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Table of Contents


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 September 30, 2018
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            to           
Commission File Number: 001-37686
_______________________________________________________________________
BEIGENE, LTD.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Cayman Islands
98-1209416
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
c/o Mourant Ozannes Corporate Services
(Cayman) Limited
 
94 Solaris Avenue, Camana Bay
 
Grand Cayman
 
Cayman Islands
KY1-1108
(Address of principal executive offices)
(Zip Code)
+1 (345) 949 4123
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  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
As of October 31, 2018, 772,363,184 ordinary shares, par value $0.0001 per share, were outstanding, of which 586,882,777 ordinary shares were held in the form of 45,144,829 American Depositary Shares, each representing 13 ordinary shares.

Table of Contents


BeiGene, Ltd.
Quarterly Report on Form 10-Q
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
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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
 
 
 
 
September 30, 
 
December 31, 
 
 
Note
 
2018
 
2017
 
 
 
 
$
 
$
 
 
 
 
(unaudited)
 
(audited)
Assets
 
 
 
 
 
 

Current assets:
 
 
 
 
 
 

Cash and cash equivalents
 
 
 
643,485

 
239,602

Restricted cash, current
 
5
 
14,560

 
—

Short-term investments
 
5
 
1,390,276

 
597,914

Accounts receivable
 
 
 
37,372

 
29,428

Unbilled receivable
 
 
 
4,878

 
—

Inventories
 
6
 
19,699

 
10,930

Prepaid expenses and other current assets
 
12
 
69,925

 
35,623

Total current assets
 
 
 
2,180,195

 
913,497

Restricted cash, non-current
 
5
 
52,751

 
—

Property and equipment, net
 
7
 
111,262

 
62,568

Land use right, net
 
9
 
11,629

 
12,465

Intangible assets, net
 
10
 
7,299

 
7,250

Goodwill
 
4
 
109

 
109

Deferred tax assets
 
11
 
16,474

 
7,675

Other non-current assets
 
12
 
28,908

 
42,915

Total non-current assets
 
 
 
228,432

 
132,982

Total assets
 
 
 
2,408,627

 
1,046,479

Liabilities and shareholders' equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
 
 
85,552

 
69,779

Accrued expenses and other payables
 
12
 
75,882

 
49,598

Deferred revenue, current
 
 
 
16,705

 
12,233

Tax payable
 
11
 
1,549

 
9,156

Current portion of long-term bank loan
 
13
 
8,736

 
9,222

Total current liabilities
 
 
 
188,424

 
149,988

Non-current liabilities:
 
 
 
 
 
 
Long-term bank loan
 
13
 
40,824

 
9,222

Shareholder loan
 
14
 
146,409

 
146,271

Deferred revenue, non-current
 
 
 
14,660

 
24,808

Other long-term liabilities
 
12
 
34,879

 
31,959

Total non-current liabilities
 
 
 
236,772

 
212,260

Total liabilities
 
 
 
425,196

 
362,248

Commitments and contingencies
 
22
 

 

Equity:
 
 
 

 

Ordinary shares, US$0.0001 par value per share; 9,500,000,000 shares authorized; 771,063,184 and 592,072,330 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
 
 
77

 
59

Additional paid-in capital
 
 
 
2,710,053

 
1,000,747

Accumulated other comprehensive loss
 
18
 
(724
)
 
(480
)
Accumulated deficit
 
 
 
(738,960
)
 
(330,517
)
Total BeiGene, Ltd. shareholders’ equity
 
 
 
1,970,446

 
669,809

Noncontrolling interest
 
19
 
12,985

 
14,422

Total equity
 
19
 
1,983,431

 
684,231

Total liabilities and equity
 
 
 
2,408,627

 
1,046,479

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

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BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
(Unaudited)
 
 
 
 
Three Months Ended 
 
Nine Months Ended 
 
 
 
 
September 30, 
 
September 30, 
 
 
Note
 
2018
 
2017
 
2018
 
2017
 
 
 
 
$ 
 
$ 
 
$ 
 
$ 
Revenues
 
 
 
 

 
 

 
 

 
 

Product revenue, net
 
15
 
38,447

 
8,822

 
93,123

 
8,822

Collaboration revenue
 
3
 
15,755

 
211,391

 
46,427

 
211,391

Total revenues
 
 
 
54,202

 
220,213

 
139,550

 
220,213

Expenses
 
 
 
 
 
 
 
 
 
 
Cost of sales - product
 
 
 
(8,706
)
 
(1,944
)
 
(19,512
)
 
(1,944
)
Research and development
 
 
 
(147,590
)
 
(87,660
)
 
(421,541
)
 
(177,678
)
Selling, general and administrative
 
 
 
(48,820
)
 
(15,641
)
 
(122,895
)
 
(35,187
)
Amortization of intangible assets
 
 
 
(188
)
 
(63
)
 
(563
)
 
(63
)
Total expenses
 
 
 
(205,304
)
 
(105,308
)
 
(564,511
)
 
(214,872
)
(Loss) income from operations
 
 
 
(151,102
)
 
114,905

 
(424,961
)
 
5,341

Interest income (expense), net
 
 
 
4,553

 
(1,785
)
 
7,997

 
(3,581
)
Other income, net
 
 
 
1,585

 
1,103

 
2,389

 
1,541

(Loss) income before income tax expense
 
 
 
(144,964
)
 
114,223

 
(414,575
)
 
3,301

Income tax benefit
 
11
 
472

 
3,061

 
7,252

 
2,680

Net (loss) income
 
 
 
(144,492
)
 
117,284

 
(407,323
)
 
5,981

Less: net loss attributable to noncontrolling interests
 
 
 
(461
)
 
(102
)
 
(1,809
)
 
(237
)
Net (loss) income attributable to BeiGene, Ltd.
 
 
 
(144,031
)
 
117,386

 
(405,514
)
 
6,218

Net (loss) income per share attributable to BeiGene, Ltd.
 
 16
 
 
 
 
 
 
 
 
Basic (in dollars)
 
 
 
(0.19
)
 
0.21

 
(0.58
)
 
0.01

Diluted (in dollars)
 
 
 
(0.19
)

0.20


(0.58
)

0.01

Weighted-average shares used in net (loss) income per share calculation
 
 16
 
 
 
 
 
 
 
 
Basic (in shares)
 
 
 
739,789,269

 
547,546,656

 
703,482,491

 
527,329,985

Diluted (in shares)
 
 
 
739,789,269

 
600,612,680

 
703,482,491

 
561,237,818

Net (loss) income per American Depositary Share (“ADS”)
 
 
 
 
 
 
 
 
 
 
Basic (in dollars)
 
 
 
(2.53
)
 
2.79

 
(7.49
)
 
0.15

Diluted (in dollars)
 
 
 
(2.53
)
 
2.54

 
(7.49
)
 
0.14

Weighted-average ADSs used in net (loss) income per share calculation
 
 
 
 
 
 
 
 
 
 
Basic (in ADSs)
 
 
 
56,906,867

 
42,118,973

 
54,114,038

 
40,563,845

Diluted (in ADSs)
 
 
 
56,906,867

 
46,200,975

 
54,114,038

 
43,172,139

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

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BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
(Unaudited)
 
 
Three Months Ended 
 
Nine Months Ended 
 
 
September 30, 
 
September 30, 
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Net (loss) income
 
(144,492
)
 
117,284

 
(407,323
)
 
5,981

Other comprehensive (loss) income, net of tax of nil:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(4,217
)
 
341

 
(1,912
)
 
985

Unrealized holding gain, net
 
354

 
51

 
1,402

 
58

Comprehensive (loss) income
 
(148,355
)
 
117,676

 
(407,833
)
 
7,024

Less: comprehensive loss attributable to noncontrolling interests
 
(486
)
 
(70
)
 
(1,812
)
 
(178
)
Comprehensive (loss) income attributable to BeiGene, Ltd.
 
(147,869
)
 
117,746

 
(406,021
)
 
7,202

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

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BEIGENE, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands of U.S. Dollars (“$”), except for number of shares and per share data)
(Unaudited)
 
 
 
 
Nine Months Ended September 30, 
 
 
Note
 
2018
 
2017
 
 
 
 
$
 
$
Operating activities:
 
 
 
 
 
 
Net (loss) income
 
 
 
(407,323
)
 
5,981

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
 
 
 
Depreciation and amortization expense
 
 
 
7,025

 
2,704

Share-based compensation expenses
 
17
 
61,169

 
26,401

Acquired in-process research and development
 
1
 
10,000

 
—

Loss on disposal of property and equipment
 
 
 
1

 
85

Non-cash interest expense
 
 
 
5,964

 
4,796

Deferred income tax benefits
 
 
 
(8,799
)
 
(5,871
)
Disposal gain on available-for-sale securities
 
 
 
(822
)
 
(10
)
Non-cash amortization of bond discount
 
 
 
(4,441
)
 
—

Changes in operating assets and liabilities:
 
 
 
 
 
 
Accounts receivable
 
 
 
(7,944
)
 
(10,521
)
Unbilled receivable
 
 
 
11,429

 
(170,950
)
Inventories
 
 
 
(8,769
)
 
(5,712
)
Prepaid expenses and other current assets
 
 
 
(34,302
)
 
(10,967
)
Other non-current assets
 
 
 
(8,499
)
 
(635
)
Accounts payable
 
 
 
5,577

 
21,420

Accrued expenses and other payables
 
 
 
26,284

 
22,371

Tax payable
 
 
 
(7,607
)
 
1,122

Deferred revenue
 
 
 
(5,676
)
 
38,609

Other long-term liabilities
 
 
 
12,910

 
180

Net cash used in operating activities
 
 
 
(353,823
)
 
(80,997
)
Investing activities:
 
 
 
 
 
 
Purchases of property and equipment
 
 
 
(47,029
)
 
(27,441
)
Purchase of intangible assets
 
 
 
(221
)
 
—

Prepayment of assets acquisition
 
 
 
(7,946
)
 
—

Payment for the acquisition of land use right
 
 
 
—

 
(12,354
)
Cash acquired in business combination, net of cash paid
 
 
 
—

 
19,916

Purchases of investments
 
 
 
(2,116,510
)
 
(514,126
)
Proceeds from sale or maturity of investments
 
 
 
1,330,850

 
245,928

Purchase of in-process research and development
 
1
 
(10,000
)
 
—

Net cash used in investing activities
 
 
 
(850,856
)
 
(288,077
)
Financing activities:
 
 
 
 
 
 
Proceeds from follow-on public offering, net of underwriter discount
 
 
 
758,001

 
189,191

Payment of follow-on public offering cost
 
 
 
(414
)
 
(674
)
Proceeds from sale of ordinary shares, net of cost
 
 
 
—

 
149,928

Proceeds from HK IPO and global follow-on public offering
 
 
 
875,368

 
—

Payment of HK IPO and global follow-on public offering costs
 
 
 
(5,659
)
 
—

Proceeds from long-term loan
 
13
 
42,315

 
—

Repayment of long-term loan
 
13
 
(8,736
)
 
—

Proceeds from short-term loan
 
 
 
—

 
2,470

Repayment of short-term loan
 
 
 
—

 
(2,470
)
Capital contribution from noncontrolling interest
 
 
 
—

 
14,527

Proceeds from shareholder loan
 
14
 
—

 
132,757

Proceeds from option exercises
 
 
 
20,859

 
1,579

Net cash provided by financing activities
 
 
 
1,681,734

 
487,308

Effect of foreign exchange rate changes, net
 
 
 
(5,861
)
 
2,762

Net increase in cash, cash equivalents, and restricted cash
 
 
 
471,194

 
120,996

Cash, cash equivalents, and restricted cash at beginning of period
 
 
 
239,602

 
87,514

Cash, cash equivalents, and restricted cash at end of period
 
 
 
710,796

 
208,510

Supplemental cash flow information:
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
643,485

 
208,510

Restricted cash, current
 
 
 
14,560

 
—

Restricted cash, non-current
 
 
 
52,751

 
—

Income taxes paid
 
 
 
12,151

 
1,429

Interest expense paid
 
 
 
1,546

 
940

Supplemental non-cash information:
 
 
 
 
 
 
Discount provided on sale of ordinary shares for business combination
 
 
 
—

 
23,606

Acquisitions of equipment included in accounts payable
 
 
 
12,020

 
1,482

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.

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BEIGENE, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands of U.S. Dollar (“$”) and Renminbi (“RMB”), except for number of shares and per share data)
(Unaudited) 
1. Description of Business, Basis of Presentation and Consolidation and Significant Accounting Policies
Description of business
BeiGene, Ltd. (the “Company”) is a commercial-stage biopharmaceutical company focused on developing and commercializing innovative molecularly targeted and immuno-oncology drugs for the treatment of cancer. The Company’s internally-developed lead drug candidates are currently in late-stage clinical trials, and it is marketing three in-licensed drugs in China from which it has been generating product revenue since September 2017.
The Company was incorporated under the laws of the Cayman Islands as an exempted company with limited liability in October 2010. The Company completed its initial public offering (“IPO”) on the NASDAQ Global Select Market in February 2016 and has completed subsequent follow-on public offerings and a sale of ordinary shares to Celgene Switzerland LLC (“Celgene Switzerland”) in a business development transaction, as described in Note 20, Shareholders’ Equity. On August 8, 2018, the Company completed 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 September 30, 2018, there were no changes to the Company's subsidiaries listed in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 ("Annual Report"), except for the addition of a new wholly-owned subsidiary of BeiGene (Guangzhou) Co., Ltd. resulting from its acquisition of 100% of the equity interests of BeiGene Pharmaceuticals (Guangzhou) Co., Ltd. (Note 4).
Basis of presentation and consolidation
The accompanying condensed consolidated balance sheet as of September 30, 2018, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018 and 2017, the condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017, and the related footnote disclosures are unaudited. The accompanying unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), including guidance with respect to interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report.
The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all normal recurring adjustments, necessary to present a fair statement of the results for the interim periods presented. Results of the operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results expected for the full fiscal year or for any future annual or interim period.
The condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Noncontrolling interests are recognized to reflect the portion of the equity of subsidiaries which are not attributable, directly or indirectly, to the controlling shareholders. The Company consolidates BeiGene Biologics Co., Ltd. ("BeiGene Biologics") under the voting model and recognizes the minority shareholder’s equity interest as a noncontrolling interest in its consolidated financial statements (as described in Note 8).

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Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, estimating the useful lives of long-lived assets, estimating sales rebates and returns allowance to arrive at net product revenues, identifying separate accounting units and the best estimate of selling price of each deliverable in the Company’s revenue arrangements, variable consideration in revenue arrangements (including evaluations of the expected value and the most likely value method to estimate variable payments), estimating the fair value of net assets acquired in business combinations, assessing the impairment of long-lived assets and goodwill, share-based compensation expenses, inventory, realizability of deferred tax assets and the fair value of financial instruments. Management bases the estimates on historical experience, known trends and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
Recent accounting pronouncements
New accounting standards which have been adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), or ASU 2014-9. Subsequently, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which adjusted the effective date of ASU 2014-9; ASU No. 2016-8, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-9; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies identifying performance obligations and licensing implementation guidance and illustrations in ASU 2014-9; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which addresses implementation issues and is intended to reduce the cost and complexity of applying the new revenue standard in ASU 2014-9; ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior Securities and Exchange Commission, or SEC, Staff Announcements and Observer Comments (SEC Update), which codifies recent announcements by the SEC staff; and ASU No. 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update), which adds ASC 606-10-S25-1 as a result of SEC Release 33-10403, or collectively, the Revenue ASUs. The Revenue ASUs provide an accounting standard for a single comprehensive model for use in accounting for revenue arising from contracts with customers, and supersedes most current revenue recognition guidance. The accounting standard is effective for interim and annual periods beginning after December 15, 2017, with an option to early adopt for interim and annual periods beginning after December 15, 2016. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). On January 1, 2018, the Company adopted the new standard using the modified retrospective method.
The Revenue ASUs apply to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under the Revenue ASUs, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of the Revenue ASUs, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope the Revenue ASUs, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The impact to the Company on adoption of the Revenue ASUs relates to variable consideration related to its collaboration agreement with Celgene Corporation ("Celgene") and the anticipated opt-in to certain clinical trials that are to be run by the Company, and funded by Celgene. Under Topic 605, even though the Company believed it was probable that the

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performance obligation related to the variable consideration would be satisfied as of December 31, 2017, the variable consideration was not realizable because formal notice had not been received. Upon its adoption of the Revenue ASUs, the Company determined it was probable that Celgene would opt-in to the clinical trials as of December 31, 2017 such that the variable consideration was not constrained, and therefore, the related revenue would have been recognized. In March 2018, the Company obtained formal notice of opt-in by Celgene. 
The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-9 resulted in an increase of $16,307 to both unbilled receivables and the opening balance of accumulated deficit. Please refer to the “Adoption of New Accounting Standards” section below for a tabular presentation of the impact.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted ASU 2016-16 during the first quarter of 2018 using the modified retrospective adoption method. In 2017, BeiGene (Hong Kong) Co., Ltd.'s ("BeiGene HK's") contribution of BeiGene (Shanghai) Co., Ltd. ("BeiGene Shanghai") to BeiGene Biologics (and subsequent receipt of a related government grant) resulted in tax expenses $28,588, which were reflected as other non-current assets in the Company’s December 31, 2017 balance sheet. The related government subsidy of $9,990, which was received in 2017, was reflected as other long-term liabilities in the Company’s December 31, 2017 balance sheet. The adoption of this accounting standard resulted in an adjustment to beginning accumulated deficit for both of these items. In addition, the Company has now established a deferred tax asset resulting from a previous transfer of intellectual property to one of its wholly-owned subsidiaries. This deferred tax asset is entirely offset by a corresponding valuation allowance and therefore did not result in a change to beginning accumulated deficit. Please refer to the “Adoption of New Accounting Standards” section below for a tabular presentation of the impact.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires entities to present the aggregate changes in cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the statement of cash flows will be required to present restricted cash and restricted cash equivalents as a part of the beginning and ending balances of cash and cash equivalents. The updated guidance became effective on January 1, 2018, and resulted in the presentation of restricted cash of $67,311 within the ending cash, cash equivalents, and restricted cash balance on the Company’s consolidated statement of cash flows.
In January 2017, the FASB issued ASU No. 2017-1, Business Combinations: Clarifying the Definition of a Business. The new standard requires an entity to evaluate if substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set would not be considered a business. The new standard also requires a business to include at least one substantive process and narrows the definition of outputs. The new standard is effective for interim and annual periods beginning on January 1, 2018, and may be adopted earlier. The Company elected to early adopt the updated guidance as of January 1, 2017. The standard is applied prospectively to any transaction occurring on or after the adoption date. The Company evaluated the acquisition of 100% of the equity interests of Celgene Pharmaceutical (Shanghai) Co., Ltd. (“Celgene Shanghai”) under the new guidance, and determined that the transaction represents a business combination, as disclosed further in Note 4.
In January 2017, the FASB issued ASU No. 2017-4, Intangibles –  Goodwill and Other: Simplifying the Test for Goodwill Impairment. This ASU simplifies the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this update are effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed after January 1, 2017. The Company elected to early adopt this ASU, and there was no material impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-9, Compensation – Stock Compensation: Scope of Modification Accounting. This standard provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The updated guidance became effective on January 1, 2018, and there was no material impact to the Company’s consolidated financial statements.

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In June 2018, the FASB issued ASU 2018-7, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This update also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company elected to early adopt this ASU during the quarter ended September 30, 2018, and there was no material impact to the Company's consolidated financial statements.
Impact of adopted accounting standards
The cumulative effect of changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of the revenue ASUs and ASU 2016-16 were as follows:
 
 
Balance at
 
Adjustments
 
Adjustments
 
Balance at
 
 
December 31,
 
Due to
 
Due to
 
January 1,
 
 
2017
 
Revenue ASUs 
 
ASU 2016-16
 
2018
 
 
$
 
$
 
$
 
$
Assets:
 
 

 
 

 
 

 
 

Unbilled receivable
 
—

 
16,307

 
—

 
16,307

Other non-current assets
 
42,915

 
—

 
(28,588
)
 
14,327

Liabilities:
 
 
 
 
 
 
 
 
Other long-term liabilities
 
31,959

 
—

 
(9,990
)
 
21,969

Equity:
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
(480
)
 
—

 
263

 
(217
)
Accumulated deficit
 
(330,517
)
 
16,307

 
(19,236
)
 
(333,446
)
Noncontrolling interest
 
14,422

 
—

 
375

 
14,797

 
New accounting standards which have not yet been adopted
In February 2016, the FASB issued ASU No. 2016-2, Leases. Subsequently, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which clarifies certain aspect of the guidance issued in ASU 2016-2; and 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 (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 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. The Company is currently evaluating the financial statement impact of adoption. As of September 30, 2018, the Company had non-cancellable operating lease commitments of $32,311. The Company is in the process of evaluating its leasing arrangements to determine what extent these contractual commitments will affect the recognition of the related right-of-use assets and liabilities for future lease payments in the consolidated balance sheet. Some of the commitments under short term leases may be exempted from the recognition of relevant assets or liabilities under the Lease ASUs. The Company does not expect that the adoption of the Lease ASUs will result in significant impact on the operating performance, cash flows and net assets of the Group, but does expect that a certain portion of these operating lease commitments will be required to be recognized on the balance sheet as right-of-use assets and lease liabilities under the Lease ASUs.
In February 2018, the FASB issued ASU 2018-2, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows companies the option to reclassify to retained earnings the tax effects related to items in accumulated other comprehensive income (loss) as a result of the Tax Cuts and Jobs Act that was enacted in the United States on December 22, 2017. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. This guidance should be applied either in the period of adoption or retrospectively to each period in which the effects of the change in the U.S. federal income tax rate in the Tax Cuts and Jobs Act is recognized. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.

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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.
Significant accounting policies
For a more complete discussion of the Company’s significant accounting policies and other information, the consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report for the year ended December 31, 2017.
Acquired in-process research and development expense
The Company has acquired rights to develop and commercialize product candidates. Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as acquired in-process research and development in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. Milestone payments made to third parties subsequent to regulatory approval are capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. Royalties owed on sales of the products licensed pursuant to the agreements are expensed in the period the related revenues are recognized.
Except for the changes to the Company’s significant accounting policies related to the adoption of the Revenue ASUs and ASU 2016-16, and the accounting for the acquisition of in-process research and development expense, there have been no other material changes to the Company’s significant accounting policies as of and for the three and nine months ended September 30, 2018, as compared to the significant accounting policies described in the Annual Report.
2. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in market with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and considers an inactive market to be one in which

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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 September 30, 2018 and December 31, 2017:
 
 
Quoted Price
 
 
 
 
 
 
in Active
 
Significant
 
 
 
 
Market for
 
Other
 
Significant
 
 
Identical
 
Observable
 
Unobservable
 
 
Assets
 
Inputs
 
Inputs
As of September 30, 2018
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
$
 
$
 
$
Short-term investments (Note 5):
 
 

 
 
 
 
U.S. treasury securities
 
1,372,627

 
—

 
—

U.S. agency securities
 
17,649

 
—

 
—

Cash equivalents
 
 
 
 
 
 
U.S. treasury securities
 
159,737

 
—

 
—

Money market funds
 
111,726

 
—

 
—

Total
 
1,661,739

 
—

 
—

 
 
 
Quoted Price
 
 
 
 
 
 
in Active
 
Significant
 
 
 
 
Market for
 
Other
 
Significant
 
 
Identical
 
Observable
 
Unobservable
 
 
Assets
 
Inputs
 
Inputs
As of December 31, 2017
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
$
 
$
 
$
Short-term investments (Note 5):
 
 
 
 
 
 
U.S. treasury securities
 
561,327

 
—

 
—

U.S. agency securities
 
17,663

 
—

 
—

Time deposits
 
18,924

 
—

 
—

Cash equivalents
 
 
 
 
 
 
Money market funds
 
44,730

 
—

 
—

Total
 
642,644

 
—

 
—

 
The Company had no liabilities measured and recorded at fair value on a recurring basis as of September 30, 2018 or December 31, 2017. 
3. Research and Development Collaborative Arrangements
Celgene and Celgene Switzerland
On July 5, 2017, the Company entered into a license agreement with Celgene Switzerland pursuant to which the Company granted to the Celgene parties an exclusive right to develop and commercialize the Company’s investigational PD-1 inhibitor, tislelizumab (BGB-A317), in all fields of treatment, other than hematology, in the United States, Europe, Japan and the rest of world other than Asia (the “PD-1 License Agreement”). In connection with the closing of the transactions on August 31, 2017, the Company, Celgene and Celgene Switzerland amended and restated the PD-1 License Agreement (the “A&R PD-1 License Agreement”) to, among other things, clarify the parties’ responsibilities relating to the conducting and funding of certain global registration clinical trials and clarify the scope of the regulatory materials transferred by BeiGene to Celgene.
Under the terms of the A&R PD-1 License Agreement, Celgene agreed to pay the Company $263,000 in upfront non-refundable fees, of which $92,050 was paid in the third quarter of 2017 and the remaining $170,950 was paid in December 2017. In addition, subsequent to the completion of the research and development phase of the collaboration, the Company may be eligible to receive product development milestone payments based on the successful achievement of development and

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regulatory goals, commercial milestone payments based on the successful achievement of commercialization goals, and royalty payments based on a predetermined percentage of Celgene and Celgene Switzerland’s aggregate annual net sales of all products in their territory for a period not to exceed the latest of the expiration of the last valid patent claim, the expiration of regulatory exclusivity or 12 years from the date of the first commercial sale on a product-by-product and country-by-country basis. The Company allocated $13,000 of upfront fees to the fair value of assets related to the Company’s acquisition of Celgene Shanghai, a wholly-owned subsidiary of Celgene Holdings East Corporation established under the laws of China, which was completed contemporaneously with the A&R PD-1 License Agreement.
In addition to the exclusive right to develop and commercialize tislelizumab, the terms of the A&R PD-1 License Agreement provide Celgene with the right to collaborate with the Company on the development of tislelizumab for specified indications, including required participation on a joint development committee and a joint steering committee as well as a joint commercialization committee upon achievement of commercialization. The joint development and joint steering committees are formed by an equal number of representatives from the Company and Celgene and are responsible for reviewing and approving the development plan and budget for the development of tislelizumab for clinical studies associated with specified indications. Celgene will reimburse the Company for certain research and development costs based on external cost, plus agreed upon markup for the development of tislelizumab related to the clinical trials that Celgene opts into, as outlined in the development plan.
The following table summarizes total collaboration revenue recognized for the three and nine months ended September 30, 2018 and 2017:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
License revenue
 
—

 
211,391

 
—

 
211,391

Reimbursement of research and development costs
 
13,521

 
—

 
39,251

 
—

Research and development service revenue
 
2,234

 
—

 
7,176

 
—

Total
 
15,755

 
211,391

 
46,427

 
211,391

For the three and nine months ended September 30, 2018, the Company recognized collaboration revenue of $15,755 and $46,427, respectively. The Company recognized $13,521 and $39,251 of research and development reimbursement revenue for the three and nine months ended September 30, 2018 for the trials that Celgene has opted into. In addition, $16,307 of reimbursement that was billed to Celgene was included as an adjustment to beginning accumulated deficit. The research and development services revenue for the three and nine months ended September 30, 2018, primarily reflects the recognition of upfront consideration that was allocated to R&D services at the time of the collaboration and is recognized from deferred revenue over the term of the respective clinical studies for the specified indications.
In May 2018, the Company achieved the milestone related to its collaboration agreement with Merck KGaA for dosing patients in the first Phase 3 clinical trial of pamiparib in the PRC Territory, and the related $1,500 milestone payment was recognized as research and development services revenue for the nine months ended September 30, 2018.
For the three and nine months ended September 30, 2017, the Company recognized $211,391 as license revenue within collaboration revenue.
4. Business Combinations and Asset Acquisitions
Celgene Shanghai
On August 31, 2017, BeiGene HK acquired 100% of the equity interests of Celgene Shanghai, a wholly-owned subsidiary of Celgene Holdings East Corporation established under the laws of the People's Republic of China ("PRC"), for total consideration of $28,138. BeiGene HK made an initial cash payment of $4,532, and issued non-cash consideration of $23,606, related to the discount on ordinary shares issued to Celgene, pursuant to the Share Subscription Agreement dated July 5, 2017 by and between the Company and Celgene Switzerland (the “Share Subscription Agreement”). See Note 20 for further description of the Share Subscription Agreement.

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The acquisition has been accounted for as a business combination using the acquisition method of accounting. Assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date. The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The fair values of goodwill, intangible assets and other net assets were $109, $7,500 and $20,529, respectively.

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. The acquisition was concentrated in a single identifiable asset, a drug distribution license, and thus, for accounting purposes, the Company has concluded that the acquisition does not meet the accounting definition of a business combination. The entire purchase price was allocated to the drug distribution license, resulting in a $612 intangible asset for the license.
5. Restricted Cash and Short-term Investments
The Company’s restricted cash balance of $67,311 as of September 30, 2018 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 import duty tax, funds held in escrow for the purchase of Beijing Innerway Bio-tech Co., Ltd. (Note 24), and restricted cash deposits as security for the long-term bank loan (Note 13).
Short-term investments as of September 30, 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
 
1,371,619

 
1,338

 
330

 
1,372,627

U.S. agency securities
 
17,612

 
37

 
—

 
17,649

Total
 
1,389,231

 
1,375

 
330

 
1,390,276

 
Short-term investments as of December 31, 2017 consisted of the following available-for-sale debt securities and time deposits:
 
 
 
 
Gross 
 
Gross 
 
Fair Value
 
 
Amortized
 
Unrealized
 
Unrealized
 
(Net Carrying
 
 
Cost
 
Gains
 
Losses
 
Amount)
 
 
$
 
$
 
$
 
$
U.S. treasury securities
 
561,733

 
—

 
406

 
561,327

U.S. agency securities
 
17,651

 
12

 
—

 
17,663

Time deposits
 
18,924

 
—

 
—

 
18,924

Total
 
598,308

 
12

 
406

 
597,914

 
Contractual maturities of all debt securities as of September 30, 2018 were within one year. The Company does not consider the investment in U.S. treasury securities or U.S. agency securities to be other-than-temporarily impaired at September 30, 2018.
 
6. Inventories
The Company’s inventory balance of $19,699 and $10,930 as of September 30, 2018 and December 31, 2017, consisted entirely of finished goods product purchased from Celgene for distribution in the PRC.


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7. Property and Equipment
Property and equipment consisted of the following:
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Laboratory equipment
 
18,124

 
15,596

Leasehold improvements
 
17,084

 
15,298

Manufacturing equipment
 
15,428

 
15,737

Office equipment
 
2,054

 
1,597

Electronic equipment
 
1,274

 
1,244

Computer software
 
1,313

 
598

Construction in progress
 
74,777

 
26,125

Property and equipment, at cost
 
130,054

 
76,195

Less accumulated depreciation
 
(18,792
)
 
(13,627
)
Property and equipment, net
 
111,262

 
62,568

 
As of September 30, 2018 and December 31, 2017, construction in progress of $74,777 and $26,125 primarily related to the buildout of the Guangzhou manufacturing facility. Depreciation expense for the three and nine months ended September 30, 2018 was $2,207 and $6,290, respectively. Depreciation expense for the three and nine months ended September 30, 2017 was $1,237 and $2,641, respectively.
 
8. Manufacturing Facility in Guangzhou
 
On March 7, 2017, BeiGene (Hong Kong) Co., Ltd. ("BeiGene HK") and Guangzhou GET Technology Development Co., Ltd. (“GET”), entered into a definitive agreement to establish a commercial scale biologics manufacturing facility in Guangzhou, Guangdong Province, PRC. BeiGene HK and GET entered into an Equity Joint Venture Contract (the “JV Agreement”). Under the terms of the JV Agreement, BeiGene HK agreed to make an initial cash capital contribution of RMB200,000 and a subsequent contribution of certain rights to one or more biologics assets in exchange for a 95% equity interest in BeiGene Biologics. GET agreed to provide a cash capital contribution of RMB100,000 to BeiGene Biologics, representing a 5% equity interest in BeiGene Biologics. In addition, BeiGene Biologics entered into a contract with GET, under which GET agreed to provide a RMB900,000 loan (the “Shareholder Loan”) to BeiGene Biologics (see Note 14). BeiGene Biologics is working to establish a biologics manufacturing facility in Guangzhou, through a wholly-owned subsidiary, the BeiGene Guangzhou Factory, to manufacture biologics for the Company and its subsidiaries.
 
On April 11, 2017, BeiGene HK, GET and BeiGene Biologics amended the JV agreement and the capital contribution agreement, among other things, to adjust the capital contribution schedules and adjust the initial term of the governing bodies and a certain management position. On April 13, 2017 and May 4, 2017, BeiGene HK made cash capital contributions of RMB137,830 and RMB2,415, respectively, into BeiGene Biologics. The remainder of the cash capital contribution from BeiGene HK to BeiGene Biologics will be paid by April 10, 2020. On April 14, 2017, GET made cash capital contributions of RMB100,000 into BeiGene Biologics. On April 14, 2017, BeiGene Biologics drew down the Shareholder Loan of RMB900,000 from GET (as further described in Note 14).
 
In the fourth quarter of 2017, BeiGene HK and BeiGene Biologics entered into an Equity Transfer Agreement to transfer 100% of the equity interest of BeiGene Shanghai into BeiGene Biologics. The transfer consideration for the purchased interests under this Equity Transfer Agreement is the fair value of the 100% equity of BeiGene Shanghai appraised by a qualified Chinese valuation firm under the laws of PRC. Upon the transfer of equity in BeiGene Shanghai, BeiGene HK’s equity interest in BeiGene Shanghai became 95%.
On April 4, 2018, BeiGene Guangzhou Factory entered into a nine-year loan agreement with China Construction Bank to borrow a RMB denominated loan of $84,450 (RMB580,000) at a floating interest rate benchmarking RMB loans interest rate of financial institutions in PRC. As of September 30, 2018, the Company has drawn down the loan of $40,770, as further described in Note 13.
 

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As of September 30, 2018, the Company and GET held 95% and 5% equity interests in BeiGene Biologics, respectively. As of September 30, 2018, the Company's cash, cash equivalents and restricted cash included $143,159 held by BeiGene Biologics to be used to build the commercial scale biologics facility and to fund research and development of the Company's biologics drug candidates in China.
 
9. Land Use Right
 
The land use right represents the land acquired for the purpose of constructing and operating the biologics manufacturing facility in Guangzhou. In 2017, the Company acquired the land use right from the local Bureau of Land and Resources in Guangzhou. The land use right is amortized over the total term of the right, which is 50 years. The land use right asset as of September 30, 2018 and December 31, 2017 is summarized as follows:
 
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Land use right, cost
 
11,969

 
12,633

Accumulated amortization
 
(340
)
 
(168
)
Land use right, net
 
11,629

 
12,465

 
Amortization expense of the land use right for the three and nine months ended September 30, 2018 was $50 and $172, respectively. Amortization expense of the land use right for the three and nine months ended September 30, 2017 was $103 and $103, respectively.
As of September 30, 2018, expected amortization expense for the land use right was approximately $60 for the remainder of 2018, $239 in 2019, $239 in 2020, $239 in 2021, $239 in 2022 and $10,613 in 2023 and thereafter.
10. Intangible Assets
Intangible assets outstanding as of September 30, 2018 and December 31, 2017 are summarized as follows:
 
 
As of
 
 
September 30, 2018
 
December 31, 2017
 
 
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

 
(813
)
 
6,687

 
7,500

 
(250
)
 
7,250

  Trading license
 
612

 
—

 
612

 
—

 
—

 
—

Total finite-lived intangible assets
 
8,112

 
(813
)
 
7,299

 
7,500

 
(250
)
 
7,250

 
Product distribution rights consist of distribution rights in China for 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 trading license over the remainder of the license term through February 2020.
Amortization expense for the three and nine months ended September 30, 2018 was $188 and $563, respectively. Amortization expense for the three and nine months ended September 30, 2017 was $63 and $63, respectively.

As of September 30, 2018, expected amortization expense for the unamortized finite-lived intangible assets is approximately $296 for the remainder of 2018, $1,182 in 2019, $822 in 2020, $750 in 2021, $750 in 2022, and $3,499 in 2023 and thereafter.

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11. Income Taxes
The income tax benefit was $472 and $7,252, respectively, for the three and nine months ended September 30, 2018. The income tax benefit was $3,061 and $2,680, respectively, for the three and nine months ended September 30, 2017. The income tax benefit for the three and nine months ended September 30, 2018 was primarily attributable to the discrete tax benefit on employee share option exercises and generation of research and development tax credits and orphan drug credit for the U.S. operating subsidiary that offset tax on profit attributable to the U.S. and certain subsidiaries in China. The income tax benefit for the three and nine months ended September 30, 2017 was primarily attributable to the generation of research and development tax credits and the orphan drug credit in the United States.
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 September 30, 2018, 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. In addition, as of September 30, 2018, the Company maintained a valuation allowance for certain deferred tax assets in the U.S. primarily related to state tax credit carryforwards, due to the uncertainty regarding their realization.
As of September 30, 2018, the Company had gross unrecognized tax benefits of $1,904. 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 $352 and $985, respectively, for the three and nine months ended September 30, 2018 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 September 30, 2018 and December 31, 2017, 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, are required to file income tax returns in multiple jurisdictions globally. As of September 30, 2018, China tax matters are open to examination for the years 2013 through 2018 and U.S. federal tax matters are open to examination for years 2015 through 2018. Various U.S. states and other non-US tax jurisdictions in which the Company files tax returns remain open to examination for 2010 through 2018.
 
12. Supplemental Balance Sheet Information
Prepaid expenses and other current assets consist of the following:
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Prepaid research and development costs
 
42,932

 
21,156

Prepaid taxes
 
16,720

 
9,894

Interest receivable
 
2,791

 
1,557

Other
 
7,482

 
3,016

Total
 
69,925

 
35,623



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Other non-current assets consist of the following:
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Prepayment of property and equipment
 
11,003

 
12,867

Prepayment of assets acquisition
 
7,946

 
—

Tax on intra-entity contribution of subsidiary
 
—

 
28,588

Prepaid VAT
 
7,955

 
—

Rental deposits and other
 
2,004

 
1,460

Total
 
28,908

 
42,915

 
Accrued expenses and other payables consist of the following:
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Compensation related
 
20,899

 
17,051

External research and development activities related
 
33,739

 
18,721

Sales rebates and returns related
 
4,076

 
3,997

Professional fees and other
 
17,168

 
9,829

Total
 
75,882

 
49,598

 
Other long-term liabilities consist of the following:
 
 
 
As of
 
 
September 30,
 
December 31, 
 
 
2018
 
2017
 
 
$
 
$
Deferred government grant income
 
34,252

 
31,804

Other
 
627

 
155

Total
 
34,879

 
31,959

 
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 $17,472 (RMB 120,000) at a 7% fixed annual interest rate. The loan is secured by BeiGene (Suzhou)’s equipment with a net carrying amount of $18,186 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. The remaining loan principal amount outstanding as of September 30, 2018 of $8,736 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 $84,450 (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 September 30, 2018, the Company has drawn down $40,770 of this loan. The loan interest rate was 4.9% for the nine months ended September 30, 2018, and the maturity dates range from 2021 to 2027.
 
As of September 30, 2018, the Company has unused long-term credit availability amounting to $43,680, 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 and nine months ended September 30, 2018 was $830 and $1,582, respectively, among which, $156 and $156 was capitalized, respectively.


18
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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 interest at a fixed rate of 8% per annum and compounding interest shall not apply. No accrued interest is due and 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.
 
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.
 
The Shareholder Loan may be repaid or converted, either partially or in full, to 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.
 
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 and nine months ended September 30, 2018, total interest expense generated from the Shareholder Loan was $2,661 and $8,270, respectively, among which, $768 and $2,336 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 and nine months ended September 30, 2018 and 2017.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Product revenue – gross
 
41,838

 
10,521

 
96,993

 
10,521

Less: Rebates and sales returns
 
(3,391
)
 
(1,699
)
 
(3,870
)
 
(1,699
)
Product revenue – net
 
38,447

 
8,822

 
93,123

 
8,822

 

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The following table presents the rollforward of accrued sales rebates and returns for the nine months ended September 30, 2018:
 
 
 
Sales Rebates
and Returns
 
 
$
Balance as of December 31, 2017
 
3,997

Accrual
 
3,870

Payments
 
(3,791
)
Balance as of September 30, 2018
 
4,076

 
16. Net (Loss) Income Per Share
Net (loss) income per share was calculated as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Basic net (loss) income per share
 
 
 
 
 
 
 
 
Numerator:
 
 

 
 

 
 

 
 

Net (loss) income attributable to BeiGene, Ltd.
 
(144,031)
 
117,386
 
(405,514)
 
6,218
Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
739,789,269

 
547,546,656

 
703,482,491

 
527,329,985

Basic net (loss) income per share
 
(0.19
)
 
0.21

 
(0.58
)
 
0.01

Diluted net (loss) income per share
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
Net (loss) income attributable to BeiGene, Ltd.
 
(144,031
)
 
117,386

 
(405,514
)
 
6,218

Denominator:
 
 
 
 
 
 
 
 
Number of shares used in basic computation
 
739,789,269

 
547,546,656

 
703,482,491

 
527,329,985

Weighted average effect of dilutive shares:
 
 
 
 
 
 
 
 
   Employee share options and restricted share units
 
—

 
51,838,863

 
—

 
32,802,202

   Non-employee share options
 
—

 
1,227,161

 
—

 
1,105,631

      Number of shares used in per share computation
 
739,789,269

 
600,612,680

 
703,482,491

 
561,237,818

Diluted net (loss) income per share
 
(0.19
)
 
0.20

 
(0.58
)
 
0.01

 
The effects of all share options, restricted shares and restricted share units were excluded from the calculation of diluted earnings per share, as their effect would have been anti-dilutive during the three and nine months ended September 30, 2018.

For the three and nine months ended September 30, 2017, the basic net income per share was computed using the weighted-average number of ordinary shares outstanding during the period. Diluted net income per share was computed using the weighted-average number of ordinary shares and the effect of potentially dilutive shares outstanding during the periods. Potentially dilutive shares consist of share options and restricted share units. The dilutive effect of outstanding share options and restricted share units is reflected in diluted net income per share by application of the treasury stock method.
 
17. Share-Based Compensation Expense
2016 Share Option and Incentive Plan
On January 14, 2016, in connection with the Company's IPO on the NASDAQ Global Select Market, 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 September 30, 2018, ordinary shares cancelled or forfeited

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under the 2011 Plan that were provided back 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 and continuing until the expiration of the 2016 Plan, equal to the lesser of (i) five percent (5%) of the outstanding shares of the Company’s 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. On January 1, 2018, 29,603,616 ordinary shares were added to the 2016 Plan under this provision. 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 2016 Plan to remove this “evergreen” provision and implement other changes required by the HKEx rules. 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 nine months ended September 30, 2018, the Company granted options for 8,793,135 ordinary shares and restricted share units for 9,941,126 ordinary shares under the 2016 Plan. As of September 30, 2018, options and restricted share units for ordinary shares outstanding under the 2016 Plan totaled 84,826,614 and 10,561,239, 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 nine months ended September 30, 2018, the Company granted options for 79,404 ordinary shares and restricted share units for 1,888,055 ordinary shares under the 2018 Plan. As of September 30, 2018, options and restricted share units for ordinary shares outstanding under the 2018 Plan totaled 79,404 and 1,866,462, respectively.
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 listing of the Company’s ordinary shares on the HKEx, 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. 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 ordinary shares or 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.
The first offering under the ESPP began on September 1, 2018 and will end on February 28, 2019. As of September 30, 2018, no shares have been issued under the ESPP.
The following table summarizes total share-based compensation expense recognized for the three and nine months ended September 30, 2018 and 2017:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
Research and development
 
15,523

 
10,382

 
38,297

 
19,660

Selling, general and administrative
 
9,609

 
2,945

 
22,872

 
6,741

Total
 
25,132

 
13,327

 
61,169

 
26,401



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18. Accumulated Other Comprehensive Income (Loss)
The movement of accumulated other comprehensive income (loss) was as follows:
 
 
 
 
Unrealized
 
 
 
 
Foreign Currency
 
Losses on
 
 
 
 
Translation
 
Available-for-Sale
 
 
 
 
Adjustments
 
Securities
 
Total
 
 
$
 
$ 
 
$ 
Balance as of December 31, 2017
 
(85
)
 
(395
)
 
(480
)
Adjustment to opening balance of accumulated other comprehensive income
 
263

 
—

 
263

Balance as of January 1, 2018
 
178

 
(395
)
 
(217
)
Other comprehensive income before reclassifications
 
(1,909
)
 
2,224

 
315

Amounts reclassified from accumulated other comprehensive income
 
—

 
(822
)
 
(822
)
Net-current period other comprehensive income
 
(1,909
)
 
1,402

 
(507
)
Balance as of September 30, 2018
 
(1,731
)
 
1,007

 
(724
)
 
19. Noncontrolling Interest
As of September 30, 2018, the Company recognized a noncontrolling interest of $12,985 in the condensed consolidated balance sheet, representing the capital cash contribution by GET in BeiGene Biologics as of September 30, 2018, offset by comprehensive losses attributable to GET’s noncontrolling interest in BeiGene Biologics.
For the three and nine months ended September 30, 2018, net losses of $461 and $1,809 attributable to the noncontrolling interest of BeiGene Biologics were recognized in the Company’s condensed consolidated statements of operations, based on GET’s 5% equity interest in BeiGene Biologics.
Reconciliation for the equity attributable to noncontrolling interests for the nine months ended September 30, 2018 is as follows:
 
    
BeiGene, Ltd.
    
Noncontrolling
    
 
 
 
 Shareholders’ Equity
 
Interest
 
Total Equity
 
 
$
 
$
 
$
Balance as of January 1, 2018
 
669,809

 
14,422

 
684,231

Net loss
 
(405,514
)
 
(1,809
)
 
(407,323
)
Issuance of ordinary shares in follow-on offering, net of transaction costs
 
757,587

 
—

 
757,587

Issuance of ordinary shares in connection with HK IPO and global follow-on public offering, net of transaction costs
 
869,709

 
—

 
869,709

Share-based compensation
 
61,169

 
—

 
61,169

Exercise of options
 
20,859

 
—

 
20,859

Adjustment to opening balance of equity
 
(2,666
)
 
375

 
(2,291
)
Other comprehensive income, net of tax of nil:
 
 
 
 
 
 
  Foreign currency translation adjustments
 
(1,909
)
 
(3
)
 
(1,912
)
  Unrealized holding gain, net
 
1,402

 
—

 
1,402

Other comprehensive income, net of tax of nil
 
(507
)
 
(3
)
 
(510
)
Balance as of September 30, 2018
 
1,970,446

 
12,985

 
1,983,431



22
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20. 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.
On August 16, 2017, the Company completed a follow-on public offering at a price of $71.00 per ADS, or $5.46 per ordinary share. In this offering, the Company sold 2,465,000 ADSs representing 32,045,000 ordinary shares. Additionally, the underwriters exercised their option to purchase an additional 369,750 ADSs representing 4,806,750 ordinary shares from the Company. Net proceeds from this offering, including the underwriter option, after deducting the underwriting discounts and offering expenses were $188,517.
Share Subscription Agreement
On August 31, 2017, the Company sold 32,746,416 of its ordinary shares to Celgene Switzerland for an aggregate cash price of $150,000, or $4.58 per ordinary share, or $59.55 per ADS, pursuant to the Share Subscription Agreement in connection with the entry into the A&R PD-1 License Agreement. Proceeds from the issuance are recorded net of $72 of fees related to the share issuance. The offer and sale of the shares issued pursuant to the Share Subscription Agreement was made in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, for transactions by an issuer not involving a public offering, and/or Regulation D under the Securities Act.
 
21. Restricted Net Assets
As a result of PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. As of September 30, 2018 and December 31, 2017, amounts restricted were the net assets of the Company’s PRC subsidiaries, which amounted to $43,912 and $29,920, respectively.
 
22. Commitments and Contingencies
Operating lease commitments
The Company leases office and manufacturing facilities under non-cancelable operating leases expiring on different dates in the United States, Switzerland and China. Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. There are no restrictions placed upon the Company by entering into these leases. Total expenses under these operating leases were $2,990 and $6,860 for the three and nine months ended September 30, 2018, respectively. Total expenses under these operating leases were $1,065 and $2,486 for the three and nine months ended September 30, 2017, respectively.
Future minimum payments under non-cancelable operating leases consist of the following as of September 30, 2018:
 
 
$
Three months ending December 31, 2018
 
2,420

Year ending December 31, 2019
 
9,818

Year ending December 31, 2020
 
8,622

Year ending December 31, 2021
 
6,462

Year ending December 31, 2022
 
3,632

Year ending December 31, 2023 and thereafter
 
1,357

Total
 
32,311


23
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Capital commitments
The Company had capital commitments amounting to $55,983 for the acquisition of property, plant and equipment as of September 30, 2018, which were mainly for BeiGene Guangzhou Factory’s manufacturing facility in Guangzhou, China. 
23. Segment and geographic information
The Company operates in one segment. Its chief operating decision maker is the Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis.
 
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 from which the related income is expected to be sourced. Total net revenues by geographic areas are presented as follows:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
$
 
$
 
$
 
$
PRC
 
38,447

 
8,822

 
94,623

 
8,822

United States
 
10,241

 
137,404

 
29,203

 
137,404

Other
 
5,514

 
73,987

 
15,724

 
73,987

Total
 
54,202

 
220,213

 
139,550

 
220,213

 
24. Subsequent Event
On October 4, 2018, BeiGene HK completed the acquisition of 100% of the equity interest of Beijing Innerway Bio-tech Co., Ltd., the owner of the Company's leased research, development and office facility in Changping, Beijing, China, for total cash consideration of $38,785. The Company paid $7,735 of the total purchase price on September 6, 2018. The amount of the prepayment was recorded as a noncurrent asset as of September 30, 2018. The remainder of the purchase price was held in escrow and recorded as restricted cash as of September 30, 2018.


24
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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 biopharmaceutical company focused on developing and commercializing innovative molecularly targeted and immuno-oncology drugs for the treatment of cancer. We have three internally-developed late-stage clinical drug candidates: (1) zanubrutinib (BGB-3111), an 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 PD-1, and (3) pamiparib (BGB-290), an investigational small molecule inhibitor of PARP1 and PARP2. All three of these drug candidates are currently in Phase 2 or 3 pivotal trials globally and in China. We have filed two new drug applications ("NDA") in China for zanubrutinib and one NDA in China for tislelizumab.
In addition, we have three internally-developed drug candidates in or entering early clinical development: lifirafenib (BGB- 283), an investigational RAF dimer protein complex inhibitor; BGB-A333, an investigational humanized monoclonal antibody against the immune checkpoint receptor ligand PD-L1; and BGB-A425, an investigational humanized monoclonal antibody against T-cell immunoglobulin and mucin-domain containing-3, or TIM-3. We have also initiated a Phase 1 clinical trial in China and Australia of tislelizumab in combination with sitravatinib, an investigational tyrosine kinase inhibitor of receptor tyrosine kinases (RTKs), including TAM family receptors (TYRO3, Axl, MER), split family receptors (VEGFR2, KIT) and RET, licensed from Mirati Therapeutics in Asia (excluding Japan), Australia, and New Zealand.

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In August 2017, we entered into a strategic collaboration with Celgene Corporation, or Celgene, in which we granted Celgene exclusive rights to develop and commercialize tislelizumab for solid tumors in the United States, Europe, Japan, and the rest of the world outside of Asia. We retained rights to tislelizumab for solid tumors in Asia (ex-Japan) and for hematological malignancies and internal combinations globally. In connection with the Celgene collaboration, we obtained an exclusive license to market Celgene’s approved cancer therapies ABRAXANE®, REVLIMID®, and VIDAZA® in China, excluding Hong Kong, Macau and Taiwan, which has allowed us to generate product revenue in China since September 2017. We also obtained Celgene’s commercial operations and personnel in China, which we have expanded in support of commercialization of these drugs in China and in preparation for the potential launch of zanubrutinib and tislelizumab in China.
We initially started as a research and development organization in Beijing in 2010, and have since become a fully-integrated global biopharmaceutical company with operations in China in Beijing, Guangzhou, Shanghai and Suzhou, operations in the United States in Cambridge, MA; Ridgefield Park, NJ; and Emeryville and San Mateo, CA, and operations in Basel, Switzerland. In addition, we have a facility in Suzhou for the commercial-scale manufacturing of small molecule drugs and pilot-scale manufacturing of biologics, and another facility under construction in Guangzhou for the commercial-scale manufacturing of biologics.
Recent Developments
On August 9, 2018, we announced that the first patient was dosed in a Phase 3 clinical trial of tislelizumab combined with chemotherapy as a potential first-line treatment in China for patients with Stage IIIB or IV squamous non-small cell lung cancer (NSCLC).
On August 26, 2018, we announced the acceptance by the National Medical Products Administration of China (the "NMPA"), formerly known as the China Food and Drug Administration or China Drug Administration, of an NDA for zanubrutinib, for the treatment of patients with relapsed/refractory mantle cell lymphoma.
On August 31, 2018, we announced the acceptance by the NMPA of an NDA for tislelizumab for the treatment of patients with relapsed/refractory classical Hodgkin's lymphoma.
On September 6, 2018, we announced that we entered into a global clinical collaboration agreement with SpringWorks Therapeutics to evaluate the safety, tolerability and preliminary efficacy of combining lifirafenib (BGB-283) and SpringWorks' investigational MEK inhibitor, PD-0325901, in patients with advanced solid tumors.
On October 10, 2018, we announced that China’s State Medical Insurance Administration (SMIA) included VIDAZA® (azacitidine for injection) on its national reimbursement drug list (NRDL).
On October 11, 2018, we announced that we entered into a global clinical collaboration agreement with MEI Pharma to evaluate the safety, tolerability and preliminary efficacy of combining zanubrutinib and MEI Pharma's investigational PI3K delta inhibitor, ME-401, in patients with B-cell malignancies.
On October 24, 2018, we announced the acceptance by the NMPA of an NDA for zanubrutinib for the treatment of patients with relapsed/refractory chronic lymphocytic leukemia or small lymphocytic lymphoma.
On November 7, 2018, we announced that the first patient was dosed in a global Phase 3 clinical trial of its investigational BTK inhibitor zanubrutinib compared with ibrutinib in patients with relapsed/refractory chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL).

On November 7, 2018. we announced financial results for the third quarter and first nine months of 2018 and recent business highlights. We are engaged in a series of continuing discussions with national regulatory authorities regarding NDAs for zanubrutinib in Waldenström's macroglobulinemia (WM) and other indications. We had previously announced a plan, based on discussions with the U.S. Food and Drug Administration (FDA), to file for accelerated approval in WM in the first half of 2019. Based on recent discussions with the FDA regarding our filing plans, we are revising guidance around the timing of our first NDA filing for zanubrutinib in the United States. We now expect to submit an initial NDA for zanubrutinib in the United States in 2019 or early 2020.

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Components of Operating Results
Revenue
To date, our revenue has consisted of product sales revenue since September 2017, upfront license fees, reimbursed research and development expenses, research and development service revenue and milestone payments from our strategic collaboration with Celgene for tislelizumab entered in 2017 and our collaboration agreements with Merck KGaA, Darmstadt Germany for pamiparib and lifirafenib entered in 2013. 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 persuasive evidence of an arrangement exists, delivery has occurred and title of the product and associated risk of loss has transferred to the customer, the price is fixed or determinable, collection from the customer has been reasonably assured, and returns and allowances can be reasonably estimated. Product sales are recorded net of estimated rebates, estimated product returns and other deductions. 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. Despite increased competition from generic products, we expect revenue from product sales to increase in 2018 compared to 2017 levels as we expand our efforts to promote and obtain reimbursement for ABRAXANE®, REVLIMID® and VIDAZA® in China.
We also record revenue from our collaboration and license agreements with Celgene and Merck KGaA, Darmstadt Germany. Under each agreement, we have received upfront payments 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 periods of the collaboration arrangement. In the case of the Celgene arrangement, we also receive research and development reimbursement revenue for the clinical trials that Celgene opts into. See Note 3 to our consolidated financial statements included in this Quarterly Report for a description of these agreements.
Expenses
Cost of Revenue
Cost of revenue includes the acquisition costs of our commercial products.
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; 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 six internally-developed drug candidates mentioned above:
•
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, an investigational 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.

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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;
•
establishing manufacturing capabilities or making arrangements with third-party manufacturers to ensure sufficient supply for the clinical development of our drug candidates and commercialization of our drugs;
•
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 could significantly change the costs, timing and viability associated with the development of that drug candidate.
Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our development programs progress, 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. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements. 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.

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Interest Expense
Interest expense consists primarily of interest on our long-term bank loan and shareholder loan.
Other Income (Expense), Net
Other income consists primarily of government grants and subsidies received that involve no conditions or continuing performance obligations by us. Other expense consists primarily of loss from property and equipment disposals and donations made to sponsor certain events. Other income (expense) also consists of unrealized gains and losses related to changes in foreign currency exchange rates and realized gains and losses on the sale of investments.

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Results of Operations
The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017:
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
 
2018
 
2017
 
$
 
%
 
2018
 
2017
 
$
 
%
 
 
(dollars in thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product revenue, net
 
$
38,447

 
$
8,822

 
$
29,625

 
336
 %
 
$
93,123

 
$
8,822

 
$
84,301