UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________________

FORM 10-Q

_______________________________________________________________________

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2019
	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 Governance 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  ý     No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ý     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	ý	Accelerated Filer	¨
Non-accelerated filer	¨	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  ý

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing 13 Ordinary Shares, par value $0.0001 per share	BGNE	The NASDAQ Global Select Market
Ordinary Shares, par value $0.0001 per share*	06160	The Stock Exchange of Hong Kong Limited

As of April 30, 2019, 777,672,755 ordinary shares, par value $0.0001 per share, were outstanding, of which 606,358,597 ordinary shares were held in the form of 46,642,969 American Depositary Shares, each representing 13 ordinary shares.

*Included in connection with the registration of the American Depositary Shares with the Securities and Exchange Commission. The ordinary shares are not registered or listed for trading in the United States but are listed for trading on The Stock Exchange of Hong Kong Limited.

BeiGene, Ltd.

Quarterly Report on Form 10-Q

		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	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
Item 3.	Defaults Upon Senior Securities	83
Item 4.	Mine Safety Disclosures	83
Item 5.	Other Information	83
Item 6.	Exhibits	83
SIGNATURES		85

2

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
		March 31,		December 31,
	Note	2019		2018
		$		$
		(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents		764,492		712,937
Short-term restricted cash	5	14,900		14,544
Short-term investments	5	849,167		1,068,509
Accounts receivable		58,976		41,056
Unbilled receivable		6,114		8,612
Inventories	6	13,140		16,242
Prepaid expenses and other current assets	12	89,941		81,942
Total current assets		1,796,730		1,943,842
Long-term restricted cash	5	8,991		13,232
Property, plant and equipment, net	7	197,806		157,061
Land use right, net	1	—		45,058
Operating lease right-of-use assets	9	72,624		—
Intangible assets, net	10	6,841		7,172
Goodwill		109		109
Deferred tax assets	11	30,526		29,542
Other non-current assets	12	58,605		53,668
Total non-current assets		375,502		305,842
Total assets		2,172,232		2,249,684
Liabilities and shareholders' equity
Current liabilities:
Accounts payable		105,320		113,283
Accrued expenses and other payables	12	90,737		100,414
Deferred revenue, current portion		17,504		18,140
Tax payable	11	6,857		5,888
Current portion of operating lease liabilities	9	9,451		—
Current portion of long-term bank loan	13	8,940		8,727
Total current liabilities		238,809		246,452
Non-current liabilities:
Long-term bank loan	13	77,480		40,785
Shareholder loan	14	155,174		148,888
Deferred revenue, non-current portion		8,240		9,842
Operating lease liabilities	9	19,545		—
Deferred tax liabilities		11,333		11,139
Other long-term liabilities	12	38,972		38,931
Total non-current liabilities		310,744		249,585
Total liabilities		549,553		496,037
Commitments and contingencies	21
Equity:
Ordinary shares, US$0.0001 par value per share; 9,500,000,000 shares authorized; 777,413,184 and 776,263,184 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		78		77
Additional paid-in capital		2,777,474		2,744,814
Accumulated other comprehensive income	18	6,072		1,526
Accumulated deficit		(1,174,855	)	(1,007,215	)
Total BeiGene, Ltd. shareholders’ equity		1,608,769		1,739,202
Noncontrolling interest		13,910		14,445
Total equity		1,622,679		1,753,647
Total liabilities and equity		2,172,232		2,249,684

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

3

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
		March 31,
	Note	2019		2018
		$		$
Revenues
Product revenue, net	15	57,421		23,250
Collaboration revenue	3	20,412		9,294
Total revenues		77,833		32,544
Expenses
Cost of sales - product		(15,261	)	(4,550	)
Research and development		(178,351	)	(109,700	)
Selling, general and administrative		(57,645	)	(28,915	)
Amortization of intangible assets		(331	)	(188	)
Total expenses		(251,588	)	(143,353	)
Loss from operations		(173,755	)	(110,809	)
Interest income, net		4,477		1,552
Other income, net		1,728		729
Loss before income taxes		(167,550	)	(108,528	)
Income tax (expense) benefit	11	(519	)	3,412
Net loss		(168,069	)	(105,116	)
Less: net loss attributable to noncontrolling interests		(429	)	(520	)
Net loss attributable to BeiGene, Ltd.		(167,640	)	(104,596	)
Net loss per share attributable to BeiGene, Ltd., basic and diluted	16	(0.22	)	(0.16	)
Weighted-average shares outstanding, basic and diluted	16	774,750,255		670,510,605
Net loss per American Depositary Share (“ADS”), basic and diluted		(2.81	)	(2.03	)
Weighted-average ADSs outstanding, basic and diluted		59,596,173		51,577,739

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

4

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
	March 31,
	2019		2018
	$		$
Net loss	(168,069	)	(105,116	)
Other comprehensive income, net of tax of nil:
Foreign currency translation adjustments	3,755		272
Unrealized holding gain, net	685		329
Comprehensive loss	(163,629	)	(104,515	)
Less: comprehensive loss attributable to noncontrolling interests	(535	)	(456	)
Comprehensive loss attributable to BeiGene, Ltd.	(163,094	)	(104,059	)

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

5

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)

		Three months ended March 31,
	Note	2019		2018
		$		$
Operating activities:
Net loss		(168,069	)	(105,116	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		3,416		2,244
Share-based compensation expenses	17	26,392		17,396
Acquired in-process research and development		29,000		10,000
Non-cash interest expense		1,858		2,012
Deferred income tax benefits		(983	)	(4,090	)
Disposal gain on available-for-sale securities		(810	)	(482	)
Non-cash amortization of bond discount		(2,408	)	—
Changes in operating assets and liabilities:
Accounts receivable		(17,920	)	5,943
Unbilled receivable		2,498		(7,555	)
Inventories		3,102		3,432
Prepaid expenses and other current assets		(8,270	)	(13,758	)
Operating lease right-of-use assets		(1,588	)	—
Other non-current assets		(10,212	)	(2,082	)
Accounts payable		(20,364	)	(18,487	)
Accrued expenses and other payables		(8,790	)	6,115
Tax payable		969		733
Deferred revenue		(2,238	)	(1,739	)
Other long-term liabilities		892		933
Operating lease liabilities		1,550		—
Net cash used in operating activities		(171,975	)	(104,501	)
Investing activities:
Purchases of property, plant and equipment		(21,828	)	(9,696	)
Purchases of investments		(487,354	)	(632,224	)
Proceeds from sale or maturity of investments		710,598		257,568
Purchase of in-process research and development		(29,000	)	(10,000	)
Net cash provided by (used in) investing activities		172,416		(394,352	)
Financing activities:
Proceeds from follow-on public offering, net of underwriter discount		—		758,001
Payment of follow-on public offering cost		—		(414	)
Proceeds from long-term loan	13	36,695		—
Proceeds from option exercises and employee share purchase plan		6,269		6,314
Net cash provided by financing activities		42,964		763,901
Effect of foreign exchange rate changes, net		4,265		3,444
Net increase in cash, cash equivalents, and restricted cash		47,670		268,492
Cash, cash equivalents, and restricted cash at beginning of period		740,713		239,602
Cash, cash equivalents, and restricted cash at end of period		788,383		508,094
Supplemental cash flow information:
Cash and cash equivalents		764,492		490,634
Restricted cash, current		14,900		17,460
Restricted cash, non-current		8,991		—
Income taxes paid		360		329
Interest expense paid		888		331
Supplemental non-cash information:
Acquisitions of equipment included in accounts payable		32,462		3,640
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.

6

BEIGENE, LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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

(Unaudited)

	Attributable to BeiGene, Ltd.
	Ordinary Shares			Additional Paid-In Capital	Accumulated Other Comprehensive Income		Accumulated Deficit		Total		Noncontrolling Interests
	Shares		Amount										Total
			$	$	$		$		$		$		$
Balance at December 31, 2018	776,263,184		77	2,744,814	1,526		(1,007,215	)	1,739,202		14,445		1,753,647
Exercise of options, ESPP and release of RSUs	2,066,383		1	6,268	—		—		6,269		—		6,269
Use of shares reserved for share option exercises	(916,383	)	—	—	—		—		—		—		—
Share-based compensation	—		—	26,392	—		—		26,392		—		26,392
Other comprehensive income	—		—	—	4,546		—		4,546		(106	)	4,440
Net loss	—		—	—	—		(167,640	)	(167,640	)	(429	)	(168,069	)
Balance at March 31, 2019	777,413,184		78	2,777,474	6,072		(1,174,855	)	1,608,769		13,910		1,622,679
Balance at December 31, 2017	592,072,330		59	1,000,747	(480	)	(330,517	)	669,809		14,422		684,231
Adjustment to opening balance of equity	—		—	—	263		(2,929	)	(2,666	)	375		(2,291	)
Balance at January 1, 2018	592,072,330		59	1,000,747	(217	)	(333,446	)	667,143		14,797		681,940
Issuance of ordinary shares in connection with follow-on public offering	102,970,400		10	757,577	—		—		757,587		—		757,587
Issuance of shares reserved for share option exercises	213,018		—	—	—		—		—		—		—
Share-based compensation	—		—	17,396	—		—		17,396		—		17,396
Exercise of options and release of Restricted Share Units ("RSUs")	3,686,982		1	6,313	—		—		6,314		—		6,314
Other comprehensive income	—		—	—	537		—		537		64		601
Net loss	—		—	—	—		(104,596	)	(104,596	)	(520	)	(105,116	)
Balance at March 31, 2018	698,942,730		70	1,782,033	320		(438,042	)	1,344,381		14,341		1,358,722

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

7

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 biotechnology 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. On August 8, 2018, the Company completed its IPO on the Stock Exchange of Hong Kong Limited (“HKEx”) and a global follow-on public offering in which it raised approximately $869,709 in net proceeds, after deducting underwriting discounts and commissions and offering expenses. Effective August 8, 2018, the Company is dual-listed in both the United States and Hong Kong.

As of March 31, 2019, there were no changes to the Company's subsidiaries listed in Note 1 to the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 ("Annual Report"), except for the addition of BeiGene Singapore Pte., Ltd., a new wholly-owned subsidiary of BeiGene, Ltd.

Basis of presentation and consolidation

The accompanying condensed consolidated balance sheet as of March 31, 2019, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2019 and 2018, the condensed consolidated statements of cash flows and the condensed consolidated statements of shareholders' equity for the three months ended March 31, 2019 and 2018, 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 condensed consolidated financial statements and related footnotes included in the Company’s 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 months ended March 31, 2019 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 its interests in its joint venture, BeiGene Biologics Co., Ltd. ("BeiGene Biologics"), under the voting model and recognizes the minority shareholders' equity interest as a noncontrolling interest in its condensed consolidated financial statements (as described in Note 8).

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, estimating variable consideration in product sales and collaboration revenue arrangements, estimating the incremental

8

borrowing rate for operating lease liabilities, identifying separate accounting units and the standalone selling price of each performance obligation in the Company’s revenue arrangements, estimating the fair value of net assets acquired in business combinations, assessing the impairment of long-lived assets, share-based compensation expenses, realizability of deferred tax assets, estimating uncertain tax positions 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 February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-2, Leases. Subsequently, the FASB issued ASU 2018-1, Land Easement Practical Expedient, which provides an optional transition practical expedient for land easements, ASU 2018-10, Codification Improvements to Topic 842, Leases, which clarifies certain aspects of the guidance issued in ASU 2016-2; ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional transition method and a practical expedient for separating components of a contract for lessors, ASU 2018-20, Leases (Topic 842)- Narrow-Scope Improvements for Lessors, which allows certain accounting policy elections for lessors; and ASU 2019-1, Leases (Topic 842): Codification Improvements, which clarifies certain aspects of the guidance (collectively, the "Lease ASUs"). The Lease ASUs require 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 was effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. Leases will be classified as finance or operating, with the classification affecting the pattern and classification of expense recognition. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial adoption. The guidance permits entities to choose to use either its effective date or the beginning of the earliest period presented in the financial statements as its date of initial application.

The Company adopted the new standard effective January 1, 2019 using the effective date method and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. Upon adoption, the Company recognized a lease liability of $27,446, with corresponding right-of-use ("ROU") assets of $25,978 based on the present value of the remaining minimum rental payments under existing operating leases. The difference between the lease liability and right-of-use asset relates to the reversal of existing deferred rent and prepaid rent balances of $1,739 and $271, respectively. Additionally, the Company reclassified its land use rights of $45,058 to ROU assets upon adoption. The adoption of the standard did not impact the Company’s condensed consolidated statements of operations or cash flows.

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 provides companies the option to reclassify to retained earnings the income tax accounting effects related to items originating in accumulated other comprehensive income ("AOCI") as a result of the U.S. Tax Cuts and Jobs Act ("TCJA") enacted on December 22, 2017. This update was effective in fiscal years, including interim periods, beginning after December 15, 2018, with early adoption permitted. None of the income tax accounting effects of the TCJA related to items that originated in AOCI and thus adopting of this standard did not have any impact on the Company’s condensed consolidated financial statements. Other tax effects of items that originate in AOCI will be removed when the underlying circumstance which gives rise to the tax impact no longer exists, based on an aggregate portfolio approach.

9

Impact of adopted accounting standards

The cumulative effect of changes made to the Company’s condensed consolidated January 1, 2019 balance sheet for the adoption of the Lease ASUs were as follows:

	Balance at	Adjustments		Balance at
	December 31,	Due to		January 1,
	2018	Lease ASUs		2019
	$	$		$
Assets:
Prepaid expenses and other current assets	81,942	(271	)	81,671
Land use right, net	45,058	(45,058	)	—
Operating lease right-of-use assets	—	71,036		71,036
Liabilities:
Accrued expenses and other payables	100,414	(888	)	99,526
Current portion of operating lease liabilities	—	8,684		8,684
Operating lease liabilities	—	18,762		18,762
Other long-term liabilities	38,931	(851	)	38,080

New accounting standards which have not yet been adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). The amendments in ASU 2016-13 update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are U.S. SEC filers, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact on its financial statements of adopting this guidance.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update eliminates, modifies, and adds certain disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted. The added disclosure requirements and the modified disclosure on the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented. All other changes to disclosure requirements in this update should be applied retrospectively to all periods presented upon their effective date. The Company is currently evaluating the impact on its financial statements of adopting this guidance.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and recognize as an asset. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted. This guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact on its financial statements of adopting this guidance.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The update is effective in fiscal years beginning after December 15, 2019, and interim periods therein, and early adoption is permitted for entities that have adopted ASC 606. This guidance should be applied retrospectively to the date of initial application of Topic 606. The Company is currently evaluating the impact on its financial statements of adopting this guidance.

Significant accounting policies

For a more complete discussion of the Company’s significant accounting policies and other information, the condensed 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, 2018.

10

Leases

The Company determines if an arrangement is a lease at inception. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component based on the Company’s policy election to combine lease and non-lease components for its leases. Leases are classified as operating or finance leases in accordance with the recognition criteria in ASC 842-20-25. The Company’s lease portfolio consists entirely of operating leases as of March 31, 2019. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

At the commencement date of a lease, the Company determines the classification of the lease based on the relevant factors present and records a ROU asset and lease liability. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are calculated as the present value of the lease payments not yet paid. Variable lease payments not dependent on an index or rate are excluded from the ROU asset and lease liability calculations and are recognized in expense in the period which the obligation for those payments is incurred. As the rate implicit in the Company’s leases is not typically readily available, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. ROU assets include any lease prepayments and are reduced by lease incentives. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease terms are based on the non-cancelable term of the lease and may contain options to extend the lease when it is reasonably certain that the Company will exercise that option.

Operating leases are included in operating lease right-of-use assets and lease liabilities on the condensed consolidated balance sheet. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities.

Leases with an initial lease term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

Land Use Rights 

All land in the People's Republic of China ("PRC") is owned by the PRC government. The PRC government may sell land use rights for a specified period of time. Land use rights represent operating leases in accordance with ASC 842. The purchase price of land use rights represents lease prepayments to the PRC government and is recorded as an operating lease ROU asset on the balance sheet. The ROU asset is amortized over the remaining lease term.

In 2017, the Company acquired a land use right from the local Bureau of Land and Resources in Guangzhou for the purpose of constructing and operating the biologics manufacturing facility in Guangzhou. The Guangzhou land use right is being amortized over the term of the land use right, which is 50 years. 

In 2018, the Company acquired a second land use right in conjunction with the Innerway asset acquisition (see Note 4). The land use right is being amortized over the term of the land use right, which is 36 years.

Except for the changes to the Company’s significant accounting policies related to the adoption of the Lease ASUs, there have been no other material changes to the Company’s significant accounting policies as of and for the three months ended March 31, 2019, 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.

11

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 March 31, 2019 and December 31, 2018:

	Quoted Price
	in Active	Significant
	Market for	Other	Significant
	Identical	Observable	Unobservable
	Assets	Inputs	Inputs
As of March 31, 2019	(Level 1)	(Level 2)	(Level 3)
	$	$	$
Short-term investments (Note 5):
U.S. treasury securities	825,435	—	—
U.S. agency securities	23,732	—	—
Cash equivalents
U.S. treasury securities	124,856	—	—
Money market funds	59,884	—	—
Total	1,033,907	—	—

	Quoted Price
	in Active	Significant
	Market for	Other	Significant
	Identical	Observable	Unobservable
	Assets	Inputs	Inputs
As of December 31, 2018	(Level 1)	(Level 2)	(Level 3)
	$	$	$
Short-term investments (Note 5):
U.S. treasury securities	1,068,509	—	—
Cash equivalents
Money market funds	159,810	—	—
Total	1,228,319	—	—

 The Company had no liabilities measured and recorded at fair value on a recurring basis as of March 31, 2019 or December 31, 2018. 

3. Research and Development Collaborative Arrangements

To date, the Company’s collaboration revenue has consisted of (1) upfront license fees, research and development reimbursement revenue, and research and development services revenue from its collaboration agreement with Celgene Corporation ("Celgene") on the Company’s investigational anti-programmed cell death protein 1 (“PD-1”) inhibitor, tislelizumab (BGB-A317), and (2) upfront license fees and milestone payments from its collaboration agreement with Merck KGaA, Darmstadt Germany on pamiparib (BGB-290) and lifirafenib (BGB-283). The collaboration agreement with Merck KGaA was terminated in December 2018.

12

The following table summarizes total collaboration revenue recognized for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31,
	2019	2018
	$	$
Reimbursement of research and development costs	18,174	7,555
Research and development service revenue	2,238	1,739
Total	20,412	9,294

For the three months ended March 31, 2019, the Company recognized collaboration revenue of $20,412. The Company recognized $18,174 of research and development reimbursement revenue for the three months ended March 31, 2019 for the trials that Celgene has opted into. The $2,238 of research and development services revenue for the three months ended March 31, 2019, primarily reflects the recognition of upfront consideration that was allocated to research and development 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.

For the three months ended March 31, 2018, the Company recognized collaboration revenue of $9,294. The Company recognized $7,555 of research and development reimbursement revenue for the three months ended March 31, 2018 for the trials that Celgene has opted into. The $1,739 of research and development services revenue reflects the recognition of upfront consideration that was allocated to research and development 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.

4. Business Combinations and Asset Acquisitions

BeiGene Pharmaceuticals (Guangzhou) Co., Ltd.

 On September 21, 2018, BeiGene (Guangzhou) Co., Ltd. ("BeiGene Guangzhou") acquired 100% of the equity interests of Baiji Shenzhou (Guangzhou) Pharmaceuticals Co., Ltd. (formerly known as Huajian Pharmaceuticals Co., Ltd.), which subsequently changed its name to BeiGene Pharmaceuticals (Guangzhou) Co., Ltd., a pharmaceutical distribution company, for total cash consideration of $612, including transaction costs of $59. The acquisition was concentrated in a single identifiable asset, a drug distribution license, and thus the Company has concluded that the transaction is an asset acquisition as it does not meet the accounting definition of a business combination. The total cost was allocated to the drug distribution license and corresponding deferred tax liability, resulting in an $816 intangible asset for the license and a deferred tax liability of $204.

Beijing Innerway Bio-tech Co., Ltd.

On October 4, 2018, BeiGene (Hong Kong) Co., Ltd. ("BeiGene HK") completed the acquisition of 100% of the equity interest of Beijing Innerway Bio-tech Co., Ltd., the owner of the Company's research, development and office facility in Changping, Beijing, China, for total cash consideration of $38,654. The acquisition was concentrated in a single identifiable asset or group of assets, the building and associated land use right, and thus the Company has concluded that the transaction is an asset acquisition as it does not meet the accounting definition of a business combination. The total cost of the transaction of $38,865, which includes transaction costs of $211, was allocated based on the relative fair values of the net assets acquired, as follows:

	Amount
Land use right	$	33,783
Building	15,874
Deferred tax liability	(11,221		)
Other	429
Total cost	38,865

5. Restricted Cash and Short-term Investments

The Company’s restricted cash balance of $23,891 as of March 31, 2019 consisted of BeiGene Guangzhou Biologics Manufacturing Co., Ltd.'s ("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).

13

Short-term investments as of March 31, 2019 consisted of the following available-for-sale debt securities:

		Gross	Gross	Fair Value
	Amortized	Unrealized	Unrealized	(Net Carrying
	Cost	Gains	Losses	Amount)
	$	$	$	$
U.S. treasury securities	823,079	2,356	—	825,435
U.S. agency securities	23,665	67	—	23,732
Total	846,744	2,423	—	849,167

Short-term investments as of December 31, 2018 consisted of the following available-for-sale debt securities:

		Gross	Gross	Fair Value
	Amortized	Unrealized	Unrealized	(Net Carrying
	Cost	Gains	Losses	Amount)
	$	$	$	$
U.S. treasury securities	1,066,770	1,802	63	1,068,509
Total	1,066,770	1,802	63	1,068,509

 The Company does not consider the investment in U.S. treasury securities or U.S. agency securities to be other-than-temporarily impaired at March 31, 2019.

6. Inventories

The Company’s inventory balance of $13,140 and $16,242 as of March 31, 2019 and December 31, 2018, respectively, consisted entirely of finished goods product purchased from Celgene for distribution in the PRC.

7. Property, plant and equipment

Property, plant and equipment are recorded at cost and consisted of the following:

	As of
	March 31,		December 31,
	2019		2018
	$		$
Laboratory equipment	24,771		22,636
Leasehold improvements	19,466		18,048
Building	15,905		15,857
Manufacturing equipment	16,806		16,048
Office equipment	2,526		2,216
Electronic equipment	1,745		1,229
Computer software	1,331		1,262
Property, plant and equipment, at cost	82,550		77,296
Less accumulated depreciation	(23,267	)	(19,722	)
Construction in progress	138,523		99,487
Property, plant and equipment, net	197,806		157,061

 As of March 31, 2019 and December 31, 2018, construction in progress of $138,523 and $99,487, respectively, primarily related to the buildout of the Guangzhou manufacturing facility. Depreciation expense for the three months ended March 31, 2019 and March 31, 2018 was $3,085 and $1,984, respectively.

14

8. 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.

On March 7, 2017, BeiGene HK and GET entered into an Equity Joint Venture Contract (the “JV Agreement”). Under the terms of the JV Agreement, BeiGene HK made 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 made a cash capital contribution of RMB100,000 to BeiGene Biologics, representing a 5% equity interest in BeiGene Biologics. In addition, on March 7, 2017, 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 the PRC. Upon the transfer of equity in BeiGene Shanghai, BeiGene HK’s equity interest in BeiGene Shanghai became 95%. As of March 31, 2019, the Company and GET held 95% and 5% equity interests in BeiGene Biologics, respectively.

As of March 31, 2019, the Company's cash and cash equivalents of $143,320 and restricted cash of $23,891 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. Leases

The Company has operating leases for office and manufacturing facilities in the United States, Switzerland, and China. The leases have remaining lease terms of up to five years, some of which include options to extend the leases that have not been included in the calculation of the Company’s lease liabilities and ROU assets. The Company has land use rights which represent land acquired for constructing and operating the biologics manufacturing facility in Guangzhou, and the land acquired for the Company's research, development and office facility in Changping, Beijing. The land use rights represent lease prepayments and are expensed over the remaining term of the rights, which is 48 years for the Guangzhou land use right and 35 years for the Changping land use right. The Company also has certain leases with terms of 12 months or less for certain equipment, office and lab space, which are not recorded to the balance sheet.

The components of lease expense were as follows:

	Three months ended
	March 31,
	2019
	$
Operating lease cost	3,393
Variable lease cost	297
Short-term lease cost	133
Total lease cost	3,823

Total expenses under operating leases were $1,653 for the three months ended March 31, 2018.

15

Supplemental balance sheet information related to leases was as follows:

	As of
	March 31,
	2019
	$
Operating lease right-of-use assets	27,518
Land use rights, net	45,106
Total operating lease right-of-use assets	72,624
Current portion of operating lease liabilities	9,451
Operating lease liabilities	19,545
Total lease liabilities	28,996

Maturities of operating lease liabilities are as follows (2):

	$
Nine months ending December 31, 2019	8,675
Year ending December 31, 2020	10,583
Year ending December 31, 2021	8,123
Year ending December 31, 2022	4,173
Year ending December 31, 2023	1,445
Thereafter	104
Total lease payments	33,103
Less imputed interest	(4,107	)
Present value of lease liabilities	28,996

(2) As of March 31, 2019, the Company has additional operating leases for office facilities that have not yet commenced of $5,858. These operating leases will commence during the fiscal year 2019 with lease terms of up to three years.

Other supplemental information related to leases is summarized below:    

	Three months ended
	March 31,
	2019
	$
Operating cash flows used in operating leases	2,994
ROU assets obtained in exchange for new operating lease liabilities	3,464

	As of
	March 31,
	2019
	$
Weighted-average remaining lease term (years)	3
Weighted-average discount rate	8.37	%

16

The Company adopted the Lease ASUs effective January 1, 2019 and did not restate prior periods. The undiscounted future minimum payments under non-cancelable operating leases as of December 31, 2018, prior to the adoption of the Lease ASUs was as follows:

	$
Year ending December 31:
2019	10,752
2020	9,972
2021	7,805
2022	3,923
2023 and thereafter	1,357
Total	33,809

10. Intangible Assets

Intangible assets as of March 31, 2019 and December 31, 2018 are summarized as follows:

	As of
	March 31, 2019				December 31, 2018
	Gross				Gross
	carrying	Accumulated		Intangible	carrying	Accumulated		Intangible
	amount	amortization		assets, net	amount	amortization		assets, net
	$	$		$	$	$		$
Finite-lived intangible assets:
Product distribution rights	7,500	(1,187	)	6,313	7,500	(1,000	)	6,500
Trading license	816	(288	)	528	816	(144	)	672
Total finite-lived intangible assets	8,316	(1,475	)	6,841	8,316	(1,144	)	7,172

 Product distribution rights consist of distribution rights on the approved cancer therapies licensed from Celgene, ABRAXANE^®, REVLIMID^®, and VIDAZA^®, and its investigational agent CC-122 acquired as part of the Celgene transaction. The Company is amortizing the product distribution rights over a period of 10 years. The trading license represents the Guangzhou drug distribution license acquired on September 21, 2018. The Company is amortizing the drug distribution trading license over the remainder of the license term through February 2020.

Amortization expense of intangible assets for the three months ended March 31, 2019 and March 31, 2018 was $331 and$188, respectively. As of March 31, 2019, expected amortization expense for the unamortized finite-lived intangible assets is approximately $995 for the remainder of 2019, $846 in 2020, $750 in 2021, $750 in 2022, $750 in 2023, and $2,750 in 2024 and thereafter.

11. Income Taxes

Income tax expense was $519 for the three months ended March 31, 2019, and income tax benefit was $3,412 for the three months ended March 31, 2018. The income tax expense for the three months ended March 31, 2019 was primarily attributable to income reported in the U.S. and certain China subsidiaries offset by U.S. research and development tax credits and other special tax deductions. The income tax benefit for the three months ended March 31, 2018 was primarily attributable to U.S. research and development tax credits and the discrete tax benefit of employee stock option exercises.

On a quarterly basis, the Company evaluates the realizability of deferred tax assets by jurisdiction and assesses the need for a valuation allowance. In assessing the realizability of deferred tax assets, the Company considers historical profitability, evaluation of scheduled reversals of deferred tax liabilities, projected future taxable income and tax-planning strategies. Valuation allowances have been provided on deferred tax assets where, based on all available evidence, it was considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. After consideration of all positive and negative evidence, the Company believes that as of March 31, 2019, it is more likely than not the deferred tax assets will not be realized for the Company’s subsidiaries in Australia and Switzerland, as well as certain subsidiaries in China.

17

As of March 31, 2019, the Company had gross unrecognized tax benefits of $2,559. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly change within the next 12 months. The Company’s reserve for uncertain tax positions increased by $264 in the three months ended March 31, 2019 due to additions related to U.S. federal and state tax credits and incentives.

The Company has elected to record interest and penalties related to income taxes as a component of income tax expense. As of March 31, 2019 and December 31, 2018, the Company's accrued interest and penalties, where applicable, related to uncertain tax positions were not material.

The Company conducts business in a number of tax jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. As of March 31, 2019, Australia tax matters are open to examination for the years 2013 through 2019, China tax matters are open to examination for the years 2013 through 2019 and U.S. federal tax matters are open to examination for years 2015 through 2019. Various U.S. states and other non-US tax jurisdictions in which the Company files tax returns remain open to examination for 2010 through 2019.

12. Supplemental Balance Sheet Information

Prepaid expenses and other current assets consist of the following:

	As of
	March 31,	December 31,
	2019	2018
	$	$
Prepaid research and development costs	66,817	58,673
Prepaid taxes	9,078	10,479
Interest receivable	2,580	3,096
Other	11,466	9,694
Total	89,941	81,942

Other non-current assets consist of the following:

	As of
	March 31,	December 31,
	2019	2018
	$	$
Prepayment of long-term assets	10,035	11,981
Prepayment of facility capacity expansion activities (1)	25,809	25,193
Prepaid VAT	19,768	14,671
Rental deposits and other	2,993	1,823
Total	58,605	53,668

(1) Represents a payment for a facility expansion under a commercial supply agreement. The payment will be credited back to the Company through credits on supply purchases over the life of the supply agreement.

18

Accrued expenses and other payables consist of the following:

	As of
	March 31,	December 31,
	2019	2018
	$	$
Compensation related	18,540	35,887
External research and development activities related	46,889	34,588
Commercial activities	9,437	10,433
Individual income tax and other taxes	8,626	8,030
Sales rebates and returns related	3,366	4,749
Professional fees and other	3,879	6,727
Total	90,737	100,414

Other long-term liabilities consist of the following:

	As of
	March 31,	December 31,
	2019	2018
	$	$
Deferred government grant income	38,776	37,851
Other	196	1,080
Total	38,972	38,931

13. Long-term Bank Loans

On September 2, 2015, BeiGene (Suzhou) Co., Ltd. ("BeiGene (Suzhou)") entered into a loan agreement with Suzhou Industrial Park Biotech Development Co., Ltd. and China Construction Bank to borrow RMB120,000 at a 7% fixed annual interest rate. The loan is secured by BeiGene (Suzhou)’s equipment with a net carrying amount of $13,500 and the Company’s rights to a PRC patent on a drug candidate. In September 2018, the Company repaid the first tranche of $8,736 (RMB60,000). The remaining loan principal amount outstanding as of March 31, 2019 of $8,940 (RMB60,000) is repayable on September 30, 2019.

 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 RMB580,000 at a floating interest rate benchmarking RMB loans interest rate of financial institutions in PRC. The loan is secured by BeiGene Guangzhou Factory’s land use right. Interest expense will be paid quarterly until the loan is fully settled. As of March 31, 2019, the Company has drawn down $77,480 (RMB520,000) of this loan, of which $36,695 (RMB240,000) was drawn down during the three months ended March 31, 2019. The loan interest rate was 4.9% for the three months ended March 31, 2019, and the maturity dates range from 2021 to 2027.

 As of March 31, 2019, the Company has unused long-term credit availability amounting to $8,940, attributed to the remaining credit available under the Guangzhou Factory loan. The Company plans to draw down the entire available amount before December 31, 2019. Interest expense recognized for the three months ended March 31, 2019 and 2018 was $941 and $331, respectively, among which, $641 and nil was capitalized, respectively.

14. Shareholder Loan

On March 7, 2017, BeiGene Biologics entered into the Shareholder Loan Contract with GET, pursuant to which GET agreed to provide a Shareholder Loan of RMB900,000 to BeiGene Biologics. The Shareholder Loan has a conversion feature, settled in a variable number of shares of common stock upon conversion (the “debt-to-equity conversion”). On April 14, 2017, BeiGene Biologics drew down the entire Shareholder Loan of RMB900,000 from GET.

Key features of the Shareholder Loan

The Shareholder Loan bears simple interest at a fixed rate of 8% per annum. No interest payment is due or payable prior to the repayment of the principal or the debt-to-equity conversion. The term of the Shareholder Loan is 72 months, commencing from the actual drawdown date of April 14, 2017 and ending on April 13, 2023, unless converted earlier.

19

The Shareholder Loan may be repaid or converted, either partially or in full, into an additional mid-single digit percentage equity interest in BeiGene Biologics prior to its maturity date, pursuant to the terms of the JV Agreement. BeiGene Biologics has the right to make early repayment at any time; provided, however, that if repayment is to occur before the debt-to-equity conversion it would require written approval of both BeiGene Biologics and GET. Upon conversion of the shareholder loan, GET will receive an additional equity interest in BeiGene Biologics, which will be based on the formula outlined in the JV Agreement.

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.

Accounting for the Shareholder Loan

The Shareholder Loan is classified as a long-term liability and initially measured at the principal of RMB900,000. Interest will be accrued based on the interest rate of 8% per annum. As the Shareholder Loan may be share-settled by a number of shares with a fair value equal to a fixed settlement amount, the settlement is not viewed as a conversion feature, but as a redemption feature because the settlement amount does not vary with the share price. This in-substance redemption feature does not require bifurcation because it is clearly and closely related to the debt host that does not involve a substantial premium or discount. Since there is no conversion feature embedded in the Shareholder Loan, no beneficial conversion feature was recorded. There are no other embedded derivatives that are required to be bifurcated. The portion of interest accrued on the Shareholder Loan related to borrowings used to construct the BeiGene factory in Guangzhou is being capitalized in accordance with ASC 835-20, Interest – Capitalization of Interest.

For the three months ended March 31, 2019 and 2018, total interest expense generated from the Shareholder Loan was $2,645 and $3,280, respectively, among which, $788 and $815 was capitalized, respectively.

15.  Product Revenue

The Company’s product sales are derived from the sale of ABRAXANE^®, REVLIMID^®, and VIDAZA^® in China under a distribution license from Celgene. The table below presents the Company’s net product sales for the three months ended March 31, 2019 and 2018.

	Three Months Ended
	March 31,
	2019		2018
	$		$
Product revenue – gross	58,536		23,485
Less: Rebates and sales returns	(1,115	)	(235	)
Product revenue – net	57,421		23,250

 The following table presents the roll-forward of accrued sales rebates and returns for the three months ended March 31, 2019:

	Sales Rebates and Returns
	$
Balance as of December 31, 2018	4,749
Accrual	1,115
Payments	(2,498	)
Balance as of March 31, 2019	3,366

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16. Loss Per Share

Loss per share was calculated as follows:

	Three Months Ended
	March 31,
	2019			2018
	(in thousands, except share and per share data)
Numerator:
Net loss attributable to BeiGene, Ltd.	$	(167,640	)	$	(104,596	)
Denominator:
Weighted average shares outstanding, basic and diluted	774,750,255			670,510,605
Net loss per share attributable to BeiGene, Ltd., basic and diluted	$	(0.22	)	$	(0.16	)

The effects of all share options, restricted shares and restricted share units were excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive during the three months ended March 31, 2019 and 2018.

17. Share-Based Compensation Expense

2016 Share Option and Incentive Plan

On January 14, 2016, in connection with its U.S. 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 (the “2011 Plan”), and not subject to any outstanding options as of the effective date of the 2016 Plan, along with underlying share awards under the 2011 Plan that are cancelled or forfeited without issuance of ordinary shares. As of March 31, 2019, ordinary shares cancelled or forfeited under the 2011 Plan that were carried over to the 2016 Plan totaled 5,144,371. The 2016 Plan provided for an annual increase in the shares available for issuance, to be added on the first day of each fiscal year, beginning on January 1, 2017, equal to the lesser of (i) five percent (5%) of the outstanding shares of the Company’s ordinary shares on the last day of the immediately preceding fiscal year or (ii) such number of shares determined by the Company’s board of directors or the compensation committee. In August 2018, in connection with the Hong Kong IPO, the board of directors of the Company approved an amended and restated 2016 Plan to remove this “evergreen” provision and implement other changes required by the HKEx rules. In December 2018, the board of directors approved a second amended and restated 2016 Plan to increase the number of shares authorized for issuance by 38,553,159 ordinary shares, as well as amend the cap on annual compensation to independent directors and make other changes. The number of shares available for issuance under the 2016 Plan is subject to adjustment in the event of a share split, share dividend or other change in the Company’s capitalization.

During the three months ended March 31, 2019, the Company granted options for 590,967 ordinary shares and restricted share units for 2,266,550 ordinary shares under the 2016 Plan. As of March 31, 2019, options and restricted share units for ordinary shares outstanding under the 2016 Plan totaled 80,307,682 and 12,078,638, respectively.

2018 Inducement Equity Plan

On June 6, 2018, the board of directors of the Company approved the 2018 Inducement Equity Plan (the “2018 Plan”) and reserved 12,000,000 ordinary shares to be used exclusively for grants of awards to individuals that were not previously employees of the Company or its subsidiaries, as a material inducement to the individual’s entry into employment with the Company or its subsidiaries within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules. The 2018 Plan was approved by the board of directors upon recommendation of the compensation committee, without shareholder approval pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules. The terms and conditions of the 2018 Plan, and the forms of award agreements to be used thereunder, are substantially similar to the 2016 Plan and the forms of award agreements thereunder. In August 2018, in connection with the listing of the Company’s ordinary shares on the HKEx, the board of directors of the Company approved an amended and restated 2018 Plan to implement changes required by the HKEx rules.

During the three months ended March 31, 2019, the Company did not grant any options or restricted share units under the 2018 Plan. As of March 31, 2019, options and restricted share units for ordinary shares outstanding under the 2018 Plan totaled 79,404 and 3,542,773, respectively.

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2018 Employee Share Purchase Plan

On June 6, 2018, the shareholders of the Company approved the 2018 Employee Share Purchase Plan (the “ESPP”).  Initially, 3,500,000 ordinary shares of the Company were reserved for issuance under the ESPP. In August 2018, in connection with the Hong Kong IPO, the board of directors of the Company approved an amended and restated ESPP to remove an “evergreen” share replenishment provision originally included in the plan and implement other changes required by the HKEx rules. In December 2018, the board of directors approved a second amended and restated ESPP to increase the number of shares authorized for issuance by 3,855,315 ordinary shares to 7,355,315 ordinary shares. The ESPP allows eligible employees to purchase the Company’s ordinary shares (including in the form of ADSs) at the end of each offering period, which will generally be six months, at a 15% discount to the market price of the Company’s ADSs at the beginning or the end of each offering period, whichever is lower, using funds deducted from their payroll during the offering period. Eligible employees are able to authorize payroll deductions of up to 10% of their eligible earnings, subject to applicable limitations.

On February 28, 2019, the Company issued 154,505 ordinary shares to employees for aggregate proceeds of $1,385. The purchase price of the shares was $116.49 per ADS, or $8.96 per ordinary share, which was discounted in accordance with the terms of the ESPP from the closing price on NASDAQ on February 28, 2019 of $137.05 per ADS, or $10.54 per ordinary shares.

The following table summarizes total share-based compensation expense recognized for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31,
	2019	2018
	$	$
Research and development	15,771	12,052
Selling, general and administrative	10,621	5,344
Total	26,392	17,396

18. Accumulated Other Comprehensive Income

The movement of accumulated other comprehensive income was as follows:

			Unrealized
	Foreign Currency		Gains on
	Translation		Available-for-Sale
	Adjustments		Securities		Total
	$		$		$
Balance as of December 31, 2018	(212	)	1,738		1,526
Other comprehensive income before reclassifications	3,861		1,495		5,356
Amounts reclassified from accumulated other comprehensive income	—		(810	)	(810	)
Net-current period other comprehensive income	3,861		685		4,546
Balance as of March 31, 2019	3,649		2,423		6,072

19. Shareholders’ Equity

Follow-on public offerings

On August 8, 2018, the Company completed an initial public offering of its ordinary shares on the Hong Kong Stock Exchange and a follow-on public offering under the Company's effective Registration Statement on Form S-3 at a price of $13.76 per ordinary share, or $178.90 per ADS. In this offering, the Company sold 65,600,000 ordinary shares. Net proceeds after deducting underwriting discounts and commissions and offering expenses were $869,709.

On January 22, 2018, the Company completed a follow-on public offering under the Company’s effective Registration Statement on Form S-3 at a price of $101.00 per ADS, or $7.77 per ordinary share. In this offering, the Company sold 7,425,750 ADSs representing 96,534,750 ordinary shares. Additionally, the underwriters exercised their option to purchase an additional 495,050 ADSs representing 6,435,650 ordinary shares from the Company. Net proceeds from this offering, including the underwriter option, after deducting the underwriting discounts and offering expenses were $757,587.

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20. Restricted Net Assets

The Company’s ability to pay dividends may depend on the Company receiving distributions of funds from its PRC subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of the subsidiary's retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the condensed consolidated financial statements prepared in accordance with GAAP differ from those reflected in the statutory financial statements of the Company’s PRC subsidiaries.

In accordance with the company law of the PRC, a domestic enterprise is required to provide statutory reserves of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the Board of Directors, from the profits determined in accordance with the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. The Company’s PRC subsidiaries were established as domestic invested enterprises and therefore were subject to the above-mentioned restrictions on distributable profits.

During the three months ended March 31, 2019 and 2018, no appropriation to statutory reserves was made because the PRC subsidiaries had substantial losses during such periods.

As a result of these PRC laws and regulations, including the requirement to make annual appropriations of at least 10% of after-tax income and set aside as general reserve fund prior to payment of dividends, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company.

Foreign exchange and other regulation in the PRC may further restrict the Company's PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and advances. As of March 31, 2019 and December 31, 2018, amounts restricted were the net assets of the Company’s PRC subsidiaries, which amounted to $105,688 and $93,281, respectively.

21. Commitments and Contingencies

Purchase Commitments

As of March 31, 2019, the Company had purchase commitments amounting to $56,135 related to minimum purchase requirements for finished goods inventory purchased from Celgene.

Capital commitments

The Company had capital commitments amounting to $26,647 for the acquisition of property, plant and equipment as of March 31, 2019, which were mainly for BeiGene Guangzhou Factory’s manufacturing facility in Guangzhou, China. 

22. Segment and geographic information

The Company operates in one segment. The Company’s long-lived assets are substantially located in the PRC. Net product revenues by geographic area are based upon the location of the customer, and net collaboration revenue is recorded in the jurisdiction in which the related income is expected to be sourced from. Total net revenues by geographic area are presented as follows:

	Three Months Ended
	March 31,
	2019	2018
	$	$
PRC	57,421	23,250
United States	13,268	6,041
Other	7,144	3,253
Total	77,833	32,544

23. Subsequent Event

On April 9, 2019, the Company entered into a global co-development and collaboration agreement with BioAtla LLC ("BioAtla") for the development, manufacturing and commercialization of BioAtla's investigational CAB-CTLA-4 antibody (BA3071), whereby BioAtla will co-develop the CAB-CTLA-4 antibody to defined early clinical objectives and the Company will then lead the parties' joint efforts to develop the product candidate and be responsible for global regulatory filings and

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commercialization. Subject to the terms of the agreement, the Company will hold a co-exclusive license with BioAtla to develop and manufacture the product candidate globally and an exclusive license to commercialize the product candidate globally. The Company will be responsible for all costs of development, manufacturing and commercialization in Asia (excluding Japan), Australia and New Zealand (the "Company Territory"), and the parties will share development and manufacturing costs and commercial profits and losses upon specified terms in the rest of the world. BioAtla received an upfront payment of $20,000, and will receive a milestone payment upon reaching the defined early clinical objectives. BioAtla is also eligible to receive additional payments in subsequent development and regulatory milestones globally and commercial milestones in the Company Territory, together with tiered royalties on sales in the Company territory.

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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,” “can,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “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; our reliance on the success of our clinical-stage drug candidates; our plans, expected milestones and the timing or likelihood of regulatory filings and approvals; the commercialization of our drugs and drug candidates, if approved; our ability to further develop sales and marketing capabilities and launch new drugs, if approved; the pricing and reimbursement of our drugs and drug candidates, if approved; the implementation of our business model, strategic plans for our business, drugs, drug candidates and technology; the scope of protection we (or our licensors) are able to establish and maintain for intellectual property rights covering our drugs, drug candidates and technology; our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties; costs associated with enforcing or defending against intellectual property infringement, misappropriation or violation, 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, revenues, capital requirements and our need for additional financing; the potential benefits of strategic collaboration and licensing agreements and our ability to enter into strategic arrangements; our ability to maintain and establish collaborations or licensing agreements; our reliance on third parties to conduct drug development, manufacturing and other services; our ability to manufacture and supply, or have manufactured and supplied, drug candidates for clinical development and drugs for commercial sale; the rate and degree of market access and acceptance and reimbursement for our drugs and drug candidates, if approved; developments relating to our competitors and industry, including competing therapies; the size of the potential markets for our drugs and drug candidates and our ability to serve those markets; our ability to effectively manage our growth; our ability to attract and retain qualified employees and key personnel; statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance; the future trading price of our ADSs and ordinary shares, and impact of securities analysts’ reports on these prices; and other risks and uncertainties, including those listed under “Part II—Item 1A—Risk Factors” of this Quarterly Report. 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 commercial-stage biotechnology company focused on developing and commercializing innovative molecularly-targeted and immuno-oncology drugs for the treatment of cancer. Our internally-developed lead drug candidates are currently in late-stage clinical trials. These candidates are (1) zanubrutinib (BGB-3111), a potentially best-in-class investigational small molecule inhibitor of Bruton’s tyrosine kinase, or BTK, (2) tislelizumab (BGB-A317), an investigational humanized monoclonal antibody against the immune checkpoint receptor programmed cell death protein 1 (PD-1), and (3) pamiparib (BGB-290), an investigational small molecule inhibitor of the poly ADP-ribose polymerase 1 (PARP1) and PARP2 enzymes. All three of these drug candidates are currently in Phase 2 or 3 pivotal trials globally and/or in China, and we filed for regulatory approvals in China in 2018 for zanubrutinib in relapsed/refractory (R/R) mantle cell lymphoma (MCL) and in R/R chronic lymphocytic leukemia (CLL) or R/R small lymphocytic lymphoma (SLL); and for tislelizumab in R/R classical Hodgkin's Lymphoma (cHL). We also have additional drug candidates in earlier stage clinical development.

We started as a research and development company in Beijing in 2010, focusing on developing best-in-class oncology drugs. Over the last nine years, we have developed into a fully-integrated global biotechnology company with operations in China, the United States, Europe and Australia, including a more than 800-person global clinical development team running over 50 ongoing or planned clinical trials as of January 24, 2019. We also have a growing commercial team that is selling our

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existing in-licensed drugs in China and preparing for launches of our internally-developed drug candidates in China and the United States, as well as internal manufacturing capabilities in China that are operational or under construction for the clinical and commercial supply of our small molecule and biologic drug candidates.

Recent Developments

On April 9, 2019, we announced that we entered into a global co-development and collaboration agreement with BioAtla LLC for the development, manufacturing and commercialization of BioAtla's investigational CAB-CTLA-4 antibody (BA3071), whereby BioAtla will co-develop the CAB-CTLA-4 antibody to defined early clinical objectives and we will then lead the parties' joint efforts to develop the product candidate and be responsible for global regulatory filings and commercialization. Subject to the terms of the agreement, we will hold a co-exclusive license with BioAtla to develop and manufacture the product candidate globally and an exclusive license to commercialize the product candidate globally. We will be responsible for all costs of development, manufacturing and commercialization in Asia (excluding Japan), Australia and New Zealand, and the parties will share development and manufacturing costs and commercial profits and losses upon specified terms in the rest of the world. BioAtla received an upfront payment of $20 million, and will receive a milestone payment upon reaching the defined early clinical objectives. BioAtla is also eligible to receive development and commercial milestone payments plus potential royalties on product sales.

On March 6, 2019, we announced that we entered into a global research and development collaboration agreement with Ambrx, Inc. to leverage Ambrx's clinically validated drug discovery technology platforms with our expertise and resources to pursue the development and commercialization of next-generation biologics drugs. Subject to the terms of the agreement, Ambrx received an upfront payment of $10 million, and is eligible to receive additional upfront payments of up to $19 million if we elect to initiate additional programs. Ambrx is also eligible to receive potential development, regulatory, and commercial milestone payments, plus potential royalties on product sales. We will have worldwide rights to develop and commercialize any drug products resulting from the collaboration.

Components of Operating Results

Revenue

To date, our revenue has consisted of product sales revenue since September 2017 and upfront license fees and reimbursed research and development expenses from our strategic collaboration with Celgene for tislelizumab entered in 2017 and upfront license fees and milestone payments from a prior collaboration agreement with Merck KGaA, Darmstadt Germany. We do not expect to generate significant revenue from internally-developed drug candidates unless and until we successfully complete development and obtain regulatory approval for one or more of our drug candidates, which is subject to significant uncertainty.

Revenues from product sales are recognized when there is a transfer of control from the Company to the distributor. The Company determines transfer of control based on when the product is delivered, and title passes to the distributor. Revenues from product sales are recognized net of variable consideration resulting from rebate accruals and sales returns allowances. Provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on the sales terms, historical experience and trend analysis. We expect revenue from product sales to increase in 2019 as we expand our efforts to promote and obtain reimbursement for ABRAXANE^® and REVLIMID^® and launch VIDAZA^® in China.

We also record revenue from our collaboration and license agreements with Celgene. Under this agreement, we have received an upfront payment related to the license fee which was recognized upon the delivery of the license right. Additionally, the reimbursement of remaining undelivered research and development services is recognized over the performance period of the collaboration arrangement. We will also receive research and development reimbursement revenue for the basket study trials that Celgene opts into. We consider milestone payments variable consideration and include them in the transaction price when a significant reversal of revenue recognized is not expected to occur. See Note 3 to our consolidated financial statements included in this Quarterly Report for a description of this agreement.

Expenses

Cost of Sales

Cost of sales includes the acquisition costs of our commercial products.

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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:

• 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 of comparator drugs in certain of our clinical trials;

• manufacturing costs related to pre-commercial activities;

• costs associated with preclinical activities and development activities;

• costs associated with regulatory operations;

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

• in-process research and development costs expensed as part of collaboration agreements entered into; and

• 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 advancement of our internally-developed drug candidates:

• zanubrutinib, an investigational small molecule inhibitor of BTK;

• tislelizumab, an investigational humanized monoclonal antibody against PD‑1;

• pamiparib, an investigational small molecule inhibitor of PARP1 and PARP2;

• lifirafenib, a novel small molecule inhibitor of both the monomer and dimer forms of BRAF;

• BGB-A333, an investigational humanized monoclonal antibody against PD-L1; and

• BGB-A425, an investigational humanized monoclonal antibody against TIM-3.

Research and development activities also include costs associated with in-licensed drug candidates, including:

• sitravatinib, an investigational, spectrum-selective kinase inhibitor in clinical development by Mirati Therapeutics, Inc.; and

• ZW25 and ZW49, two bispecific antibody-based product candidates targeting HER2, under development by Zymeworks, Inc.

We expense research and development costs when we incur them. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information our vendors provide to us. We expense the manufacturing costs of our internally-developed products that are used in clinical trials as they are incurred, as research and development expense. 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 internally-developed drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our internally-developed 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;

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

• receipt of marketing approvals from applicable regulatory authorities;

• successfully launching and commercializing our drug candidates, if and when approved, whether as monotherapies or in combination with our internally discovered drug candidates or third-party products;

• obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drug candidates;

• continued acceptable safety profiles of the products following approval;

• competition from competing products; and

• retention of key personnel.

A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs, timing and viability associated with the development of that drug candidate.

Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, as we continue to support the clinical trials of our drug candidates as treatments for various cancers and as we move these drug candidates into additional clinical trials, including potential pivotal 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 may impact our clinical development and commercial programs and plans.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of product promotion costs, distribution costs, salaries and related benefit costs, including share-based compensation for selling, general and administrative personnel. Other selling, 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, travel costs, insurance and other supplies used in selling, general and administrative activities. We anticipate that our selling, general and administrative expenses will increase in future periods to support planned increases in commercialization activities with respect to ABRAXANE^® (nanoparticle albumin–bound paclitaxel), REVLIMID^® (lenalidomide), and VIDAZA^® (azaciditine) in China and the preparation for launch and potential commercialization of our internally-developed drug candidates, if approved. We also expect selling, general and administrative expenses to increase in future periods to support our research and development efforts, including the continuation of the clinical trials of our drug candidates as treatments for various cancers and the initiation of clinical trials for potential new drug candidates. These cost increases will likely be due to increased promotional costs, increased headcount, increased share-based compensation expenses, expanded infrastructure and increased costs for insurance. We also anticipate increased legal, compliance, accounting, insurance and investor and public relations expenses associated with being a public company with our ADS and ordinary shares listed for trading on The NASDAQ Global Select Market and Hong Kong Stock Exchange, respectively.

Interest Income (Expense), Net

Interest Income

Interest income consists primarily of interest generated from our cash and short-term investments in money market funds, time deposits, U.S. Treasury securities and U.S. agency securities.

Interest Expense

Interest expense consists primarily of interest on our long-term bank loan and shareholder loan.

Other Income (Expense), Net

Other income (expense) consists primarily of government grants and subsidies received that involve no conditions or continuing performance obligations by us, realized and unrealized gains and losses related to changes in foreign currency exchange rates, and gain on the sale of investments.

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Results of Operations

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31,						Change
	2019			2018			$			%
	(dollars in thousands)
Revenues
Product revenue, net	$	57,421		$	23,250		$	34,171		147	%
Collaboration revenue	20,412			9,294			11,118			120	%
Total revenues	77,833			32,544			45,289			139	%
Expenses
Cost of sales - product	(15,261		)	(4,550		)	(10,711		)	235	%
Research and development	(178,351		)	(109,700		)	(68,651		)	63	%
Selling, general and administrative	(57,645		)	(28,915		)	(28,730		)	99	%
Amortization of intangible assets	(331		)	(188		)	(143		)	76	%
Total expenses	(251,588		)	(143,353		)	(108,235		)	76	%
Loss from operations	(173,755		)	(110,809		)	(62,946		)	57	%
Interest income, net	4,477			1,552			2,925			188	%
Other income, net	1,728			729			999			137	%
Loss before income taxes	(167,550		)	(108,528		)	(59,022		)	54	%
Income tax (expense) benefit	(519		)	3,412			(3,931		)	(115	)%
Net loss	(168,069		)	(105,116		)	(62,953		)	60	%
Less: Net loss attributable to noncontrolling interest	(429		)	(520		)	91			(18	)%
Net loss attributable to BeiGene, Ltd.	$	(167,640	)	$	(104,596	)	$	(63,044	)	60	%

Comparison of the Three Months Ended March 31, 2019 and 2018

Revenue

Total revenue increased to $77.8 million for the three months ended March 31, 2019, from $32.5 million for the three months ended March 31, 2018. The following table summarizes the components of revenue for the three months ended March 31, 2019 and 2018, respectively:

	Three Months Ended
	March 31,				Changes
	2019		2018		$		%
	(dollars in thousands)
Product revenue	$	57,421	$	23,250	$	34,171	147	%
Collaboration revenue:
Reimbursement of research and development costs	18,174		7,555		10,619		141	%
Research and development service revenue	2,238		1,739		499		29	%
Total	$	77,833	$	32,544	$	45,289	139	%

Net product revenue was $57.4 million for the three months ended March 31, 2019, which related to sales of ABRAXANE^®, REVLIMID^® and VIDAZA^® in China. We began recognizing product revenue with sales to our distributors in China in September 2017 following the closing of our strategic collaboration with Celgene. VIDAZA^®was launched in China in February 2018. We had $23.3 million product revenue for the three months ended March 31, 2018.

Collaboration revenue totaled $20.4 million for the three months ended March 31, 2019, and was comprised of $18.2 million for the reimbursement of research and development costs for the clinical trials that Celgene has opted into and $2.2 million related to the recognition of deferred revenue for upfront fees allocated to undelivered research and development services to Celgene.

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Cost of Sales

Cost of sales increased to $15.3 million for the three months ended March 31, 2019 from $4.6 million for the three months ended March 31, 2018. Cost of sales for the three months ended March 31, 2019 consisted entirely of the cost of products purchased from Celgene and distributed in the People's Republic of China, or PRC.

Research and Development Expense

Research and development expense increased by $68.7 million, or 62.6%, to $178.4 million for the three months ended March 31, 2019 from $109.7 million for the three months ended March 31, 2018. The following table summarizes external clinical, external non-clinical and internal research and development expense for the three months ended March 31, 2019 and 2018, respectively:

	Three Months Ended
	March 31,				Changes
	2019		2018		$		%
	(dollars in thousands)
External cost of clinical-stage programs	$	78,701	$	43,169	$	35,532	82	%
In-process research and development expense	10,000		10,000