Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Cayman Islands |
||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Bldg. 1, Fourth Floor Pudong |
||
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Ordinary Shares, par value $0.00006 per share* |
9688 |
The Stock Exchange of Hong Kong Limited |
* |
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. |
☒ |
Accelerated Filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
Page |
||||
1 | ||||
1 | ||||
61 | ||||
125 | ||||
125 | ||||
125 | ||||
125 | ||||
126 | ||||
126 | ||||
135 | ||||
135 | ||||
149 | ||||
150 | ||||
150 | ||||
150 | ||||
151 | ||||
152 | ||||
152 | ||||
152 | ||||
152 | ||||
152 | ||||
152 | ||||
152 | ||||
152 | ||||
152 |
• | our ability to successfully commercialize ZEJULA, Optune and any other products and product candidates that we may obtain regulatory approval for; |
• | the anticipated amount, timing and accounting of revenues; contingent, milestone, royalty and other payments under licensing, collaboration, and acquisition agreements; tax positions and contingencies; collectability of receivables; pre-approval inventory; cost of sales; research and development costs; compensation and other selling, general and administrative expenses; amortization of intangible assets; foreign currency exchange risk; estimated fair value of assets and liabilities; and impairment assessments; |
• | expectations, plans and prospects relating to sales, pricing, growth and launch of our marketed and pipeline products; |
• | the potential impact of increased product competition in the markets in which we compete, including increased competition from new originator therapies, generics, prodrugs and biosimilars of existing products and products approved under abbreviated regulatory pathways, including generic or biosimilar versions of our products; |
• | patent terms, patent term extensions, patent office actions and expected availability and any period of regulatory exclusivity; |
• | the timing, outcome and impact of administrative, regulatory, legal or other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters; |
• | the drivers for growing our business, including our plans and intention to commit resources relating to discovery, research and development programs and business development opportunities as well as the potential benefits and results of certain business development transactions; |
• | our ability to finance our operations and business initiatives and obtain funding for such activities; |
• | the expectations, development plans and anticipated timelines, including costs and timing of potential clinical trials, filings and approvals of our products, product candidates and pipeline programs, including collaborations with third-parties, as well as the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline products; |
• | reputational or financial harm to our business arising from adverse safety events, including product liability claims or lawsuits affecting our or any of our licensors’ marketed products, generic or biosimilar versions of our or any of our licensors’ marketed products or any other products from the same class as one of our or any of our licensors’ products; |
• | unexpected impacts on our business operations including sales, expenses, supply chain, manufacturing, cyber-attacks or other privacy or data security incidents, research and development costs, clinical trials and employees; |
• | the potential impact of measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our products; |
• | our manufacturing capacity, use of third-party contract manufacturing organizations, plans and timing relating to changes in our manufacturing capabilities or activities in new or existing manufacturing facilities; |
• | lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations; |
• | the impact of new laws, regulatory requirements, judicial decisions and accounting standards; |
• | the disruption of our business relationships with our licensors; |
• | the direct and indirect impact of the COVID-19 pandemic on our business and operations, our and our partners’ ability to effectively travel, as needed, during the COVID-19 pandemic, and the duration and impact of COVID-19 or any of its variants that may affect, precipitate or exacerbate one or more of any of the risks and uncertainties mentioned in this section; |
• | our ability to effectively manage our growth; |
• | the disruption in the capital or credit markets which may adversely impact our ability to obtain necessary capital or credit market financing; |
• | the geopolitical tensions that exist between China and the United States may adversely affect our business, our ability to grow, and our access to necessary capital or credit markets; |
• | our ability to retain key executives and to attract, retain and motivate personnel; and |
• | other risks and uncertainties, including those listed under “Part I—Item 1A—Risk Factors”. |
• | received approval for and commercialized two products (ZEJULA and Optune); |
• | been granted Priority Review by the China National Medical Products Administration (NMPA) for two New Drug Applications (NDA), for QINLOCK and NUZYRA; |
• | expanded our pipeline to increase our product candidates under development from four in 2015 to twenty-one today in oncology, autoimmune disorders and infectious diseases, including eleven programs in late-stage clinical development; |
• | partnered with established biopharmaceutical and leading healthcare companies such as GlaxoSmithKline (GSK), Novocure, argenx, Turning Point, Deciphera and Incyte Corporation, through in-licensing product candidates to position ourselves as a partner of choice for the development and commercialization of novel therapeutics in Greater China; |
• | achieved pricing reimbursement for ZEJULA in China through its inclusion on the National Reimbursement Drug List (NRDL); |
• | built a commercial organization of approximately 600 employees; |
• | increased our research and development team to approximately 450 employees; |
• | assembled a leadership team of seasoned industry veterans with extensive pharmaceutical research, development and commercialization experience in both global and Chinese biopharmaceutical companies; |
• | advanced our in-house discovery pipeline and capabilities targeting global markets; |
• | built-out our facilities in China to support our regulatory, clinical, manufacturing and commercial infrastructure in eleven locations across Greater China and the United States; |
• | acquired land-use rights for 50,851 square meters of land in Suzhou for the purpose of constructing and operating a research center; and |
• | expanded our U.S. footprint by opening a 20,000-square-foot research facility in the San Francisco Bay area and a new corporate office in Cambridge, Massachusetts. |
Product |
Indications |
Regulatory Status |
Commercial Rights |
Partner | ||||
1 st line ovarian cancer2 nd line ovarian cancer |
Launched in China, Hong Kong and Macau | China, Hong Kong and Macau | ||||||
Newly diagnosed and recurrent glioblastoma multiforme (GBM) | Launched in China, Hong Kong and Macau | China, Hong Kong, Macau and Taiwan | ||||||
4 th line gastrointestinal stromal tumors (GIST) |
Priority Review in China | China, Hong Kong, Macau and Taiwan | ||||||
Acute bacterial skin and skin structure infection (ABSSSI) Community-acquired bacterial pneumonia (CABP) |
Priority Review in China | China, Hong Kong, Macau and Taiwan |
• | monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as well as cosmetics in China; |
• | formulating administrative rules and policies concerning the supervision and administration of the pharmaceutical, medical device and cosmetics industry; |
• | evaluating, registering and approving of new drugs, generic drugs, imported drugs and traditional Chinese medicine, or TCM; |
• | approving and issuing permits for the manufacture and export/import of pharmaceutical products, as well as medical appliances and equipment, and approving the establishment of enterprises to be engaged in the manufacture and distribution of pharmaceutical products; and |
• | examining and evaluating the safety of pharmaceutical products, medical devices and cosmetics and handling significant accidents involving these products. |
• | The applicant shall first conduct an overall evaluation on the global clinical trial data and further make trend analysis of the Asian and Chinese clinical trial data. In the analysis of Chinese clinical trial data, the applicant shall consider the representativeness of the research subjects, i.e., the participating patients; |
• | The applicant shall analyze whether the amount of Chinese research subjects is sufficient to assess and adjudicate the safety and effectiveness of the drug under clinical trial and satisfy the statistical and relevant legal requirements; and |
• | The onshore and offshore international multi-center clinical trial research centers shall be subject to on-site inspections by competent PRC governmental agencies. |
• | completion of extensive pre-clinical studies, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal studies and formulation studies all performed in compliance with applicable regulations, including the FDA’s GLP regulations; |
• | submission to the FDA of an IND which must become effective before human clinical trials may begin and must be updated annually; |
• | approval by an independent institutional review board (IRB) representing each clinical site before each clinical trial may be initiated; |
• | performance of adequate and well-controlled human clinical trials in accordance with applicable good clinical practices, or GCPs and other clinical trial-related regulations, to establish the safety and efficacy of the proposed drug or biological product for its proposed indication; |
• | preparation and submission to the FDA of an NDA or BLA; |
• | a determination by the FDA within sixty (60) days of its receipt of an NDA or BLA to accept the filing for review by an FDA advisory committee, where appropriate or if applicable; |
• | satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the API and finished drug or biological product are produced to assess compliance with the FDA’s cGMP; |
• | potential FDA audit of the pre-clinical and/or clinical trial sites that generated the data in support of the NDA or BLA; and |
• | payment of user fees and FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug or biologic in the United States. |
• | Phase I: The product candidate is initially introduced into a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the product candidate. |
• | Phase II: The product candidate is administered to a limited patient population to determine dose tolerance and optimal dosage required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. |
• | Phase III: The product candidate is administered to an expanded number of patients, generally at multiple sites that are geographically dispersed, in well-controlled clinical trials to generate enough data to demonstrate the efficacy of the product candidate for its intended use, its safety profile and to establish the overall benefit/risk profile of the product candidate and provide an adequate basis for approval and labeling. Phase III clinical trials may include comparisons with placebo and/or other comparator treatments. |
• | Post-approval trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of Phase IV clinical trials. |
• | the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits U.S. companies and their representatives from paying, offering to pay, promising to pay or authorizing the payment of anything of value to any foreign government official, government staff member, political party or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet the FCPA’s definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls; |
• | federal healthcare program anti-kickback laws, which prohibit, among other things, persons from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid; |
• | federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment from Medicare, Medicaid or other third-party payers that are false or fraudulent; |
• | the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program (including private health plans) or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; |
• | the Federal Food, Drug and Cosmetic Act, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing such products prior to approval or for off-label use and regulates the distribution of samples; |
• | federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs; and |
• | state law equivalents of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including private insurers, state transparency laws, state laws limiting interactions between pharmaceutical manufacturers and members |
of the healthcare industry and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts. |
• | Any person who uses, promises to sell, sells or imports any patented product or product directly obtained in accordance with the patented methods after such product is sold by the patent owner or by its licensed entity or individual; |
• | Any person who has manufactured an identical product, has used an identical method or has made necessary preparations for manufacture or use prior to the date of patent application and continues to manufacture such product or use such method only within the original scope; |
• | Any foreign transportation facility that temporarily passes through the territory, territorial waters or territorial airspace of China and uses the relevant patents in its devices and installations for its own needs in accordance with any agreement concluded between China and that country to which the foreign transportation facility belongs, or any international treaty to which both countries are party, or on the basis of the principle of reciprocity; |
• | Any person who uses the relevant patents solely for the purposes of scientific research and experimentation; or |
• | Any person who manufactures, uses or imports patented drug or patented medical equipment for the purpose of providing information required for administrative approval, or manufactures, uses or imports patented drugs or patented medical equipment for the abovementioned person. |
By Function |
Number of employees |
|||
Research and Development |
450 | |||
Commercial |
592 | |||
Manufacturing |
65 | |||
General and Administrative* |
87 | |||
Total |
1,194 |
* | Includes finance, legal, human resources, facilities, information technology or other general and administrative functions. |
• | Our Board is responsible for establishing our risk management and internal control system and reviewing its effectiveness. |
• | Our Audit Committee oversees and manages the overall risks associated with our business operations, including (i) developing, reviewing, and approving our risk management programs and procedures to ensure that it is consistent with our corporate objectives; (ii) monitoring the most significant risks associated with our business operation and our management’s handling of such risks; (iii) reviewing our corporate risk matrix in the light of our corporate risk tolerance; (iv) reviewing the significant residual risks and the needs to set up mitigating controls; and (v) monitoring and ensuring the appropriate application of our risk management framework across the company. |
• | Our Chief Legal Officer, Mr. F. Ty Edmondson, is responsible for (i) formulating and updating our risk management program and target; (ii) reviewing and approving major risk management issues of our Company; (iii) promulgating risk management measures; (iv) providing guidance on our risk management approach to the relevant departments in our Company; (v) reviewing the relevant departments’ reporting on key risks and providing feedbacks; (vi) supervising the implementation of our risk management measures by the relevant departments; (vii) ensuring that the appropriate structure, processes and competencies are in place across the Company; (viii) developing and operating an enterprise risk management program for the Company, the results of which are reported to the Audit Committee throughout the year; (ix) developing and managing the Company’s government affairs efforts; (x) reporting to our Audit Committee on our material risks; and (xi) coordinating and providing updates to the Board of Directors as necessary. |
• | The relevant departments in our Company are responsible for implementing our risk management program under the oversight of our Legal and Compliance Departments. |
• | Our Finance Department is responsible for developing and implementing our internal controls systems. |
• | continue to commercialize, and maintain and expand sales, marketing and commercialization infrastructure for, ZEJULA, Optune and any other products for which we may obtain regulatory approval; |
• | maintain and expand regulatory approvals for our products and product candidates that successfully complete clinical trials; |
• | continue our development and commence clinical trials of our product candidates; |
• | acquire or in-license other intellectual property, product candidates and technologies; |
• | maintain and expand our manufacturing facilities; |
• | hire additional clinical, operational, financial, quality control and scientific personnel; |
• | seek to identify additional product candidates; |
• | obtain, maintain, expand and protect our intellectual property portfolio; and |
• | enforce and defend intellectual property-related claims. |
• | the cost and timing of future commercialization activities for ZEJULA, Optune and any other product candidates for which we receive regulatory approval; |
• | the pricing of and product revenues received, if any, from future commercial sales of ZEJULA, Optune and any other products for which we receive regulatory approval; |
• | the scope, progress, timing, results and costs of clinical development of our products in additional indications, if any; |
• | the scope, progress, timing, results and costs of researching and developing our product candidates, and conducting pre-clinical and clinical trials; |
• | the cost, timing and outcome of seeking, obtaining, maintaining and expanding regulatory approval of our products and product candidates; |
• | our ability to establish and maintain strategic partnerships, collaboration, licensing or other arrangement and the economic and other terms, timing and success of such arrangements; |
• | the cost, timing and outcome of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property related claims; |
• | the extent to which we acquire or in-license other product candidates and technologies and the economic and other terms, timing and success of such collaboration and licensing arrangements; |
• | cash requirements of any future acquisitions; |
• | the number, characteristics and development requirements of the product candidates we pursue; |
• | resources required to develop and implement policies and processes to promote ongoing compliance with applicable healthcare laws and regulations; |
• | costs required to ensure that our and our partners’ business arrangements with third parties comply with applicable healthcare laws and regulations; |
• | our headcount growth and associated costs; and |
• | the costs of operating as a public company in both the United States and Hong Kong. |
• | maintain commercial manufacturing or supply arrangements with third-party manufacturers for ZEJULA and Optune; |
• | produce, through a validated process or procure, from third-party manufacturers sufficient quantities and inventory of ZEJULA and Optune to meet demand; |
• | build and maintain internal sales, distribution and marketing capabilities sufficient to generate commercial sales of ZEJULA and Optune; |
• | secure widespread acceptance of ZEJULA and Optune from physicians, healthcare payors, patients and the medical community; |
• | properly price and obtain coverage and adequate reimbursement of ZEJULA and Optune by governmental authorities, private health insurers, managed care organizations and other third-party payors; |
• | maintain compliance with ongoing regulatory labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other post-market requirements; |
• | manage our growth and spending as costs and expenses increase due to commercialization; and |
• | manage business interruptions resulting from the occurrence of any pandemic, epidemic, including from the outbreak of COVID-19, or any other public health crises, natural catastrophe or other disasters. |
• | acceptable evidence of safety and efficacy; |
• | relative convenience and ease of administration; |
• | prevalence and severity of any adverse side effects; |
• | availability of alternative treatments; |
• | pricing, cost effectiveness and value propositions; |
• | effectiveness of our sales and marketing capabilities and strategies; |
• | ability to obtain sufficient third-party coverage and reimbursement; |
• | the clinical indications for which such product are approved, as well as changes in the standard of care for their targeted indications; |
• | the continuing effectiveness of manufacturing and supply chain; |
• | warnings and limitations contained in the approved labeling for such product; |
• | safety concerns with similar products marketed by others; |
• | the prevalence and severity of any side effects as a result of treatment with such product; |
• | our ability to comply with regulatory post-marketing requirements associated with the approval of such product; |
• | the actual market-size for such product, which may be larger or smaller than expected; and |
• | our ability to manage complications or barriers that inhibit our commercialization team from reaching the appropriate audience to promote our product(s) because of the outbreak of COVID-19 or any other public health crises, natural catastrophe or other disasters. |
• | successful enrollment of patients in, and completion of, clinical trials as well as completion of pre-clinical studies, which may be especially challenging given the COVID-19 pandemic; |
• | receipt of regulatory approvals from applicable regulatory authorities for planned clinical trials, future clinical trials or drug registrations, manufacturing and commercialization; |
• | successful completion of all safety studies required to obtain regulatory approval in Greater China, the United States and other jurisdictions for our product candidates; |
• | adapting our commercial manufacturing capabilities to the specifications for our product candidates for clinical supply and commercial manufacturing; |
• | making and maintaining arrangements with third-party manufacturers; |
• | obtaining and maintaining patent, trade secret and other intellectual property protection and/or regulatory exclusivity for our product candidates; |
• | launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; |
• | acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors; |
• | effectively competing with other therapies and alternative drugs; |
• | obtaining and maintaining healthcare coverage and adequate reimbursement; |
• | successfully enforcing and defending intellectual property rights and claims; and |
• | maintaining a continued acceptable safety profile of the product candidates following regulatory approval. |
• | disagreement with the NMPA, FDA and EMA or comparable regulatory authorities regarding the number, design, size, conduct or implementation of our clinical trials; |
• | failure to demonstrate to the satisfaction of the NMPA, FDA and EMA or comparable regulatory authorities that a product candidate is safe and effective for its proposed indication; |
• | failure of CROs, clinical study sites or investigators to comply with the ICH-good clinical practice, or GCP, requirements imposed by the NMPA, FDA and EMA or comparable regulatory authorities; |
• | failure of the clinical trial results to meet the level of statistical significance required by the NMPA, FDA and EMA or comparable regulatory authorities for approval; |
• | failure to demonstrate that a product’s or product candidate’s clinical and other benefits outweigh its safety risks; |
• | the NMPA, FDA and EMA or comparable regulatory authorities disagreeing with our interpretation of data from pre-clinical studies or clinical trials; |
• | insufficient data collected from clinical trials to support the submission of an NDA or other submission or to obtain regulatory approval in Greater China, the United States or elsewhere; |
• | the NMPA, FDA and EMA or comparable regulatory authorities not approving the manufacturing processes for our clinical and commercial supplies; |
• | changes in the approval policies or regulations of the NMPA, FDA or comparable regulatory authorities rendering our clinical data insufficient for approval; |
• | the NMPA, FDA or comparable regulatory authorities restricting the use of our products to a narrow population; and |
• | our CROs or licensors taking actions that materially and adversely impact the clinical trials. |
• | regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site; |
• | we may experience delays in reaching, or may fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs who conduct clinical trials on our behalf, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
• | clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us or them, to conduct additional clinical trials or we may decide to abandon product development programs; |
• | the number of patients required for clinical trials of our products and product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate; |
• | third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators; |
• | the ability to conduct a companion diagnostic test to identify patients who are likely to benefit from our products and product candidates; |
• | we may elect to, or regulators, IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding that participants are being exposed to unacceptable health risks; |
• | the cost of clinical trials of our products and product candidates may be greater than we anticipate; |
• | the supply or quality of our products and product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and |
• | our products and product candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our products and product candidates. |
• | be delayed in obtaining regulatory approval for our products and product candidates; |
• | not obtain regulatory approval at all; |
• | obtain approval for indications or patient populations that are not as broad as intended or desired; |
• | be subject to post-marketing testing requirements; |
• | encounter difficulties obtaining or be unable to obtain reimbursement for use of our products and product candidates; |
• | be subject to restrictions on the distribution and/or commercialization of our products and product candidates; or |
• | have our products and product candidates removed from the market after obtaining regulatory approval. |
• | the severity of the disease under investigation; |
• | the total size and nature of the relevant patient population; |
• | the design and eligibility criteria for the clinical trial in question; |
• | the availability of an appropriate genomic screening test; |
• | the perceived risks and benefits of the product or product candidate under study; |
• | the efforts to facilitate timely enrollment in clinical trials; |
• | the patient referral practices of physicians; |
• | the availability of competing therapies also undergoing clinical trials; |
• | the ability to monitor patients adequately during and after treatment; |
• | the proximity and availability of clinical trial sites for prospective patients; and |
• | the occurrence of any pandemic, epidemic, including from the outbreak of COVID-19, or any other public health crises, natural catastrophe or other disasters may cause a delay in enrollment of patients in clinical trials. |
• | our revenue may be negatively impacted; |
• | the NMPA, FDA or other comparable regulatory authorities may withdraw or limit their approval of such products or product candidates; |
• | the NMPA, FDA or other comparable regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contra-indication; |
• | we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; |
• | we may be required to change the way such products or product candidates are distributed or administered, conduct additional clinical trials or change the labeling of our products or product candidates; |
• | the NMPA, FDA or other comparable regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS (or analogous requirement), plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools; |
• | we may be subject to regulatory investigations and government enforcement actions; |
• | we may decide to remove such products or product candidates from the marketplace; |
• | we could be sued and held liable for injury caused to individuals exposed to or taking our products or product candidates; and |
• | our reputation may suffer. |
• | restrictions on the marketing or manufacturing of the product, withdrawal of the product or drug from the market, or voluntary or mandatory product recalls; |
• | fines, warning letters or holds on clinical trials; |
• | refusal by the NMPA, FDA or comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals; |
• | drug seizure, detention or refusal to permit the import or export of the product; and |
• | injunctions or the imposition of civil, administrative or criminal penalties. |
• | efforts to enter into collaboration or licensing arrangements with third parties may increase our expenses or divert our management’s attention from the acquisition or development of product candidates; |
• | difficulty of effective enforcement of contractual provisions in local jurisdictions; |
• | potential third-party patent rights or potentially reduced protection for intellectual property rights; |
• | unexpected changes in tariffs, trade barriers and regulatory requirements, including the loss of normal trade status between China and the United States; |
• | economic weakness, including inflation; |
• | compliance with tax, employment, immigration and labor laws for employees traveling abroad; |
• | the effects of applicable foreign tax structures and potentially adverse tax consequences; |
• | currency fluctuations, which could result in increased operating expenses and reduced revenue; |
• | workforce uncertainty and labor unrest; |
• | failure of our employees and contracted third parties to comply with the anti-bribery laws in China, Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act and other anti-bribery and corruption laws; and |
• | business interruptions resulting from geo-political actions, including trade disputes, war and terrorism, disease or public health epidemics, such as the coronavirus impacting China and elsewhere, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires. |
• | issue stock that would dilute the percentage of ownership of the holders of our ordinary shares and/or ADSs; |
• | incur debt and assume liabilities; and |
• | incur amortization expenses related to intangible assets or incur large and immediate write-offs. |
• | problems integrating the purchased business, products, personnel or technologies; |
• | increases to our expenses; |
• | the failure to have discovered undisclosed liabilities of the acquired asset or company; |
• | diversion of management’s attention from their day-to-day |
• | harm to our operating results or financial condition; |
• | entrance into markets in which we have limited or no prior experience; and |
• | potential loss of key employees, particularly those of the acquired entity. |
• | obtain a manufacturing permit for each production facility from the NMPA and its relevant branches for the manufacture of drug and device products domestically; |
• | obtain a marketing authorization, which includes an approval number, from the NMPA for each drug or device for sale in China; |
• | obtain a pharmaceutical distribution permit from the provincial medical products administration if we were to sell drugs manufactured by third parties; and |
• | renew the manufacturing permits, the distribution permits and marketing authorizations every five years, among other requirements. |
• | the scope of rights granted under the license agreement and other interpretation-related issues; |
• | the extent to which our technology and processes infringe, misappropriate or otherwise violate on intellectual property of the licensor that is not subject to the licensing agreement; |
• | the sublicensing of patent and other rights under our collaborative development relationships; |
• | our diligence obligations under the license agreement and what activities satisfy those diligence obligations; |
• | the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and |
• | the priority of invention of patented technology. |
• | significant negative media attention and reputational damage; |
• | withdrawal of clinical trial subjects and inability to continue clinical trials; |
• | significant costs to defend the related litigation; |
• | substantial monetary awards to trial subjects or patients; |
• | the inability to commercialize any products or product candidates that we may develop; |
• | initiation of investigations by regulators; |
• | a diversion of management’s time and our resources; and |
• | a decline in the market price of our ordinary shares and/or our ADSs. |
• | obtain royalty-bearing licenses from such third party to such patents, which may not be available on commercially reasonable terms, if at all and even if we were able to obtain such licenses, they could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and could require us to make substantial licensing and royalty payments; |
• | defend litigation or administrative proceedings; |
• | reformulate product(s) so that it does not infringe the intellectual property rights of others, which may not be possible or could be very expensive and time consuming; |
• | cease developing, manufacturing and commercializing the infringing technology, products or product candidates; and |
• | pay such third party significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. |
• | others may be able to make products that are similar to any product or product candidates we may develop or utilize similar technology but that are not covered by the claims of the patents that we license or may own in the future; |
• | we, our licensors, patent owners of patent rights that we have in-licensed, or current or future collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future; |
• | we, our licensors, patent owners of patent rights that we have in-licensed, or current or future collaborators might not have been the first to file patent applications covering certain of our or their inventions; |
• | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our owned or licensed intellectual property rights; |
• | it is possible that our pending licensed patent applications or those that we may own in the future will not lead to issued patents; |
• | issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors; |
• | our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
• | we may not develop additional proprietary technologies that are patentable; |
• | the patents of others may harm our business; and |
• | we may choose not to file a patent in order to maintain certain trade secrets or know how, and a third party may discover certain technologies containing such trade secrets or know how through independent research and development and/or subsequently file a patent covering such intellectual property. |
• | announcements of competitive developments; |
• | regulatory developments affecting us, our customers or our competitors; |
• | announcements regarding litigation or administrative proceedings involving us; |
• | actual or anticipated fluctuations in our period-to-period |
• | changes in financial estimates by securities research analysts; |
• | additions or departures of our executive officers; |
• | fluctuations of exchange rates between the RMB and the U.S. dollar; |
• | release or expiration of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and |
• | sales or perceived sales of additional ordinary shares or ADSs. |
(i) | the primary location of the day-to-day |
(ii) | decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; |
(iii) | the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and |
(iv) | at least 50% of voting board members or senior executives habitually reside in China. |
• | a citizen or individual resident of the United States; |
• | a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States or any state thereof, or the District of Columbia; |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust if (i) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions. |
• | banks or other financial institutions; |
• | insurance companies; |
• | real estate investment trusts; |
• | regulated investment companies; |
• | grantor trusts; |
• | tax-exempt organizations; |
• | persons holding ADSs through a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) or S corporation; |
• | dealers or traders in securities, commodities or currencies; |
• | persons whose functional currency is not the U.S. dollar; |
• | certain former citizens and former long-term residents of the United States; |
• | persons holding ADSs as part of a position in a straddle or as part of a hedging, conversion or integrated transaction for U.S. federal income tax purposes; or |
• | direct, indirect or constructive owners of 10% or more of our total combined voting power or value. |
As of December 31, |
||||||||||||||||||||
2020 |
2019 |
2018 |
2017 |
2016 |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
Consolidated balance sheet data: |
||||||||||||||||||||
Cash, cash equivalents and restricted cash |
$ | 442,859 | $ | 76,442 | $ | 62,952 | $ | 229,600 | $ | 83,949 | ||||||||||
Short-term investments (1) |
$ | 744,676 | $ | 200,000 | $ | 200,350 | $ | — | $ | — | ||||||||||
Total assets |
$ | 1,297,638 | $ | 355,153 | $ | 301,987 | $ | 249,634 | $ | 88,907 | ||||||||||
Total mezzanine equity and shareholders’ equity |
$ | 1,169,345 | $ | 294,660 | $ | 251,081 | $ | 235,171 | $ | (82,956 | ) | |||||||||
Total current liabilities |
$ | 98,043 | $ | 46,635 | $ | 48,842 | $ | 12,069 | $ | 5,173 | ||||||||||
Total non-current liabilities |
$ | 30,250 | $ | 13,858 | $ | 2,064 | $ | 2,394 | $ | 778 | ||||||||||
(1) The short-term investment primarily comprises of the time deposits with original maturities between three months and one year. |
|
Year Ended December 31, |
||||||||||||||||||||
2020 |
2019 |
2018 |
2017 |
2016 |
||||||||||||||||
(in thousands, except share and per share data) |
||||||||||||||||||||
Consolidated statements of operations data: |
||||||||||||||||||||
Revenue |
$ | 48,958 | $ | 12,985 | $ | 129 | $ | — | $ | — | ||||||||||
Expenses: |
||||||||||||||||||||
Cost of sales |
(16,736 | ) | (3,749 | ) | (43 | ) | — | — | ||||||||||||
Research and development |
(222,711 | ) | (142,221 | ) | (120,278 | ) | (39,342 | ) | (32,149 | ) | ||||||||||
Selling, general and administrative |
(111,312 | ) | (70,211 | ) | (21,576 | ) | (12,049 | ) | (6,380 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss from operations |
$ | (301,801 | ) | $ | (203,196 | ) | $ | (141,768 | ) | $ | (51,391 | ) | $ | (38,529 | ) | |||||
Interest income |
5,120 | 8,232 | 3,261 | 527 | 403 | |||||||||||||||
Interest expenses |
(181 | ) | (293 | ) | (40 | ) | — | — | ||||||||||||
Changes in fair value of warrants |
— | — | — | 200 | (1,920 | ) | ||||||||||||||
Other income, net |
29,076 | 938 | 59 | 530 | 2,534 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss before income tax and share of loss from equity method investment |
$ | (267,786 | ) | $ | (194,319 | ) | $ | (138,488 | ) | $ |
(50,134 |
) |
$ | (37,512 | ) | |||||
Income tax expense |
— | — | — | — | — | |||||||||||||||
Share of loss from equity method investment |
(1,119 | ) | (752 | ) | (587 | ) | (250 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net loss |
$ | (268,905 | ) | $ | (195,071 | ) | $ | (139,075 | ) | $ | (50,384 | ) | $ | (37,512 | ) | |||||
Weighted-average shares used in calculating net loss per ordinary share, basic and diluted (1) |
77,667,743 | 64,369,490 | 52,609,810 | 21,752,757 | 9,439,028 | |||||||||||||||
Loss per share, basic and diluted (1) |
(3.46 | ) | (3.03 | ) | (2.64 | ) | (2.32 | ) | (3.97 | ) | ||||||||||
(1) See Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of the method used to calculate basic and diluted net loss per share. |
|
A. |
Operating Results. |
• | expenses incurred for payments to CROs, investigators and clinical trial sites that conduct our clinical studies; |
• | employee compensation related expenses, including salaries, benefits and equity compensation expense; |
• | expenses for licensors; |
• | the cost of acquiring, developing and manufacturing clinical study materials; |
• | facilities, depreciation and other expenses, which include office leases and other overhead expenses; |
• | costs associated with pre-clinical activities and regulatory operations; |
• | expenses associated with the construction and maintenance of our manufacturing facilities; and |
• | costs associated with operating as a public company. |
(in thousands, except share and per share data) |
Year ended December 31, |
|||||||||||
2020 |
2019 |
2018 |
||||||||||
Comprehensive Loss Data: |
||||||||||||
Revenue |
$ | 48,958 | $ | 12,985 | $ | 129 | ||||||
Expenses: |
||||||||||||
Cost of sales |
(16,736 | ) | (3,749 | ) | (43 | ) | ||||||
Research and development |
(222,711 | ) | (142,221 | ) | (120,278 | ) | ||||||
Selling, general and administrative |
(111,312 | ) | (70,211 | ) | (21,576 | ) | ||||||
|
|
|
|
|
|
|||||||
Loss from operations |
$ | (301,801 | ) | $ | (203,196 | ) | $ | (141,768 | ) | |||
Interest income |
5,120 | 8,232 | 3,261 | |||||||||
Interest expenses |
(181 | ) | (293 | ) | (40 | ) | ||||||
Other income, net |
29,076 | 938 | 59 | |||||||||
|
|
|
|
|
|
|||||||
Loss before income tax and share of loss from equity method investment |
$ | (267,786 | ) | $ | (194,319 | ) | $ | (138,488 | ) | |||
Income tax expense |
— | — | — | |||||||||
Share of loss from equity method investment |
(1,119 | ) | (752 | ) | (587 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to ordinary shareholders |
$ | (268,905 | ) | $ | (195,071 | ) | $ | (139,075 | ) | |||
Weighted-average shares used in calculating net loss per ordinary share, basic and diluted |
77,667,743 | 64,369,490 | 52,609,810 | |||||||||
Net loss per share, basic and diluted |
$ | (3.46 | ) | $ | (3.03 | ) | $ | (2.64 | ) |
(in thousands) |
Year ended December 31, |
|||||||||||||||
2020 |
% |
2019 |
% |
|||||||||||||
ZEJULA |
$ | 32,138 | 65.7 | $ | 6,625 | 51.0 | ||||||||||
Optune |
16,418 | 33.5 | 6,360 | 49.0 | ||||||||||||
Others |
402 | 0.8 | — | 0.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total product revenue—Net |
$ | 48,958 | 100.0 | $ | 12,985 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
(in thousands) |
Year ended December 31, |
|||||||||||||||
2020 |
% |
2019 |
% |
|||||||||||||
Research and development expenses: |
||||||||||||||||
Personnel compensation and related costs |
$ | 40,257 | 18.1 | $ | 30,820 | 21.6 | ||||||||||
Licensing fees |
108,169 | 48.6 | 58,682 | 41.3 | ||||||||||||
Payment to CROs/CMOs/Investigators |
53,275 | 23.9 | 36,814 | 25.9 | ||||||||||||
Other costs |
21,010 | 9.4 | 15,905 | 11.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 222,711 | 100.0 | $ | 142,221 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
• | $9.4 million for increased personnel compensation and related costs which was primarily attributable to increased employee compensation costs, due to hiring of more personnel during the year ended December 31, 2020 and the grants of new share options and vesting of restricted shares to certain employees; |
• | $49.5 million for increased licensing fees in connection with the upfront and milestone fee paid for licensing agreement; |
• | $16.5 million for increased payment to CROs/CMOs/Investigators in fiscal year 2020 as we advanced our drug candidate pipeline; and |
• | $5.1 million for increased lab consumables and professional service expenses. |
(in thousands) |
Year ended December 31, |
|||||||||||||||
2020 |
% |
2019 |
% |
|||||||||||||
Research and development expenses: |
||||||||||||||||
Clinical programs |
$ | 160,674 | 72.1 | $ | 96,442 | 67.8 | ||||||||||
Pre-clinical programs |
10,598 | 4.8 | 8,268 | 5.8 | ||||||||||||
Unallocated research and development expenses |
51,439 | 23.1 | 37,511 | 26.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 222,711 | 100.0 | $ | 142,221 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
(in thousands) |
Year ended December 31, |
|||||||||||||||
2020 |
% |
2019 |
% |
|||||||||||||
Selling, General and Administrative Expenses: |
||||||||||||||||
Personnel compensation and related costs |
$ | 63,010 | 56.6 | $ | 43,572 | 62.1 | ||||||||||
Professional service fees |
12,751 | 11.5 | 2,887 | 4.1 | ||||||||||||
Other costs |
35,551 | 31.9 | 23,752 | 33.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 111,312 | 100.0 | $ | 70,211 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
• | $19.4 million for increased personnel compensation and related costs which was primarily attributable to increased commercial and administrative personnel costs, due to hiring of more personnel during year ended December 31, 2020 and the grants of new share options and vesting of restricted shares to certain employees; |
• | $9.9 million for increased professional service fee, mainly attributable to our increased legal, compliance, accounting and investor and public relations expenses associated with being a public company and in connection with sales of ZEJULA and Optune in China after our commercial launch of these two commercialized products; and |
• | $11.8 million for increased other costs, mainly including selling, rental, and administrative expenses primary attributable to the commercial operation in Hong Kong and PRC. |
(in thousands) |
Year ended December 31, |
|||||||||||||||
2019 |
% |
2018 |
% |
|||||||||||||
Research and development expenses: |
||||||||||||||||
Personnel compensation and related costs |
$ | 30,820 | 21.6 | $ | 16,755 | 13.9 | ||||||||||
Licensing fees |
58,682 | 41.3 | 59,152 | 49.2 | ||||||||||||
Payment to CROs/CMOs/Investigators |
36,814 | 25.9 | 32,282 | 26.8 | ||||||||||||
Other costs |
15,905 | 11.2 | 12,089 | 10.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 142,221 | 100.0 | $ | 120,278 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
• | $14.1 million for increased personnel compensation and related costs which was primarily attributable to increased employee compensation costs, due to hiring of more personnel during the year ended |
December 31, 2019 and the grants of new share options and vesting of restricted shares to certain employees; |
• | $4.5 million for increased payment to CROs/CMOs/Investigators in fiscal year 2019 as we advanced our drug candidate pipeline; and |
• | $3.8 million for increased lab consumables and professional service expenses. |
(in thousands) |
Year ended December 31, |
|||||||||||||||
2019 |
% |
2018 |
% |
|||||||||||||
Research and development expenses: |
||||||||||||||||
Clinical programs |
$ | 96,442 | 67.8 | $ | 89,556 | 74.5 | ||||||||||
Pre-clinical programs |
8,268 | 5.8 | 8,102 | 6.7 | ||||||||||||
Unallocated research and development expenses |
37,511 | 26.4 | 22,620 | 18.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 142,221 | 100.0 | $ | 120,278 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
(in thousands) |
Year ended December 31, |
|||||||||||||||
2019 |
% |
2018 |
% |
|||||||||||||
Selling, General and Administrative Expenses: |
||||||||||||||||
Personnel compensation and related costs |
$ | 43,572 | 62.1 | $ | 13,410 | 62.2 | ||||||||||
Professional service fees |
2,887 | 4.1 | 3,266 | 15.1 | ||||||||||||
Other costs |
23,752 | 33.8 | 4,900 | 22.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 70,211 | 100.0 | $ | 21,576 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
• | $30.2 million for increased personnel compensation and related costs which was primarily attributable to increased commercial and administrative personnel costs, due to hiring of more personnel during year ended December 31, 2019 and the grants of new share options and vesting of restricted shares to certain employees; and |
• | $18.9 million for increased selling, rental, and travel expenses primary attributable to the commercial operation in Hong Kong and PRC for the year ended December 31, 2019. |
(in thousands) |
Year ended December 31, |
|||||||||||
2020 |
2019 |
2018 |
||||||||||
Net cash used in operating activities |
$ | (216,055 | ) | $ | (191,011 | ) | $ | (97,538 | ) | |||
Net cash used in investing activities |
(554,830 | ) | (14,892 | ) | (212,554 | ) | ||||||
Net cash provided by financing activities |
1,132,440 | 219,302 | 144,147 | |||||||||
Effect of foreign exchange rate changes |
4,862 | 91 | (763 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net increases(decrease) in cash, cash equivalents and restricted cash |
$ | 366,417 | $ | 13,490 | $ | (166,708 | ) | |||||
|
|
|
|
|
|
(in thousands) |
Total |
Less than 1 year |
1 to 3 years |
3 to 5 years |
More than 5 years |
|||||||||||||||
Purchase Obligations |
$ | 4,505 | $ | 4,143 | $ | 362 | $ | — | $ | — | ||||||||||
Operating Lease Obligations |
19,237 | 5,434 | 6,763 | 4,430 | 2,610 |
(a) |
Disclosure Controls and Procedures |
(b) |
Management’s Annual Report on Internal Control Over Financial Reporting |
(c) |
Report of Registered Public Accounting Firm |
(d) |
Changes in Internal Control over Financial Reporting |
Exhibit Number |
Exhibit Title | |
101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* |
Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* |
Inline XBRL Taxonomy Extension Definitions Linkbase Document | |
104* |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith |
** | Furnished herewith |
# | Management contract or compensatory plan |
+ | Confidential treatment has been granted as to certain portions, which portions have been omitted and submitted separately to the Securities and Exchange Commission. |
^ | Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed. |
ZAI LAB LIMITED | ||||
Date: March 1, 2021 |
By: | /s/ Samantha (Ying) Du | ||
Name: | Samantha (Ying) Du | |||
Title: | Chief Executive Officer |
Signature |
Title |
Date | ||
/s/ Samantha (Ying) Du Samantha (Ying) Du |
Chief Executive Officer and Chairwoman (Principal Executive Officer) |
March 1, 2021 | ||
/s/ Billy Cho Billy Cho |
Chief Financial Officer (Principal Financial and Accounting Officer) |
March 1, 2021 | ||
/s/ John Diekman John Diekman |
Director |
March 1, 2021 | ||
/s/ Kai-Xian Chen Kai-Xian Chen |
Director |
March 1, 2021 | ||
/s/ Nisa Leung Nisa Leung |
Director |
March 1, 2021 | ||
/s/ William Lis William Lis |
Director |
March 1, 2021 | ||
/s/ Leon O. Moulder, Jr. Leon O. Moulder, Jr. |
Director |
March 1, 2021 | ||
/s/ Peter Wirth Peter Wirth |
Director |
March 1, 2021 |
Page |
||||
F-2 |
||||
F-5 |
||||
F-6 |
||||
F-7 |
||||
F-8 |
||||
F-9 |
||||
F-11 |
• | We tested the effectiveness of key controls over the accrual of the R&D expenses payable to the Outsourced Service Providers. |
• | We obtained and read the key terms set out in the research agreements with Outsourced Service Providers and evaluated the completion status with reference to the progress reported by the representatives of the Outsourced Service Providers, on a sample basis, to determine whether the service fees were recorded based on respective contract sums, progress and/or milestones achieved. |
• | We sent audit confirmations to Outsourced Service Providers, on a sample basis, to confirm the amount of the R&D service fees incurred for the year ended December 31, 2020 and the amounts payable under the contracts as of December 31, 2020. |
• | We selected projects from the open contract list as of December 31, 2020 on a sample basis, made inquiries of responsible personnel regarding the project status and inspected invoices and other communications from the Outsourced Service Providers to identify potential additional Outsourced Service Providers and related unrecorded R&D expenditures. |
As of December 31, |
||||||||||||
2019 |
2020 |
|||||||||||
Notes |
$ |
$ |
||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
3 | |||||||||||
Short-term investments |
5 | |||||||||||
Accounts receivable (net of allowance of |
6 | |||||||||||
Inventories |
7 | |||||||||||
Prepayments and other current assets |
||||||||||||
|
|
|
|
|||||||||
Total current assets |
||||||||||||
Restricted cash, non-current |
4 | |||||||||||
Investments in equity investees |
8 | |||||||||||
Prepayments for equipment |
||||||||||||
Property and equipment, net |
9 | |||||||||||
Operating lease right-of-use |
10 | |||||||||||
Land use rights, net |
||||||||||||
Intangible assets, net |
||||||||||||
Long term deposits |
||||||||||||
Value added tax recoverable |
||||||||||||
|
|
|
|
|||||||||
Total assets |
||||||||||||
|
|
|
|
|||||||||
Liabilities and shareholders’ equity |
||||||||||||
Current liabilities: |
||||||||||||
Short-term borrowings |
13 | — | ||||||||||
Accounts payable |
||||||||||||
Current operating lease liabilities |
10 | |||||||||||
Other current liabilities |
14 | |||||||||||
|
|
|
|
|||||||||
Total current liabilities |
||||||||||||
Deferred income |
||||||||||||
Non-current operating lease liabilities |
10 | |||||||||||
|
|
|
|
|||||||||
Total liabilities |
||||||||||||
|
|
|
|
|||||||||
Commitments and contingencies (Note 22) |
||||||||||||
Shareholders’ equity |
||||||||||||
Ordinary shares (par value of $ |
||||||||||||
Additional paid-in capital |
||||||||||||
Accumulated deficit |
( |
) | ( |
) | ||||||||
Accumulated other comprehensive income (loss) |
18 | ( |
) | |||||||||
|
|
|
|
|||||||||
Total shareholders’ equity |
||||||||||||
|
|
|
|
|||||||||
Total liabilities and shareholders’ equity |
||||||||||||
|
|
|
|
Year ended December 31, |
||||||||||||||||
2018 |
2019 |
2020 |
||||||||||||||
Notes |
$ |
$ |
$ |
|||||||||||||
Revenue |
11 | |||||||||||||||
Expenses: |
||||||||||||||||
Cost of sales |
( |
) | ( |
) | ( |
) | ||||||||||
Research and development |
( |
) | ( |
) | ( |
) | ||||||||||
Selling, general and administrative |
( |
) | ( |
) | ( |
) | ||||||||||
Loss from operations |
( |
) | ( |
) | ( |
) | ||||||||||
Interest income |
||||||||||||||||
Interest expenses |
( |
) | ( |
) | ( |
) | ||||||||||
Other income, net |
||||||||||||||||
Loss before income tax and share of loss from equity method investment |
( |
) | ( |
) | ( |
) | ||||||||||
Income tax expense |
12 | |||||||||||||||
Share of loss from equity method investment |
( |
) | ( |
) | ( |
) | ||||||||||
Net loss |
( |
) | ( |
) | ( |
) | ||||||||||
Net loss attributable to ordinary shareholders |
( |
) | ( |
) | ( |
) | ||||||||||
Loss per share — basic and diluted |
15 | ( |
) | ( |
) | ( |
) | |||||||||
Weighted-average shares used in calculating net loss per ordinary share — basic and diluted |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Net loss |
( |
) | ( |
) | ( |
) | ||||||
Other comprehensive income (loss), net of tax of |
||||||||||||
Foreign currency translation adjustments |
( |
) | ||||||||||
Comprehensive loss |
( |
) |
( |
) |
( |
) | ||||||
Ordinary shares |
Additional paid in capital |
Accumulated other comprehensive (loss) income |
||||||||||||||||||||||||||
Number of Shares |
Amount |
Subscription receivable |
Accumulated deficit |
Total |
||||||||||||||||||||||||
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||||||||||
Balance at January 1, 2018 |
( |
) | ||||||||||||||||||||||||||
Issuance of ordinary shares upon vesting of restricted shares |
— | — | — | |||||||||||||||||||||||||
Exercise of shares option |
— | — | — | |||||||||||||||||||||||||
Issuance of ordinary shares upon follow-on public offering, net of issuance cost of $ |
— | — | — | |||||||||||||||||||||||||
Share-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Foreign currency translation |
— | — | — | — | — | |||||||||||||||||||||||
Balance at December 31, 2018 |
— | ( |
) | |||||||||||||||||||||||||
Issuance of ordinary shares upon vesting of restricted shares |
— | — | — | — | ||||||||||||||||||||||||
Exercise of shares option |
— | — | — | |||||||||||||||||||||||||
Issuance of ordinary shares upon follow-on public offering, net of issuance cost of $ |
— | — | — | |||||||||||||||||||||||||
Share-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Foreign currency translation |
— | — | — | — | — | |||||||||||||||||||||||
Balance at December 31, 2019 |
— | ( |
) | |||||||||||||||||||||||||
Issuance of ordinary shares upon vesting of restricted shares |
— | — | — | — | ||||||||||||||||||||||||
Exercise of shares option |
— | — | — | |||||||||||||||||||||||||
Issuance of ordinary shares upon follow-on public offering, net of issuance cost of $ |
— | — | — | |||||||||||||||||||||||||
Issuance of ordinary shares upon secondary listing , net of issuance cost of $ |
— | — | — | |||||||||||||||||||||||||
Share-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
Net loss |
— | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||
Foreign currency translation |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2020 |
— | ( |
) | ( |
) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Operating activities |
||||||||||||
Net loss |
( |
) | ( |
) | ( |
) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Allowance for doubtful accounts |
— | — | ||||||||||
Inventory write-down |
— | — | ||||||||||
Depreciation and amortization expenses |
||||||||||||
Amortization of deferred income |
( |
) | ( |
) | ( |
) | ||||||
Share-based compensation |
||||||||||||
Share of loss from equity method investment |
||||||||||||
Loss (gain) on disposal of property and equipment |
( |
) | ||||||||||
Noncash lease expenses |
— | |||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
( |
) | ( |
) | ( |
) | ||||||
Inventories |
( |
) | ( |
) | ( |
) | ||||||
Prepayments and other current assets |
( |
) | ( |
) | ( |
) | ||||||
Long term deposits |
( |
) | ( |
) | ||||||||
Value added tax recoverable |
( |
) | ( |
) | ( |
) | ||||||
Accounts payable |
( |
) | ||||||||||
Other current liabilities |
( |
) | ||||||||||
Operating lease liabilities |
— | ( |
) | ( |
) | |||||||
Deferred income |
( |
) | ||||||||||
Net cash used in operating activities |
( |
) | ( |
) | ( |
) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchases of short-term investments |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from maturity of short-term investments |
— | |||||||||||
Purchase of equity method investment |
( |
) | — | — | ||||||||
Purchase of property and equipment |
( |
) | ( |
) | ( |
) | ||||||
Purchase of land use rights |
— | ( |
) | — | ||||||||
Purchase of intangible assets |
( |
) | ( |
) | ( |
) | ||||||
Net cash used in investing activities |
( |
) | ( |
) | ( |
) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceed s from short-term borrowings |
— | |||||||||||
Repayment of short-term borrowings |
— | ( |
) | ( |
) | |||||||
Proceeds from exercises of stock options |
||||||||||||
Proceeds from issuance of ordinary shares upon public offerings |
||||||||||||
Payment of public offering costs |
( |
) | ( |
) | ( |
) | ||||||
Net cash provided by financing activities |
||||||||||||
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash |
( |
) | ||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
( |
) | ||||||||||
Cash, cash equivalents and restricted cash — beginning of the year |
||||||||||||
Cash, cash equivalents and restricted cash — end of the year |
||||||||||||
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Supplemental disclosure on non-cash investing and financing activities: |
||||||||||||
Payables for purchase of property and equipment |
||||||||||||
Payables for intangible assets |
— | |||||||||||
Payables for public offering costs |
— | — | ||||||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash and cash equivalents |
||||||||||||
Restricted cash, non-current |
— | |||||||||||
Total cash and cash equivalents and restricted cas h |
||||||||||||
Interest paid |
1. |
Organization and principal activities |
Name of company |
Place of incorporation |
Date of incorporation |
Percentage of ownership |
Principal activities | ||||
Zai Lab (Hong Kong) Limited |
||||||||
Zai Lab (Shanghai) Co., Ltd. |
2014 |
|||||||
Zai Lab (AUST) Pty., Ltd. |
2014 |
|||||||
Zai Lab (Suzhou) Co., Ltd. |
2015 |
|||||||
Zai Biopharmaceutical (Suzhou) Co., Ltd. |
||||||||
Zai Lab (US) LLC |
||||||||
Zai Lab International Trading (Shanghai) Co., Ltd. |
2019 |
|||||||
Zai Auto Immune (Hong Kong) Limited |
|
|
2. |
Summary of significant accounting policies |
Useful life | ||
Office equipment |
||
Electronic equipment |
||
Vehicles |
||
Laboratory equipment |
||
Manufacturing equipment |
||
Leasehold improvements |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
A |
* | |||||||||||
B |
* | * | ||||||||||
C |
* | * | ||||||||||
D |
* | * | ||||||||||
E |
* | * |
* | Represents less than 10% of revenue for the years ended December 31, 2018, 2019 and 2020. |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
A |
* | * | ||||||||||
B |
* | * | ||||||||||
C |
* | * | ||||||||||
D |
* | * | ||||||||||
E |
* | * | ||||||||||
F |
* | * |
* | Represents less than 10% of research and development expenses and the inventory purchases for the years ended December 31, 2018, 2019 and 2020. |
3. |
Cash and cash equivalents |
As of December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Cash at bank and in hand |
||||||||
Cash equivalents |
||||||||
|
|
|
|
|||||
|
|
|
|
|||||
Denominated in: |
||||||||
US$ |
||||||||
RMB (note (i)) |
||||||||
Hong Kong dollar (“HK$”) |
||||||||
Australian dollar (“A$”) |
||||||||
|
|
|
|
|||||
|
|
|
|
(i) | Certain cash and bank balances denominated in RMB were deposited with banks in the PRC. The conversion of these RMB denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government. |
4. |
Restricted cash, non-current |
5. |
Short-term investments |
6. |
Accounts receivable |
Allowance for Credit Losses |
||||
$ |
||||
Balance as of December 31, 2019 |
||||
Current period provision for expected credit losses |
||||
Amounts written-off |
— | |||
Recoveries of amounts previously written-off |
— | |||
|
|
|||
Balance as of December 31, 2020 |
||||
|
|
7. |
Inventories |
As of December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Finished goods |
||||||||
Raw materials |
||||||||
|
|
|
|
|||||
Inventories |
||||||||
|
|
|
|
8. |
Investments in equity investees |
9. |
Property and equipment, net |
As of December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Office equipment |
||||||||
Electronic equipment |
||||||||
Vehicle |
||||||||
Laboratory equipment |
||||||||
Manufacturing equipment |
||||||||
Leasehold improvements |
||||||||
Construction in progress |
||||||||
|
|
|
|
|||||
Less: accumulated depreciation |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Property and equipment, net |
||||||||
|
|
|
|
10. |
Lease |
Year ended December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Operating fixed lease cost |
Year ended December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Cash paid for amounts included in measurement of lease liabilities |
||||||||
Non-cash operating lease liabilities arising fromright-of-use |
Year ended December 31 |
||||
$ |
||||
2021 |
||||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
Total lease payments |
||||
Less: imputed interest |
( |
) | ||
|
|
|||
Present value of minimum operating lease payments |
||||
|
|
Year ended December 31, |
||||||||
2019 |
2020 |
|||||||
Weighted-average remaining lease term |
||||||||
Weighted-average discount rate |
% | % |
11. |
Revenue |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Product revenue — gross |
||||||||||||
Less: Rebate and sales return |
— | — | ( |
) | ||||||||
|
|
|
|
|
|
|||||||
Product revenue — net |
||||||||||||
|
|
|
|
|
|
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
ZEJULA |
||||||||||||
Optune |
— | |||||||||||
Others |
— | — | ||||||||||
|
|
|
|
|
|
|||||||
Total product revenue — net |
||||||||||||
|
|
|
|
|
|
12. |
Income Tax |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Cayman |
( |
) | ||||||||||
BVI |
||||||||||||
PRC |
||||||||||||
HK |
||||||||||||
US |
||||||||||||
AUST |
||||||||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
Statutory income tax rate |
% | % | % | |||||||||
Share-based compensations |
( |
%) | ( |
%) | ( |
%) | ||||||
Non-deductible expenses |
( |
%) | ( |
%) | ( |
%) | ||||||
Prior year tax filing adjustment |
% | % | % | |||||||||
Effect of different tax rate of subsidiary operation in other jurisdictions |
( |
%) | % | ( |
%) | |||||||
Preferential tax rate |
— | ( |
%) | ( |
%) | |||||||
Effect of change in tax rate |
— | ( |
%) | — | ||||||||
Changes in valuation allowance |
( |
%) | ( |
%) | ( |
%) | ||||||
Effective income tax rate |
||||||||||||
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Deferred tax assets: |
||||||||||||
Depreciation of property and equipment, net |
||||||||||||
Government grants |
||||||||||||
Deferred revenue |
— | — | ||||||||||
Public welfare donations |
— |
— |
||||||||||
Net operating loss carry forwards |
||||||||||||
Less: valuation allowance |
( |
) | ( |
) | ( |
) | ||||||
Deferred tax assets, net |
||||||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Balance as of January 1, |
( |
) | ( |
) | ||||
Additions |
( |
) | ( |
) | ||||
Balance as of December 31, |
( |
) | ( |
) | ||||
13. |
Short-term borrowings |
14. |
Other current liabilities |
As of December 31, |
||||||||
2019 |
2020 |
|||||||
$ |
$ |
|||||||
Payroll |
||||||||
Professional service fee |
||||||||
Payables for purchase of property and equipment |
||||||||
Payables for purchase of intangible assets |
— | |||||||
Accrued rebate to distributors |
— | |||||||
Others (note (i)) |
||||||||
|
|
|
|
|||||
Total |
||||||||
|
|
|
|
(i) | Others are mainly payments from employees for exercising the share-based compensations, tax payables, and payables related to travel and business entertainment expenses and conference fee. |
15. |
Loss per share |
For the years ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
Numerator: |
||||||||||||
Net loss attributable to ordinary shareholders |
( |
) | ( |
) | ( |
) | ||||||
Denominator: |
||||||||||||
Weighted average number of ordinary shares- basic and diluted |
||||||||||||
|
|
|
|
|
|
|||||||
Net loss per share-basic and diluted |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
As of December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
Share options |
||||||||||||
Non-vested restricted shares |
16. |
Related party transactions |
Company Name |
Relationship with the Group | |
MEDx (Suzhou) Translational Medicine Co., Ltd. (Formerly known as Qiagen (Suzhou) translational medicine Co., Ltd) |
17. |
Share-based compensation |
2018 |
2019 |
2020 | ||||
Risk-free rate of return |
% |
% |
% | |||
Contractual life of option |
||||||
Expected term |
||||||
Estimated volatility rate |
||||||
Expected dividend yield |
||||||
Fair value of underlying ordinary shares |
$ |
$ |
$ |
Number of options |
Weighted average exercise price |
Weighted average remaining contractual term |
Aggregate intrinsic value |
|||||||||||||
$ |
Years |
$ |
||||||||||||||
Outstanding at January 1, 2018 |
||||||||||||||||
Granted |
— | — | ||||||||||||||
Exercised |
( |
) | — | — | ||||||||||||
Forfeited |
( |
) | — | — | ||||||||||||
Outstanding at December 31, 2018 |
||||||||||||||||
Granted |
— | — | ||||||||||||||
Exercised |
( |
) | — | — | ||||||||||||
Forfeited |
( |
) | — | — | ||||||||||||
Outstanding at December 31, 2019 |
||||||||||||||||
Granted |
— | — | ||||||||||||||
Exercised |
( |
) | — | — | ||||||||||||
Forfeited |
( |
) | — | — | ||||||||||||
Outstanding at December 31, 2020 |
||||||||||||||||
Vested and exercisable as of December 31, 2020 |
||||||||||||||||
Vested or expected to vest as of December 31, 2020 |
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Selling, general and administrative |
||||||||||||
Research and development |
||||||||||||
Total |
||||||||||||
Numbers of non-vested restricted shares |
Weighted average grant date fair value |
|||||||
$ |
||||||||
Non-vested as of January 1, 2019 |
||||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Non-vested as of December 31, 2019 |
||||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Forfeited |
( |
) | ||||||
Non-vested as of December 31, 2020 |
||||||||
Year ended December 31, |
||||||||||||
2018 |
2019 |
2020 |
||||||||||
$ |
$ |
$ |
||||||||||
Selling, general and administrative |
||||||||||||
Research and development |
||||||||||||
Total |
||||||||||||
18. |
Accumulated other comprehensive income (loss) |
Foreign currency translation adjustments |
||||
$ |
||||
Balance as of January 1, 2018 |
||||
Other comprehensive income |
||||
Balance as of December 31, 2018 |
||||
Other comprehensive income |
||||
Balance as of December 31, 2019 |
||||
Other comprehensive loss |
( |
) | ||
Balance as of December 31, 2020 |
( |
) | ||
19. |
Licenses and collaborative arrangement |
20. |
Restricted net assets |
21. |
Employee defined contribution plan |
22. |
Commitments and Contingencies |
(a) |
Purchase commitments |
(b) |
Contingencies |
23. |
Subsequent events |