene Biologics entered into a contract with GET, under which GET agreed to provide a RMB900,000 loan (the “Shareholder Loan”) to BeiGene Biologics (see Note 14). BeiGene Biologics is working to establish a biologics manufacturing facility in Guangzhou, through a wholly-owned subsidiary, the BeiGene Guangzhou Factory, to manufacture biologics for the Company and its subsidiaries.

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 a certain management position. On April 13, 2017 and May 4, 2017, BeiGene HK made cash capital contributions of RMB137,830 and RMB2,415, respectively, into BeiGene Biologics. The remainder of the cash capital contribution from BeiGene HK to BeiGene Biologics will be paid by April 10, 2020. On April 14, 2017, GET made cash capital contributions of RMB100,000 into BeiGene Biologics. On April 14, 2017, BeiGene Biologics drew down the Shareholder Loan of RMB900,000 from GET (as further described in Note 14).

In the fourth quarter of 2017, BeiGene HK and BeiGene Biologics entered into an Equity Transfer Agreement to transfer 100% of the equity interest of BeiGene Shanghai into BeiGene Biologics. The transfer consideration for the purchased interests under this Equity Transfer Agreement is the fair value of the 100% equity of BeiGene Shanghai appraised by a qualified Chinese valuation firm under the laws of PRC. Upon the transfer of equity in BeiGene Shanghai, BeiGene HK fulfilled its contribution obligation to subscribe for registered capital in BeiGene Biologics and BeiGene HK’s equity interest in BeiGene Shanghai became 95%.

On April 4, 2018, BeiGene Guangzhou Factory entered into a nine-year loan agreement with China Construction Bank to borrow a RMB denominated loan of $87,652 (RMB580,000) at a floating interest rate benchmarking RMB loans interest rate of financial institutions in PRC. As of June 30, 2018, the Company has drawn down the loan of $42,315, as further described in Note 13.

As of June 30, 2018, the Company and GET held 95% and 5% equity interests in BeiGene Biologics, respectively. As of June 30, 2018, the Company's cash, cash equivalents, restricted cash and short-term investments included $145,279 held by BeiGene Biologics to be used to build the commercial scale biologics facility and to fund research and development of the Company's biologics drug candidates in China.

9. Land Use Right

The land use right represents the land acquired for the purpose of constructing and operating the biologics manufacturing facility in Guangzhou. In 2017, the Company acquired the land use right from the local Bureau of Land and Resources in Guangzhou. The land use right is amortized over the total term of the right, which is 50 years. The land use right asset as of June 30, 2018 and December 31, 2017 is summarized as follows:


	As of
	June 30,	December 31,
	2018	2017
	$	$
Land use right, cost	12,422	12,633
Accumulated amortization	(290)	(168)
Land use right, net	12,132	12,465

Amortization expense of the land use right for the three and six months ended June 30, 2018 was $61 and $122, respectively. Amortization expense of the land use right for the three and six months ended June 30, 2017 was nil and nil, respectively.

As of June 30, 2018, expected amortization expense for the land use right was approximately $124 for the remainder of 2018, $248 in 2019, $248 in 2020, $248 in 2021, $248 in 2022 and $11,016 in 2023 and thereafter.

10. Intangible Assets

Intangible assets outstanding as of June 30, 2018 and December 31, 2017 are summarized as follows:

As of

June 30, 2018

December 31, 2017

Gross

carrying

Accumulated

Intangible

carrying

Accumulated

Intangible

amount

amortization

		Page

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

Item 3.	Defaults Upon Senior Securities	94

Item 4.	Mine Safety Disclosures	94

Item 5.	Other Information	94

Item 6.	Exhibits	94

SIGNATURES		97