# Zai Lab Ltd: Form 10-Q for the period ended Sep 30, 2023

- Company: [Zai Lab Ltd](/companies/zlab.md) (CIK 1704292)
- Form: 10-Q
- Filed: 2023-11-07
- Accepted by EDGAR: Nov 7, 2023, 21:13 ET
- Period: 2023-09-30
- Accession: 0001628280-23-037358
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1704292/000162828023037358/zlab-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1704292/000162828023037358/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $69.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $200.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $25.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $70.6m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $58.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $183.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $68.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $199.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$83.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$242.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$69.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$239.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.25 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 968,767,730 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 965,060,570 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$183.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $7.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $788.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $959.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.04bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $124.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $162.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $881.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,467 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 2022 Annual Report and our unaudited condensed consolidated financial statements and the accompanying notes for the three and nine months ended September 30, 2023 included in Item 1. Financial Statements.

### Overview

We are a patient-focused, innovative, commercial-stage, global biopharmaceutical company with a substantial presence in both Greater China and the United States. We are focused on discovering, developing, and commercializing products that address medical conditions with significant unmet needs in the areas of oncology, autoimmune disorders, infectious disease, and neuroscience. We intend to leverage our competencies and resources to positively impact human health in Greater China and worldwide. We currently have five products – ZEJULA®, Optune®, QINLOCK®, NUZYRA®, and VYVGART® – that have received marketing approval and that we have commercially launched in one or more territories in Greater China (our “commercial products”). We also have several programs in late-stage product development and a number of ongoing pivotal trials across our portfolio.

Since our inception, we have incurred net losses and negative cash flows from our operations. Substantially all of our losses have resulted from funding our research and development programs and selling, general and administrative costs associated with our operations. Developing high quality product candidates requires significant investment in our research and development activities over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. Our ability to generate profits and positive cash flow from operations over the next several years depends upon our ability to successfully market our commercial products and to successfully expand the indications for these products and develop and commercialize our other product candidates. We expect to continue to incur substantial expenses related to our research and development activities. For example, our licensing and collaboration agreements may require us to make upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory, and sales-based milestones as well as certain royalties at tiered percentage rates based on annual net sales of the licensed products in the licensed territories. In addition, we expect to incur substantial costs related to the commercialization of our product candidates, in particular during the early launch phase.

As we pursue our strategy of growth and development, we anticipate that our financial results will fluctuate from quarter to quarter and year to year depending in part on the balance between the success of our commercial products and the level of our research and development expenses. We cannot predict whether or when products in our pipeline, including new indications for our current commercial products, will receive regulatory approval. Further, if we receive such regulatory approval, we cannot predict whether or when we may be able to successfully commercialize such product or whether or when such product may become profitable.

### Recent Developments

#### Commercial Products

- **VYVGART** (efgartigimod, FcRn): In September 2023, we launched VYVGART (efgartigimod alfa injection) as an add-on to standard therapy for the treatment of adult patients with generalized myasthenia gravis (“gMG”) who are anti-acetylcholine receptor (“AChR”) antibody positive, increasing our number of commercial products to five. We are in the negotiation process for VYVGART’s inclusion on the National Reimbursement Drug List (“NRDL”) to help support increased patient access for this therapy.
- **ZEJULA** (niraparib, PARP): In September 2023, we conducted the final overall survival (“OS”) analysis for the Phase III NORA study in Chinese patients with platinum-sensitive recurrent ovarian cancer, which supports the NMPA’s full approval of ZEJULA for patients with recurrent ovarian cancer in China. The final OS results showed that niraparib maintenance treatment in the recurrent setting provides a favorable trend in OS irrespective of gBRCA mutation status compared with placebo.

#### Product Candidates

We continued to advance our product candidates through our research and development and commercial operations, including the following developments with respect to our clinical trials and regulatory approvals:

#### Oncology

- **ZEJULA** (niraparib, PARP): In July 2023, we announced the publication in JAMA Oncology of data from the pivotal Phase III PRIME study evaluating ZEJULA as a first-line maintenance therapy in Chinese patients with newly diagnosed advanced ovarian cancer and demonstrating that an individual starting dose (“ISD”) of 200 or 300mg based on baseline bodyweight and platelet count can bring significant benefit to patients with an improved safety and tolerability profile of ZEJULA compared to a fixed 300mg starting dose. The data demonstrated that maintenance treatment with ZEJULA can significantly extend progression-free survival (“PFS”) versus a placebo and can reduce the risk of disease progression or death by 55% among patients with newly diagnosed advanced ovarian cancer, regardless of postoperative residual disease or biomarker status. For example, with a median follow-up of 27.5 months, median PFS (“mPFS”) with ZEJULA versus placebo in the intention-to-treat (“ITT”) population was 24.8 versus 8.3 months (hazard ratio (“HR”), 0.45; 95% confidence internal (“CI”), 0.34–0.60; p\<.001). At the time of data cut-off, OS data were not yet mature in the ITT population. Utilization of an individual starting dose demonstrated a tolerable safety profile in the maintenance setting. Grade ≥3 treatment-emergent adverse events (“TEAEs”) and serious adverse events (“SAEs”) were reported in 54.5% versus 17.8% and 18.8% vs 8.5% in ZEJULA-treated and placebo-treated patient, respectively. Similar proportions of ZEJULA-treated and placebo-treated patients (6.7% vs 5.4%) discontinued therapy due to TEAEs. The findings are consistent with prior studies that indicate that ZEJULA monotherapy as first-line maintenance treatment can provide statistically and clinically meaningful benefit in a broad population of patients, regardless of postoperative residual disease or biomarker status.
- **Tumor Treating Fields (TTFields or Optune):**
- *Pancreatic Cancer:* In July 2023, NovoCure Limited (“NovoCure”) announced the results of a pre-specified interim analysis for the Phase III PANOVA-3 clinical trial evaluating the safety and efficacy of TTFields therapy together with nab-paclitaxel and gemcitabine for the treatment of patients with unresectable, locally advanced pancreatic cancer. An independent data monitoring committee (“DMC”) reviewed the safety and efficacy data for all patients in the fully enrolled clinical trial. The interim analysis resulted in a DMC recommendation that the clinical trial proceed to final analysis. Zai Lab participated in the Greater China portion of the study.
- *Ovarian Cancer:* In August 2023, NovoCure announced that the Phase III INNOVATE-3 clinical trial of TTFields together with paclitaxel in patients with platinum-resistant ovarian cancer did not meet its primary endpoint of OS at the final analysis. We did not participate in this study.
- **KRAZATI® (Adagrasib, KRASG12C):**
- *First-Line Non-Small Cell Lung Cancer (“NSCLC”)*: In October 2023, our partner Mirati Therapeutics, Inc. (“Mirati”) announced updated results from the KRYSTAL-7 Phase II study evaluating adagrasib combined with pembrolizumab in first-line KRASG12C-mutated NSCLC at the European Society of Medical Oncology Congress (“ESMO”) 2023. The results demonstrate a manageable safety profile and early signs of durability of adagrasib in combination with a checkpoint inhibitor in the first-line NSCLC setting. We are participating in the study in Greater China.
- *Second-line+ NSCLC*: In September 2023, Mirati presented two-year follow-up data from a pooled analysis of the Phase I/Ib Cohort and Phase 2 Cohort A for the KRYSTAL-1 study in previously treated patients with KRASG12C-mutated NSCLC at the 2023 World Conference on Lung Cancer (“WCLC”). In the pooled analysis, adagrasib demonstrated durable efficacy and a manageable long-term safety profile. We are participating in the ongoing confirmatory Phase III KRYSTAL-12 study in previously treated patients with KRASG12C-mutated NSCLC in Greater China.
- **Repotrectinib (ROS1/TRK):**
- *NTRK-Positive Solid Tumors:* In August 2023, the Center for Drug Evaluation (“CDE”) of the China National Medical Products Administration (“NMPA”) granted Breakthrough Therapy Designation (“BTD”) for repotrectinib, a next generation tyrosine kinase inhibitor (“TKI”), for the treatment of patients with advanced solid tumors that have a neurotrophic tropomyosin-receptor kinase (“NTRK”) gene fusion who have progressed following treatment with TRK TKIs. This BTD was supported by data from both global and Chinese patients enrolled in the Phase I/II TRIDENT-1 study.
- *ROS1-Positive NSCLC:* In August 2023, our partner Bristol Myers Squibb (“BMS”) announced updated results from the registrational TRIDENT-1 study, demonstrating that repotrectinib continued to demonstrate high response rates and durable responses, including robust intracranial responses in patients with ROS1-positive locally advanced or metastatic NSCLC. For example, median duration of response (“DOR”) and median progression-free survival (“PFS”) was disclosed for the first time in the pooled Phase I and Phase II population of patients with ROS1-positive NSCLC: In TKI-naïve patients (n=71) with median follow-up of 24.0 months, confirmed objective response rate by Blinded Independent Central Review was 79%, median DOR and PFS were 34.1 months and 35.7 months, respectively. Based on results from the TRIDENT-1 trial, the FDA accepted the New Drug Application (“NDA”) submitted by BMS for repotrectinib for the treatment of patients with ROS1-positive NSCLC and granted Priority Review, with a Prescription Drug User Fee Act (“PDUFA”) goal date of November 27, 2023. The NDA we submitted to the NMPA for repotrectinib for patients with ROS-1 positive NSCLC has been accepted with priority review.
- **TIVDAK® (Tisotumab Vedotin, Antibody Drug Conjugate (“ADC”)):** In October 2023, our partner Seagen Inc. (“Seagen”) and Genmab A/S presented results from the Phase III innovaTV 301 global trial in recurrent or metastatic cervical cancer patients with disease progression on or after front-line therapy who received TIVDAK, compared with chemotherapy alone, met its primary endpoint of OS. An Independent Data Monitoring Committee determined that OS crossed the pre-specified efficacy boundary at interim analysis. The key secondary endpoints of investigator-assessed progression-free survival and objective response rate also demonstrated statistical significance. The safety profile of TIVDAK in innovaTV 301 was consistent with the known safety profile of TIVDAK as presented in the U.S. prescribing information, and no new safety signals were observed. We are participating in the global trial and extension study in Greater China.
- **Bemarituzumab (FGFR2b):** In July 2023, we enrolled the first patient in China in the global Phase III FORTITUDE-101 study of bemarituzumab plus chemotherapy, versus placebo plus chemotherapy, in first-line gastric cancer with FGFR2b overexpression.
- **ZL-1211 (Claudin18.2):** Based on a review of the competitive landscape and market opportunity, we have decided to terminate internal development of this product.

#### Autoimmune Disorders, Infectious Disease, and Neuroscience

- **Efgartigimod (FcRn):** In September 2023, the CDE of the NMPA granted BTD for efgartigimod alfa injection (subcutaneous injection) (“efgartigimod SC”) for the treatment of patients with chronic inflammatory demyelinating polyneuropathy (“CIDP”). This BTD was supported by data from both global and Chinese patients enrolled in the ADHERE study. The ADHERE study met its primary endpoint (p=0.000039), demonstrating a significantly lower risk of relapse with efgartigimod SC compared to placebo. efgartigimod SC demonstrated a 61% reduction (HR: 0.39 95% CI: 0.25; 0.61) in the risk of relapse versus placebo, and 67% of patients in open-label Stage A demonstrated evidence of clinical improvement, indicating that IgG autoantibodies play a significant role in the underlying biology of CIDP. The safety and tolerability profile was consistent with previous clinical trials and the confirmed safety profile of VYVGART. We participated in the Greater China portion of the study.
- **KarXT (xanomeline-trospium, M1/M4 agonist):**
- *Schizophrenia:* In September 2023, our partner Karuna Therapeutics, Inc. (“Karuna”) announced that it had submitted an NDA to the FDA for the treatment of schizophrenia, supported by data from three positive registrational trials. We continue to enroll patients in our registrational bridging study in mainland China.
- *Alzheimer’s disease psychosis (ADP):* Karuna initiated the Phase III ADEPT-2 and ADEPT-3 trials in ADP in the third quarter of 2023. We plan to participate in these studies in Greater China next year.

#### Corporate Updates

We continued to strengthen our organizational structure to support the evolving needs of our business. For example:

- The Company promoted Dr. Yajing Chen to Chief Financial Officer, effective July 7, 2023. Dr. Chen previously served as our Senior Vice President and Deputy Chief Financial Officer, helping to oversee finance, planning and forecasting, accounting, tax, treasury, and procurement matters since joining the Company in September 2021. She is a seasoned finance executive with more than 20 years of experience in the life sciences industry as well as a Ph.D. trained scientist. She joined the Company from AstraZeneca where she held various roles of increasing responsibility from 2006 to 2021, including Chief Financial Officer for the U.S. Oncology Business Unit from 2019 to 2021 and Finance Controller of the Global Oncology Business Unit from 2016 to 2019. Her scientific background combined with her significant executive management experience, finance expertise at leading global companies, and business acumen provide a unique and valuable perspective to the Company and will help drive our next phase of growth. Dr. Chen succeeds Billy Cho, who stepped down from his role and left the Company on July 7, 2023.
- The Company appointed Dr. Robert Brown as Chief Medical Officer, Oncology in September 2023 to help accelerate the growth and development for our global oncology pipeline. Dr. Brown is an oncology drug development leader, with more than 16 years of translational, research, and clinical development expertise in the areas of oncology, immunology, and neurology. Dr. Brown reports to Dr. Rafael Amado, President, Head of Global Oncology Research and Development at Zai Lab, and provides strategic leadership and support with respect to the clinical development of our oncology pipeline.

#### Legal and Regulatory Developments

Our business has been and continues to be impacted by legal and regulatory developments in the jurisdictions in which we operate, particularly in mainland China where our operations and product markets are primarily located. In July 2023, the Ministry of Science and Technology of the People’s Republic of China published an updated Service Guide for the Examination and Approval of Sampling, Collecting, Trading, Exporting Human Genetic Resources, which will impact the Company’s practices in filing for an advance approval with the HGRAC. In addition, in July 2023, a revised Counter-Espionage Law intended to strengthen provisions on the protection of national security in mainland China went into effect, which may increase our cyber security or operational costs and could subject us to investigative or enforcement actions by the Chinese government or regulatory authorities. In September 2023, the CAC released a draft regulation, under which certain low-risk data export activities will be exempted from certain transfer requirements relating to the governmental security assessment, standard contract, and privacy protection certification. While this regulation has not been finalized and is not yet effective, and may not be finalized or adopted in its current form, as drafted it would reduce our compliance burden with respect to cross-border data transfers.

### Factors Affecting Our Results of Operations

### Research and Development Expenses

We believe our ability to successfully develop product candidates will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Developing high quality product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in research and development, including internal discovery activities. As a result of this commitment, our pipeline of product candidates has been advancing and expanding, with several product candidates in late-stage clinical development.

We have financed our activities primarily through private placements, our initial public offering in September 2017 and multiple follow-on offerings on Nasdaq, and our initial public offering in September 2020 and a follow-on offering in April 2021 on the Hong Kong Stock Exchange. Through September 30, 2023, we have raised approximately $164.6 million from private equity financing and approximately $2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us from our initial public offerings and follow-on offerings. Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $183.3 million and $258.4 million for the nine months ended September 30, 2023 and 2022, respectively. We expect our expenditures to increase in connection with our ongoing activities, particularly as we advance our late-stage clinical product candidates, research and develop our clinical- and pre-clinical-stage product candidates, and initiate additional clinical trials of, and seek regulatory approval for, these and other future product candidates. These expenditures include:

- expenses incurred for contract research organizations (“CROs”), contract manufacture organizations (“CMOs”), investigators, and clinical trial sites that conduct our clinical studies;
- employee compensation related expenses, including salaries, benefits, and equity compensation expenses;
- expenses for licensors;
- the cost of acquiring, developing, and manufacturing clinical study materials;
- facilities and other expenses, which include office leases and other overhead expenses;
- costs associated with pre-clinical activities and regulatory operations; and
- expenses associated with the construction and maintenance of our manufacturing facilities.

### Selling, General, and Administrative Expenses

Our selling, general, and administrative expenses consist primarily of personnel compensation and related costs, including share-based compensation for commercial and administrative personnel. Other selling, general, and administrative expenses include product distribution and promotion costs, professional service fees for legal, intellectual property, consulting, auditing, and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies used in selling, general, and administrative activities. We anticipate that our selling, general, and administrative expenses will increase in future periods to support increases in our commercial and research and development activities and as we continue to discover, develop, commercialize, and manufacture our products and product candidates. These increases will likely include expanded infrastructure as well as increased headcount, and share-based compensation, product distribution, promotion, and insurance costs.

### Our Ability to Commercialize Our Product Candidates

We have several product candidates in late-stage clinical development and various others in clinical and pre-clinical development in Greater China and the United States. Our ability to generate revenue from our product candidates is dependent on our receipt of regulatory approvals for and successful commercialization of such product candidates, which may not occur. Certain of our product candidates may require additional pre-clinical and/or clinical development, regulatory approvals in multiple jurisdictions, manufacturing supply, substantial investment, and significant marketing efforts before we generate any revenue from product sales.

### License and Collaboration Arrangements

Our results of operations have been, and we expect them to continue to be, affected by our license and collaboration agreements. We may be required to make upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory, and sales-based milestones for the relevant products under these agreements as well as certain royalties at tiered percentage rates based on annual net sales of the licensed products. We recorded research and development expense related to upfront license fees and development milestones of an insignificant amount and $19.3 million for the three and nine months ended September 30, 2023, respectively, and $39.8 million and $50.2 million for the three and nine months ended September 30, 2022. We may be obligated to pay up to an additional aggregate amount of approximately $1,337.5 million in development and regulatory milestone payments and $2,410.2 million in sales-based milestone payments that are contingent on product performance as well as certain royalties at tiered percentage rates on annual net sales. These milestones may not occur at all, or certain development and regulatory milestones may occur before the Company has commercialized or received any revenue from the licensed product. If these milestones do occur, we view related payments as positive because they signify that the product is advancing toward potential commercial launch or achieving higher sales levels.

### Results of Operations

The following table presents our results of operations ($ in thousands):

| Revenues: | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenue, net | 69,228 | 56,963 | 12,265 | 22% | 200,889 | 150,633 | 50,256 | 33% |
| Collaboration revenue | — | 577 | (577) | (100)% | — | 1,806 | (1,806) | (100)% |
| Total revenues | 69,228 | 57,540 | 11,688 | 20% | 200,889 | 152,439 | 48,450 | 32% |
| Expenses: |  |  |  |  |  |  |  |  |
| Cost of sales | (25,479) | (20,044) | (5,435) | 27% | (70,579) | (53,094) | (17,485) | 33% |
| Research and development | (58,767) | (99,524) | 40,757 | (41)% | (183,920) | (219,462) | 35,542 | (16)% |
| Selling, general, and administrative | (68,552) | (66,555) | (1,997) | 3% | (198,982) | (186,947) | (12,035) | 6% |
| Gain on sale of intellectual property | — | — | — | —% | 10,000 | — | 10,000 | NM |
| Loss from operations | (83,570) | (128,583) | 45,013 | (35)% | (242,592) | (307,064) | 64,472 | (21)% |
| Interest income | 9,172 | 3,872 | 5,300 | 137% | 29,493 | 5,235 | 24,258 | 463% |
| Foreign currency gain (loss) | 4,852 | (40,442) | 45,294 | (112)% | (26,315) | (73,052) | 46,737 | (64)% |
| Other income (expense), net | 394 | 3,963 | (3,569) | (90)% | 223 | (6,415) | 6,638 | (103)% |
| Loss before income tax and share of loss from equity method investment | (69,152) | (161,190) | 92,038 | (57)% | (239,191) | (381,296) | 142,105 | (37)% |
| Income tax expense | — | — | — | —% | — | — | — | —% |
| Share of loss from equity method investment | — | — | — | —% | — | (221) | 221 | (100)% |
| Net loss | (69,152) | (161,190) | 92,038 | (57)% | (239,191) | (381,517) | 142,326 | (37)% |
| Net loss attributable to ordinary shareholders | (69,152) | (161,190) | 92,038 | (57)% | (239,191) | (381,517) | 142,326 | (37)% |

#### NM - Not Meaningful

### Revenues

### Product Revenue

The following table presents the components of the Company’s product revenue ($ in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Product revenue - gross | 74,018 | 60,446 | 13,572 | 22% | 220,240 | 168,095 | 52,145 | 31% |
| Less: Rebates and sales return | (4,790) | (3,483) | (1,307) | 38% | (19,351) | (17,462) | (1,889) | 11% |
| Product revenue - net | 69,228 | 56,963 | 12,265 | 22% | 200,889 | 150,633 | 50,256 | 33% |

Our product revenue is primarily derived from the sales of ZEJULA, Optune, QINLOCK, NUZYRA, and VYVGART in mainland China and Hong Kong, net of sales returns and rebates to distributors in mainland China with respect to the sales of these products.

Our net product revenue increased by $12.3 million and $50.3 million in the three and nine months ended September 30, 2023, respectively, primarily driven by increased sales volumes, the launch of VYVGART, and decreased negative effects from the COVID-19 pandemic. Our revenue growth was slowed by the effects on hospital and physician practices from the recent industry-wide anti-corruption enforcement efforts in China. In terms of revenue growth by product, ZEJULA continued to be the leading PARP inhibitor in hospital sales for ovarian cancer in mainland China; increased sales for Optune were supported by increased patient access in the private-pay market, increased sales for QINLOCK and NUZYRA were supported by their inclusion in the NRDL in the first quarter of 2023, and we commercially launched VYVGART for gMG in mainland China in September 2023. The effects of the COVID-19 pandemic had an adverse impact on our sales volumes for the three and nine months ended September 30, 2022 and the first quarter in 2023, due to decreased patient access to our products, such as through reduced hospital access during periods of lockdown or high infection rates, fewer newly diagnosed oncology patients, and delayed or interrupted treatments. The COVID-19 pandemic did not have a material adverse effect on our sales volume in the second and third quarters of 2023.

For the nine months ended September 30, 2023 and 2022, our net product revenue included negative adjustments of $5.2 million and $5.3 million, respectively, as a result of sales rebates to compensate distributors for sales of certain products at prices prior to their price reductions in connection with their inclusion on the NRDL in China. Such sales rebates to distributors on previously purchased products are customary in our industry. The negative adjustments in the nine months ended September 30, 2023 related to such sales rebates for price reductions for QINLOCK and NUZYRA in connection with their addition to the NRDL in the first quarter of 2023. The negative adjustments in the nine months ended September 30, 2022 related to such sales rebates for price reductions for ZEJULA due to its inclusion in the NRDL for certain therapies in December 2021 and for price reductions for QINLOCK and NUZYRA in the second quarter of 2022 in connection with NRDL pricing negotiations. Such negative adjustments were nil and insignificant during the three months ended September 30, 2023 and 2022, respectively.

The following table presents net revenue by product ($ in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| ZEJULA | 41,593 | 39,214 | 2,379 | 6% | 127,230 | 102,863 | 24,367 | 24% |
| Optune | 11,562 | 10,662 | 900 | 8% | 38,596 | 35,051 | 3,545 | 10% |
| QINLOCK | 5,702 | 5,541 | 161 | 3% | 14,535 | 9,123 | 5,412 | 59% |
| NUZYRA | 5,483 | 1,546 | 3,937 | 255% | 15,588 | 3,596 | 11,992 | 333% |
| VYVGART | 4,888 | — | 4,888 | NM | 4,940 | — | 4,940 | NM |
| Total product revenue, net | 69,228 | 56,963 | 12,265 | 22% | 200,889 | 150,633 | 50,256 | 33% |

#### NM - Not Meaningful

### Cost of Sales

Cost of sales increased by $5.4 million and $17.5 million in the three and nine months ended September 30, 2023, respectively. These increases were primarily due to increasing sales volumes.

### Research and Development Expenses

The following table presents the components of our research and development expenses ($ in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Personnel compensation and related costs | 27,933 | 28,478 | (545) | (2)% | 85,967 | 80,325 | 5,642 | 7% |
| Licensing fees | 9 | 39,769 | (39,760) | (100)% | 19,291 | 50,205 | (30,914) | (62)% |
| CROs/CMOs/Investigators expenses | 23,136 | 23,407 | (271) | (1)% | 59,201 | 70,325 | (11,124) | (16)% |
| Other costs | 7,689 | 7,870 | (181) | (2)% | 19,461 | 18,607 | 854 | 5% |
| **Total** | 58,767 | 99,524 | (40,757) | (41)% | 183,920 | 219,462 | (35,542) | (16)% |

Research and development expenses decreased by $40.8 million in the three months ended September 30, 2023, primarily due to a decrease of $39.8 million in licensing fees in connection with decreased upfront and milestone payments for our license and collaboration agreements.

Research and development expenses decreased by $35.5 million in the nine months ended September 30, 2023, primarily due to:

- a decrease of $30.9 million in licensing fees in connection with decreased upfront and milestone payments for our license and collaboration agreements; and
- a decrease of $11.1 million in CROs/CMOs/Investigators expenses due to compensation from collaboration partners related to our clinical trials; partially offset by
- an increase of $5.6 million in personnel compensation and related costs primarily due to grants of share options and restricted shares and the continued vesting of option and restricted share awards.

The following table presents our research and development expenses by program ($ in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Clinical programs | 23,243 | 63,324 | (40,081) | (63)% | 68,232 | 119,468 | (51,236) | (43)% |
| Pre-clinical programs | 2,013 | 2,965 | (952) | (32)% | 15,252 | 7,487 | 7,765 | 104% |
| Unallocated research and development expenses | 33,511 | 33,235 | 276 | 1% | 100,436 | 92,507 | 7,929 | 9% |
| **Total** | 58,767 | 99,524 | (40,757) | (41)% | 183,920 | 219,462 | (35,542) | (16)% |

Research and development expenses attributable to clinical programs decreased by $40.1 million in the three months ended September 30, 2023, primarily driven by a decrease in licensing fees related to our license and collaboration agreements. Research and development expenses attributable to pre-clinical programs decreased by $1.0 million in the three months ended September 30, 2023 primarily due to the advancement of certain programs to clinical stages.

Research and development expenses attributable to clinical programs decreased by $51.2 million in the nine months ended September 30, 2023, primarily driven by a decrease in licensing fees of $41.9 million and $11.5 million in compensation from collaboration partners related to our clinical trials in the first quarter of 2023. Research and development expenses attributable to pre-clinical programs increased by $7.8 million in the nine months ended September 30, 2023, primarily driven by an increase in licensing fees of $11.0 million, partially offset by cost decreases due to the advancement of certain programs to clinical stages.

Although we manage our external research and development expenses by program, we do not allocate our internal research and development expenses by program because our employees and internal resources may be engaged in projects for multiple programs at any given time.

### Selling, General, and Administrative Expenses

The following table presents our selling, general and administrative expenses by program ($ in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Personnel compensation and related costs | 45,410 | 41,859 | 3,551 | 8% | 129,198 | 121,382 | 7,816 | 6% |
| Professional service fees | 4,404 | 9,381 | (4,977) | (53)% | 18,752 | 24,886 | (6,134) | (25)% |
| Other costs | 18,738 | 15,315 | 3,423 | 22% | 51,032 | 40,679 | 10,353 | 25% |
| **Total** | 68,552 | 66,555 | 1,997 | 3% | 198,982 | 186,947 | 12,035 | 6% |

Selling, general, and administrative expenses increased by $2.0 million and $12.0 million in the three and nine months ended September 30, 2023, respectively, primarily due to:

- an increase of $3.6 million and $7.8 million in personnel compensation and related costs, respectively, primarily driven by grants of share options and restricted shares and the continued vesting of option and restricted share awards; and
- an increase of $3.4 million and $10.4 million in other costs, respectively, mainly related to selling, rental, and administrative expenses for commercial operations in mainland China, Hong Kong, and Taiwan; partially offset by
- a decrease of $5.0 million and $6.1 million in professional service fees, respectively, primarily related to legal expenses.

### Gain on Sale of Intellectual Property

We had a gain on sale of intellectual property of $10.0 million in the nine months ended September 30, 2023 in connection with our sale of certain patent rights and related know-how to a third party in the second quarter of 2023. We had no such intellectual property sales resulting in gains or losses in the prior year periods.

### Interest Income

Interest income increased by $5.3 million and $24.3 million in the three and nine months ended September 30, 2023, respectively, due to increased interest rates.

### Foreign Currency Gain (Loss)

Foreign currency gain was $4.9 million in the three months ended September 30, 2023, primarily driven by remeasurement gain due to appreciation of the Renminbi (“RMB”) against the U.S. dollar, compared to foreign currency loss of $40.4 million in the three months ended September 30, 2022, driven by remeasurement loss due to depreciation of the RMB against the U.S. dollar.

Foreign currency loss decreased by $46.7 million in the nine months ended September 30, 2023, primarily driven by decreased remeasurement loss due to depreciation of the RMB against the U.S. dollar.

### Other Income (Expenses), Net

Other income, net decreased by $3.6 million in the three months ended September 30, 2023, primarily due to a decrease in government grants of $2.8 million and a shift from a $0.5 million gain to a $0.7 million loss in our equity investment in MacroGenics.

Other income, net was $0.2 million in the nine months ended September 30, 2023, compared to other expense, net of $6.4 million in the nine months ended September 30, 2022, primarily due to a decrease of $10.1 million in our equity investment loss in MacroGenics, partially offset by a decrease of $4.3 million in government grants.

### Income Tax Expense

There was no change in our income tax expense, which was zero in the three and nine months ended September 30, 2023 and 2022.

### Critical Accounting Policies and Significant Judgments and Estimates

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates, and assumptions. We periodically evaluate these judgments, estimates, and assumptions based on the most recently available information, our own historical experiences, and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

The selection of critical accounting policies, judgments, and other uncertainties affecting application of those policies, and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

### Revenue Recognition

#### Description

In mainland China, we sell our products to distributors, who ultimately sell the products to healthcare providers. Based on the nature of the arrangements, the performance obligations are satisfied upon the product’s delivery to distributors.

#### Judgments and Uncertainties

Rebates are offered to distributors, consistent with pharmaceutical industry practices. The estimated amount of unpaid or unbilled rebates, if any, is recorded as a reduction of revenue. We estimate rebates based on contracted rates, sales volumes, and level of distributor inventories.

#### Sensitivity of Estimate to Change

Actual amounts of rebates paid or billed may differ from our estimates. We regularly review the factors and judgments underlying these estimates and adjust the amounts of rebates accordingly. If actual results vary from our estimates, we also adjust these estimates accordingly, which would affect net product revenue and earnings in the period such variances become expected or known.

### Research and Development Expenses

#### Description

Research and development expenses are charged to expense as incurred when these expenditures relate to our research and development services and have no alternative future uses.

Pre-clinical and clinical trial costs are a significant component of our research and development expenses. We have a history of contracting with third parties that perform various pre-clinical and clinical trial activities on our behalf in the ongoing development of our product candidates. Expenses related to pre-clinical and clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period.

#### Judgments and Uncertainties

The process of estimating our research and development expenses involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule, or when contractual milestones are met; however, some require advanced payments. We make estimates of our research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

#### Sensitivity of Estimate to Change

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of research and development expenses.

### Share-Based Compensation

#### Description

Share-based awards for our employees are measured at grant date fair value and recognized as expenses (1) immediately at grant date if no vesting conditions are required; or (2) using a straight-line method over the requisite service period, which is the vesting period.

To the extent the required vesting conditions are not met resulting in forfeiture of the share-based awards, previously recognized compensation expense relating to those awards are reversed.

#### Judgments and Uncertainties

We determine the fair value of stock options granted to employees using the Black-Scholes option valuation model. Using this model, fair value is calculated based on assumptions with respect to (i) the expected volatility of our ADS price, (ii) the periods of time over which grantees are expected to hold their options prior to exercise (expected lives), (iii) the expected dividend yield on our ADSs, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the expected lives of the options. Expected volatility has been estimated based on actual movements in some comparable companies’ stock price over the most recent historical periods equivalent to the options’ expected lives. The expected term of the share options represents the average period the share options are expected to remain outstanding. As the Company does not have sufficient historical information since its IPO to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term of options granted is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future.

#### Sensitivity of Estimate to Change

The assumptions used in this method to determine the fair value of our option shares consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the determination of fair value of the option shares. If factors change or different assumptions are used, our share-based compensation expenses could be materially different for any period.

### Income Taxes

#### Description

In accordance with the provisions of ASC 740, Income Taxes, we recognize in our financial statements the benefit of a tax position if the tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. We estimate our liability for unrecognized tax benefits which are periodically assessed and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The ultimate outcome for a particular tax position may not be determined with certainty prior to the conclusion of a tax audit and, in some cases, appeal or litigation process.

#### Judgments and Uncertainties

We consider positive and negative evidence when determining whether some portion or all of our deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our historical results of operations, and our tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of our historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will not realize the deferred tax assets resulted from the tax loss carried forward in the future periods.

#### Sensitivity of Estimate to Change

The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are recorded in our financial statements in the period in which the audit is concluded. Additionally, in future periods, changes in facts and circumstances and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. As of September 30, 2023 and 2022, we did not have any significant unrecognized uncertain tax positions.

### Liquidity and Capital Resources

To date, we have financed our activities primarily through private placements, our September 2017 initial public offering and various follow-on offerings on Nasdaq, and our September 2020 secondary listing and initial public offering on the Hong Kong Stock Exchange. Through September 30, 2023, we have raised approximately $164.6 million in private equity financing and approximately $2,462.7 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us in our initial public offering and subsequent follow-on offerings on Nasdaq and our initial public offering on the Hong Kong Stock Exchange. Our operations have consumed substantial amounts of cash since inception. The net cash used in our operating activities was $183.3 million and $258.4 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had commitments for capital expenditures of $2.5 million, mainly for the purpose of plant construction and installation. For information on our research and development activities and expenditures see the Research and Development Expenses, License and Collaboration Arrangements, and Results of Operations sections in MD&A above.

As of September 30, 2023, we had cash and cash equivalents, restricted cash, and short-term investments of $822.2 million. Based on our current operating plan, we expect that our cash, cash equivalents, restricted cash, and short-term investments, will enable us to meet our cash requirements and fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, in order to bring to fruition our research and development objectives, we may ultimately need additional funding sources, and there can be no assurances that such funding will be made available to us on acceptable terms or at all.

The following table presents information regarding our cash flows ($ in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 | Change $ |
| --- | ---: | ---: | ---: |
| Net cash used in operating activities | (183,261) | (258,350) | 75,089 |
| Net cash (used in) provided by investing activities | (25,233) | 424,389 | (449,622) |
| Net cash used in financing activities | (6,826) | (1,531) | (5,295) |
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | (3,355) | (9,132) | 5,777 |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (218,675) | 155,376 | (374,051) |

### Net Cash Used in Operating Activities

Net cash used in operating activities decreased by $75.1 million to $183.3 million in the nine months ended September 30, 2023, primarily due to a decrease of $142.3 million in net loss, partially offset by an increase of $52.9 million in adjustments to reconcile net loss to net cash used in operating activities and a decrease of $14.3 million in net changes in operating assets and liabilities.

### Net Cash Used in (Provided by) Investing Activities

Net cash used in investing activities was $25.2 million in the nine months ended September 30, 2023, compared to net cash provided by investing activities of $424.4 in the nine months ended September 30, 2022. This shift was primarily due to a decrease of $602.9 million in proceeds from the maturity of short-term investments, partially offset by a decrease of $126.3 million in purchases of short-term investments, a decrease of $13.2 million in purchases of property and equipment, and proceeds of $13.9 million from a sale of intellectual property and a disposal of land use rights in the second quarter of 2023.

### Net Cash Used in Financing Activities

Net cash used in financing activities increased by $5.3 million to $6.8 million in the nine months ended September 30, 2023, primarily due to a decrease of $3.7 million in proceeds from exercises of stock options and an increase of $1.6 million in taxes paid related to settlement of equity awards.

### Recently Issued Accounting Standards

For more information regarding recently issued accounting standards, see Part II – Item 8. Financial Statements and Supplementary Data – Recent Accounting Pronouncements in our 2022 Annual Report. The Company has not adopted any new accounting standards since December 31, 2022.

## Market risk

As filed, 7,078 characters.

We are exposed to market risk including foreign exchange risk, credit risk, and inflation risk.

### Foreign Exchange Risk

Renminbi, or RMB, is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the People’s Bank of China (“PBOC”), controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The cash and cash equivalents of the Company included aggregated amounts of RMB151.2 million and RMB316.8 million, which were denominated in RMB, representing 3% and 5% of the cash and cash equivalents as of September 30, 2023 and December 31, 2022, respectively.

While our financial statements are presented in U.S. dollars, our business mainly operates in mainland China with a significant portion of our transactions settled in RMB, and as such, we do not believe that we currently have significant direct foreign exchange risk and have not used derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs and ordinary shares will be affected by the exchange rate between the U.S. dollar and the RMB and between the HK dollar and the RMB, respectively, because the value of our business is effectively denominated in RMB, while ADSs and ordinary shares are traded in U.S. dollars and HK dollars, respectively.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in Greater China’s political and economic conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005, the Chinese government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the revised policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the RMB against the U.S. dollar in the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the RMB and U.S. dollar remained within a narrow band. In June 2010, the PBOC announced that the Chinese government would increase the flexibility of the exchange rate, and thereafter allowed the RMB to appreciate slowly against the U.S. dollar within the narrow band fixed by the PBOC. However, in August 2015, the PBOC significantly devalued the RMB.

The value of our ADSs and our ordinary shares will be affected by the foreign exchange rates between U.S. dollars, HK dollars, and the RMB. For example, to the extent that we need to convert U.S. dollars or HK dollars into RMB for our operations or if any of our arrangements with other parties are denominated in U.S. dollars or HK dollars and need to be converted into RMB, appreciation of the RMB against the U.S. dollar or the HK dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars or HK dollars for the purpose of making payments for dividends on ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar or the HK dollar against the RMB would have a negative effect on the conversion amounts available to us.

Since 1983, the Hong Kong Monetary Authority (“HKMA”) has pegged the HK dollar to the U.S. dollar at the rate of approximately HK$7.80 to US$1.00. However, there is no assurance that the HK dollar will continue to be pegged to the U.S. dollar or that the HK dollar conversion rate will remain at HK$7.80 to US$1.00. If the HK dollar conversion rate against the U.S. dollar changes and the value of the HK dollar depreciates against the U.S. dollar, our assets denominated in HK dollars will be adversely affected. Additionally, if the HKMA were to repeg the HK dollar to, for example, the RMB rather than the U.S. dollar, or otherwise restrict the conversion of HK dollars into other currencies, then our assets denominated in HK dollars will be adversely affected.

### Credit Risk

Financial instruments that are potentially subject to significant concentration of credit risk consist of cash and cash equivalents, short-term investments, accounts receivable, and notes receivable.

The carrying amounts of cash and cash equivalents and short-term investments represent the maximum amount of loss due to credit risk. As of September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $788.8 million and $1,008.5 million and short-term investments of $31.6 million and nil, respectively. As of September 30, 2023 and December 31, 2022, all of our cash and cash equivalents and short-term investments were held by major financial institutions located in mainland China and international financial institutions outside of mainland China which we believe are of high credit quality and for which we monitor continued credit worthiness.

Accounts receivable are typically unsecured and are derived from product sales and collaborative arrangements. We manage credit risk related to our accounts receivable through ongoing monitoring of outstanding balances and limiting the amount of credit extended based upon payment history and credit worthiness. Historically, we have collected receivables from customers within the credit terms with no significant credit losses incurred. As of September 30, 2023, our two largest customers accounted for approximately 29% of our total accounts receivable collectively.

Certain accounts receivable balances are settled in the form of notes receivable. As of September 30, 2023, such notes receivable included bank acceptance promissory notes that are non-interest bearing and due within six months. These notes receivable were used to collect the receivables based on an administrative convenience, given these notes are readily convertible to known amounts of cash. In accordance with the sales agreements, whether to use cash or bank acceptance promissory notes to settle the receivables is at our discretion, and this selection does not impact the agreed contractual purchase prices.

### Inflation Risk

In recent years, mainland China has not experienced significant inflation. Although the global economy, including the U.S. economy, experienced rising inflation in recent years, which can increase the costs of our products and product candidates purchased from third parties and, as a result, adversely affect our results of operations, inflation has not had a material impact on our results of operations. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in mainland China or in other countries in which our third-party partners operate.

## Controls and procedures

As filed, 1,458 characters.

### Management’s Evaluation of our Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed in the reports that we file or furnish under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based upon that evaluation, our management has concluded that, as of September 30, 2023, our disclosure controls and procedures were effective.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such item is defined in Rules 13a-15(f)) during the fiscal quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 339 characters.

We are subject to risks and uncertainties that could, directly or indirectly, adversely affect our business, results of operations, financial condition, liquidity, cash flows, strategies, and/or prospects. There have been no material changes in our risk factors from those disclosed in the “Risk Factors” section of our 2022 Annual Report.

Filed Nov 7, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-037358. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.