424(B)(5)
Table of Contents

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-251050

Prospectus Supplement

 

LOGO

(To Prospectus dated December 14, 2020)

I-MAB

This prospectus supplement is part of a registration statement on Form F-1 using a “shelf” registration process that was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on December 14, 2020 (the “Base Form F-1”). This document consists of two parts. The first part is this prospectus supplement, which includes supplemental descriptions of certain aspects of our business and financial information, as well as updated disclosure of certain information previously disclosed in the Base Form F-1. The second part is the accompanying prospectus, which describes more general information. You should read both this prospectus supplement and the accompanying prospectus, together with the additional information described in this prospectus supplement under the heading “Where You Can Find Additional Information.” If information in this prospectus supplement differs from information in the accompanying prospectus, you should rely on the information in this prospectus supplement.

We are responsible for the information contained in this prospectus supplement and the accompanying prospectus or contained in any free writing prospectus prepared by or on behalf of us that we have referred to you. None of us or any selling shareholders identified in the Base Form F-1 has authorized anyone to provide you with additional information or information different from that contained in this prospectus supplement and the accompanying prospectus or in any free writing prospectus filed with the SEC, and we take no responsibility for any other information that others may give you. The selling shareholders identified in the Base Form F-1 are offering to sell, and seeking offers to buy, our ordinary shares, including ordinary shares represented by American depositary shares (“ADSs”), only in jurisdictions where offers and sales are permitted. The information contained in this prospectus supplement and the accompanying prospectus is accurate only as of the date of the document containing such information, regardless of the time of delivery of this prospectus supplement and the accompanying prospectus or of any of our ordinary shares, including ordinary shares represented by ADSs. Our business, operating results or financial condition may have changed since such date. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer to subscribe for and purchase, any of the ordinary shares or ADSs and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. You should not consider any information in this prospectus supplement or the accompanying prospectus to be investment, legal or tax advice. You should consult your own counsel, accountants and other advisors for legal, tax, business, financial and related advice regarding the purchase of any of the securities offered by this prospectus supplement.

In reviewing this prospectus supplement and the accompanying prospectus, you should carefully consider the matters described under the captions “Risk Factors” beginning on page S-4 of this prospectus supplement and page 23 of the accompanying prospectus.

The date of this prospectus supplement is February 5, 2021.


Table of Contents

TABLE OF CONTENTS

Prospectus Supplement

 

CONVENTIONS THAT APPLY TO THIS PROSPECTUS SUPPLEMENT

     S-1  

WHERE YOU CAN FIND MORE INFORMATION

     S-2  

FORWARD-LOOKING STATEMENTS

     S-3  

RISK FACTORS

     S-4  

SELECTED CONSOLIDATED FINANCIAL DATA

     S-9  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     S-13  

CAPITALIZATION

     S-46  

BUSINESS

     S-47  

PRINCIPAL AND SELLING SHAREHOLDERS

     S-50  

DESCRIPTION OF SHARE CAPITAL

     S-57  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

Prospectus

 

    

Page

 

PROSPECTUS SUMMARY

     1  

THE OFFERING

     18  

SUMMARY CONSOLIDATED FINANCIAL DATA

     20  

RISK FACTORS

     23  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     92  

USE OF PROCEEDS

     94  

DIVIDEND POLICY

     95  

CAPITALIZATION

     96  

ENFORCEABILITY OF CIVIL LIABILITIES

     97  

CORPORATE HISTORY AND STRUCTURE

     99  

SELECTED CONSOLIDATED FINANCIAL DATA

     101  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     105  

BUSINESS

     138  

REGULATION

     214  

MANAGEMENT

     246  

PRINCIPAL AND SELLING SHAREHOLDERS

     265  

RELATED PARTY TRANSACTIONS

     272  

DESCRIPTION OF SHARE CAPITAL

     274  

 

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Page

 

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     290  

SHARES ELIGIBLE FOR FUTURE SALES

     302  

TAXATION

     304  

PLAN OF DISTRIBUTION

     310  

EXPENSES RELATED TO THIS OFFERING

     313  

LEGAL MATTERS

     314  

EXPERTS

     315  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     316  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

 

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CONVENTIONS THAT APPLY TO THIS PROSPECTUS SUPPLEMENT

In this prospectus supplement, unless otherwise indicated or unless the context otherwise requires,

 

   

“ADRs” refer to the American depositary receipts that evidence our ADSs;

 

   

“ADSs” refer to our American depositary shares, each ten (10) ADSs represent twenty-three (23) ordinary shares;

 

   

“China” or “the PRC” refers to the People’s Republic of China, excluding, for the purposes of this prospectus supplement only, Hong Kong, Macau and Taiwan, and “Greater China” does not exclude Hong Kong, Macau and Taiwan;

 

   

“China Portfolio” refers to our investigational drugs of which we in-license Greater China rights from reputable global biopharmaceutical companies and rely on our own research and development capabilities to advance into pivotal clinical trials and commercialize in Greater China with an aim for near-term product launch;

 

   

“Global Portfolio” refers to our own proprietary novel or differentiated drug candidates that we are advancing towards clinical validation in the United States;

 

   

“I-Mab,” “we,” “us,” “our company” and “our” refer to I-Mab, a Cayman Islands exempted company, and its subsidiaries;

 

   

“RMB” refers to the legal currency of China;

 

   

“shares” or “ordinary shares” refer to our ordinary shares, par value US$0.0001 per share; and

 

   

“US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States.

Our reporting currency is RMB. This prospectus supplement also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from RMB to U.S. dollars were made at a rate of RMB6.7896 to US$1.00, the exchange rate in effect as of September 30, 2020 as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System. We make no representation that any RMB or U.S. dollar amounts referred to in this prospectus supplement could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. On January 29, 2021, the noon buying rate for RMB was RMB6.4282 to US$1.00.

All discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement, including relevant exhibits, with the SEC on Form F-1 under the Securities Act with respect to the underlying ordinary shares represented by the ADSs being registered by this prospectus supplement and the accompanying prospectus. We have also filed a related registration statement on Form F-6 with the SEC to register the ADSs. This prospectus supplement and the accompanying prospectus are part of the registration statement on Form F-1, and do not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us, our ordinary shares and our ADSs.

We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We maintain our website at http://www.i-mabbiopharma.com/en/.

As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors, principal shareholders and selling shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, if we so request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

 

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FORWARD-LOOKING STATEMENTS

This prospectus supplement and the accompanying prospectus contain forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to,” “future,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to, among other things:

 

   

the timing of initiation and completion, and the progress of our drug discovery and research programs;

 

   

the timing and likelihood of regulatory filings and approvals;

 

   

our ability to advance our drug candidates into drugs, and the successful completion of clinical trials;

 

   

the approval, pricing and reimbursement of our drug candidates;

 

   

the commercialization of our drug candidates;

 

   

the market opportunities and competitive landscape of our drug candidates;

 

   

the payment, receipt and timing of any milestone payments in relation to the licensing agreements;

 

   

estimates of our costs, expenses, future revenues, capital expenditures and our needs for additional financing;

 

   

our ability to attract and retain senior management and key employees;

 

   

our future business development, financial condition and results of operations;

 

   

future developments, trends, conditions and competitive landscape in the industry and markets in which we operate;

 

   

our strategies, plans, objectives and goals and our ability to successfully implement these strategies, plans, objectives and goals;

 

   

our ability to continue to maintain our market position in China’s biopharmaceutical and biotechnology industries;

 

   

our ability to identify and integrate suitable acquisition targets; and

 

   

changes to regulatory and operating conditions in our industry and markets.

The forward-looking statements included in this prospectus supplement and in the accompanying prospectus are subject to risks, uncertainties and assumptions about our company. Our actual results of operations may differ materially from the forward-looking statements as a result of the risk factors disclosed in this prospectus supplement and the accompanying prospectus.

We would like to caution you not to place undue reliance on these forward-looking statements. You should read these statements in conjunction with the risk factors disclosed herein and in the accompanying prospectus for a more complete discussion of the risks of an investment in our securities. We operate in a rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

 

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RISK FACTORS

An investment in our ordinary shares or ADSs involves significant risks. The following section sets forth certain risk factors that have been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus. You should carefully consider the risk factors set forth below together with the other information contained in this prospectus supplement and the accompanying prospectus before deciding whether to purchase the ordinary shares or ADSs. Any of the following risks and the risks described in the accompanying prospectus, and additional risks and uncertainties not currently known to us or those we currently view to be immaterial, may also materially and adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment.

We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses for the foreseeable future and may never achieve or maintain profitability.

Investment in the development of biopharmaceutical products is highly speculative as it entails substantial upfront capital expenditures and significant risks that a drug candidate may fail to demonstrate efficacy and/or safety to gain regulatory or marketing approvals or become commercially viable. To date, we have financed our activities primarily through private placements. While we have generated revenue from licensing and collaboration deals, we have not generated any revenue from commercial product sales to date, and we continue to incur significant research and development expenses and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred net losses in each period since our inception. In 2017, 2018, 2019 and the nine months ended September 30, 2020, our net losses were RMB298.2 million, RMB402.8 million, RMB1,452.0 million (US$213.8 million) and RMB570.6 million (US$84.0 million), respectively. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We expect to continue to incur net losses in the foreseeable future, and that these net losses will increase as we carry out certain activities relating to our development, including, but not limited to, the following:

 

   

conducting clinical trials of our drug candidates;

 

   

manufacturing clinical trial materials through contract manufacturing organizations, or CMOs, in and out of China;

 

   

seeking regulatory approvals for our drug candidates;

 

   

commercializing our drug candidates for which we have obtained marketing approval;

 

   

completing the construction of and maintaining our manufacturing facilities;

 

   

hiring additional clinical, operational, financial, quality control and scientific personnel;

 

   

establishing a sales, marketing and commercialization team for any future products that have obtained regulatory approval;

 

   

seeking to identify additional drug candidates;

 

   

obtaining, maintaining, expanding and protecting our intellectual property portfolio;

 

   

enforcing and defending any intellectual property-related claims; and

 

   

acquiring or in-licensing other drug candidates, intellectual property and technologies.

Typically, it takes many years to develop one new drug from the time it is discovered to when it becomes available for treating patients. During the process, we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend partially on the rate of the future growth of our expenses, our ability to generate revenues

 

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and the timing and amount of milestone payments and other payments that we receive from or pay to third parties. If any of our drug candidates fails during clinical trials or does not gain regulatory approval, or, even if approved, fails to achieve market acceptance, our business may not become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods thereafter. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our working capital and shareholders’ equity.

We recorded net cash outflow from operating activities since our inception. We may need to obtain additional financing to fund our operations. If we are unable to obtain such financing, we may be unable to complete the development and commercialization of our major drug candidates.

Since our inception, our operations have consumed substantial amounts of cash. We had raised over US$400 million in pre-IPO financing in the past three years and received total net proceeds of approximately US$105.3 million from our initial public offering. We spent RMB252.2 million, RMB280.7 million, RMB868.0 million (US$127.8 million) and RMB582.6 million (US$85.8 million) in net cash to finance our operations in 2017, 2018, 2019 and the nine months ended September 30, 2020, respectively.

We expect our expenses to increase significantly in connection with our ongoing activities, particularly as we advance the clinical development of our clinical-stage drug candidates, continue the research and development of our pre-clinical stage drug candidates and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates.

In addition, if we obtain regulatory approvals for any of our drug candidates, we expect to incur significant commercialization expenses relating to product manufacturing, marketing, sales and distribution and post-approval commitments to continue monitoring the efficacy and safety data of our future products on the market. In particular, costs that may be required for the manufacture of any drug candidate that has received regulatory approval may be substantial as we may need to modify or increase our production capacity in the future at manufacturing facilities. We may also incur expenses as we create additional infrastructure to support our operations as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations through public or private equity offerings, debt financing, collaborations or licensing arrangements or other sources. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, limit, reduce or terminate our research and development programs or any future commercialization efforts.

The recent COVID-19 outbreak has brought uncertainties and interruptions to global economy and caused significant volatility across the financial markets, which had a cooling effect on the financing and investing activities in general. We believe that our current cash and cash equivalents, together with our cash generated from operating activities, financing activities, our initial public offering and private placement, will be sufficient to meet our present anticipated working capital requirements and capital expenditures. However, if the impact of the COVID-19 and volatility in the financial markets continue, our financing activities in future to raise additional capital may be materially and adversely affected, which may in turn have an adverse effect on our ability to meet our working capital requirement and our liquidity. For other risks related to the COVID-19, see “—Our business and results of operations could be adversely affected by public health crisis (including the COVID-19 global pandemic) and natural catastrophes or other disasters outside of our control in the locations in which we, our suppliers, CROs, CMOs and other contractors operate.”

The manufacture of biopharmaceutical products is a complex process which requires significant expertise and capital investment, and if we encounter problems in establishing our manufacturing capabilities or manufacturing our future products, our business could suffer.

We have limited experience in managing the manufacturing process. The manufacture of biopharmaceutical products is a complex process, in part due to strict regulatory requirements. As of the date of

 

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this prospectus supplement, we have no existing manufacturing infrastructure or capabilities. We intend to build a comprehensive biologics manufacturing facility in Hangzhou, China (the “Hangzhou Facility”) as part of our strategic plan to become a fully integrated biopharma company. We have taken concrete steps to execute this plan. These steps include detailed operational planning for the facility, actions taken to secure an appropriate site, and negotiations with external financing providers. The Hangzhou Facility targets to have a pilot capacity of 2 production lines (1 line configured with 2 x 2,000L and another line with 1 x 2,000L) by 2022 and commercially progressive capacity up to 8 x 4,000L to begin operation by the end of 2023. Construction is expected to commence in April 2021 and ready for use by the end of 2023. However, the investment for building this new biologics manufacturing facility that is compliant with cGMP regulations will be a significant upfront cost for us. In turn, this could materially harm our commercialization plans.

In addition, problems may arise during the manufacturing process for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, delays related to the construction of new facilities or expansion of any future manufacturing facilities, including changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in the types of products produced, increases in the prices of raw materials, physical limitations that could inhibit continuous supply, man-made or natural disasters and environmental factors. If problems arise during the production of a batch of future products, that batch of future products may have to be discarded and we may experience product shortages or incur added expenses. This could, among other things, lead to increased costs, lost revenue, damage to customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before such product is released to the market, recall and product liability costs may also be incurred.

Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to inspection by Public Company Accounting Oversight Board, and consequently investors may be deprived of the benefits of such inspection. In addition, the adoption of any rules, legislations or other efforts to increase U.S. regulatory access to audit information could cause uncertainty and we could be delisted if we are unable to meet the PCAOB inspection requirement in time.

Our auditor, the independent registered public accounting firm that issued the audit report included elsewhere in this prospectus supplement, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with applicable professional standards. Our auditor is located in, and organized under the laws of, the PRC, which is a jurisdiction where the PCAOB, has been unable to conduct inspections without the approval of the Chinese authorities. In May 2013, PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. PCAOB continues to be in discussions with the China Securities Regulatory Commission, or CSRC, and the PRC Ministry of Finance to permit joint inspections in China of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a heightened interest in an issue that has vexed U.S. regulators in recent years.

On April 21, 2020, the SEC and the PCAOB issued another joint statement reiterating the greater risk that disclosures will be insufficient in many emerging markets, including China, compared to those made by U.S. domestic companies. In discussing the specific issues related to the greater risk, the statement again highlights the PCAOB’s inability to inspect audit work paper and practices of accounting firms in China, with respect to

 

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their audit work of U.S. reporting companies. However, it remains unclear what further actions the SEC and PCAOB will take to address the problem.

On June 4, 2020, the U.S. President issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States.

On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory mandate, or NCJs, the PWG recommends enhanced listing standards on U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. If we fail to meet the new listing standards before the deadline specified thereunder due to factors beyond our control, we could face possible de-listing from the Nasdaq Global Market, deregistration from the SEC and/or other risks, which may materially and adversely affect the market price and liquidity of our ADS, or effectively terminate our ADS trading in the United States. There were recent media reports about the SEC’s proposed rulemaking in this regard. It is uncertain whether the PWG recommendations will be adopted, in whole or in part, and the impact of any new rule on us cannot be estimated at this time.

This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular the PRC’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress that would require the SEC to maintain a list of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as Nasdaq of issuers included on the SEC’s list for three consecutive years. On December 18, 2020, the Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted into law, which requires the SEC to prohibit any foreign company from listing securities on U.S. securities exchanges if such company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. The enactment of the HFCA Act and any additional rulemaking efforts to increase U.S. regulatory access to audit information in China may prohibit our securities from trading on Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our ADSs being delisted. While we

 

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understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in China, there can be no assurance that our auditor or us will be able to comply with requirements imposed by U.S. regulators. Delisting of our ADSs would force our U.S.-based shareholders to sell their ADSs or convert them into Class A ordinary shares listed in Hong Kong. Although we are listed in Hong Kong, investors may face difficulties in migrating their underlying ordinary shares to Hong Kong, or may have to incur increased costs or suffer losses in order to do so. The market prices of our ADSs could be adversely affected as a result of anticipated negative impacts of the HFCA Act upon, as well as negative investor sentiment towards, China-based companies listed in the United States, regardless of whether the HFCA Act is enacted and regardless of our actual operating performance. In addition, on June 4, 2020, the U.S. President issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the U.S. On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfill its statutory mandate, or NCJs, the PWG recommends enhanced listing standards on U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. Any resulting actions, proceedings or new rules could adversely affect the listing and compliance status of China-based issuers listed in the United States, such as our company, and may have a material and adverse impact on the trading prices of the securities of such issuers, including our ADSs and potentially our Class A ordinary shares, and substantially reduce or effectively terminate the trading of our ADSs in the United States.

We have granted, and may continue to grant, options and other types of awards under our share incentive plans, which may result in increased share-based compensation expenses.

We have adopted the Second Amended and Restated 2017 Employee Stock Option Plan (the “2017 Plan”), the Second Amended and Restated 2018 Employee Stock Option Plan (the “2018 Plan”), the 2019 Share Incentive Plan (the “2019 Plan”) and the 2020 Share Incentive Plan (the “2020 Plan”), for the purpose of granting share-based compensation awards to employees, directors and consultants to incentivize their performance and align their interests with ours. We recognize expenses in our consolidated financial statements in accordance with U.S. GAAP. As of the date of this prospectus supplement, the awards that had been granted to our directors, officers, employees and consultants and remained outstanding included (i) options to purchase an aggregate of 7,139,583 ordinary shares, 9,948,512 ordinary shares, 72,000 ordinary shares and 1,052,367 ordinary shares under the 2017 Plan, the 2018 Plan, the 2019 Plan and the 2020 Plan, respectively, excluding options that were forfeited, cancelled, or exercised after the relevant grant date; and (ii) restricted share units to receive an aggregate of 5,106,138 ordinary shares under the 2020 Plan, excluding restricted share units that were forfeited, cancelled, or vested after the relevant grant date. See “Management—Share Incentive Plans.”

We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation to employees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations. We may re-evaluate the vesting schedules, lock-up period, exercise price or other key terms applicable to the grants under our currently effective share incentive plans from time to time. If we choose to do so, we may experience substantial change in our share-based compensation charges.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following section sets forth certain information in the section titled “Selected Consolidated Financial Data” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

The following selected consolidated statements of comprehensive loss data for the years ended December 31, 2017, 2018 and 2019, selected consolidated balance sheet data as of December 31, 2017, 2018 and 2019 and selected consolidated statements of cash flow data for the years ended December 31, 2017, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus supplement. The following selected consolidated statements of comprehensive loss data for the nine months ended September 30, 2019 and 2020, selected consolidated balance sheet data as of September 30, 2020 and selected consolidated statements of cash flow data for the nine months ended September 30, 2019 and 2020 are derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus supplement. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement.

 

    For the Year Ended December 31,     For the Nine Months Ended
September 30,
 
    2017     2018     2019     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
    (in thousands, except for share and per share data)  

Selected Consolidated Statements of Comprehensive Loss Data:

             

Revenues

             

Licensing and collaboration revenue

    11,556       53,781       30,000       4,419       30,000       —         —    

Expenses

             

Research and development expenses(1)

    (267,075     (426,028     (840,415     (123,780     (578,377     (698,461     (102,872

Administrative expenses(1)

    (25,436     (66,391     (654,553     (96,405     (582,732     (310,775     (45,772
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (280,955     (438,638     (1,464,968     (215,766     (1,131,109     (1,009,236     (148,644

Interest income

    858       4,597       30,570       4,502       22,828       18,658       2,748  

Interest expense

    (5,643     (11,695     (2,991     (441     (2,466     (957     (141

Other income (expenses), net

    1,527       (16,780     (20,205     (2,976     1,758       420,900       61,992  

Fair value change of warrants

    (14,027     61,405       5,644       832       5,609       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (298,240     (401,111     (1,451,950     (213,849     (1,103,380     (570,635     (84,045

Income tax expense

    —         (1,722     —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to I-Mab

    (298,240     (402,833     (1,451,950     (213,849     (1,103,380     (570,635     (84,045
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    For the Year Ended December 31,     For the Nine Months Ended
September 30,
 
    2017     2018     2019     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
    (in thousands, except for share and per share data)  

Deemed dividend to Series C-1 preferred shareholders at extinguishment of Series C-1 Preferred Shares

    —         —         (5,283     (778     —         —         —    

Deemed dividend to Series B-1, B-2 and C preferred shareholders at modification of Series B-1, B-2 and C Preferred Shares

    —         —         (27,768     (4,090     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (298,240     (402,833     (1,485,001     (218,717     (1,103,380     (570,635     (84,045
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

             

Foreign currency translation adjustments, net of nil tax

    5,918       53,689       10,747       1,583       66,254       15,530       2,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to I-Mab

    (292,322     (349,144     (1,441,203     (212,266     (1,037,126     (555,105     (81,757
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (298,240     (402,833     (1,485,001     (218,717     (1,103,380     (570,635     (84,045

Weighted-average number of ordinary shares used in calculating net loss per shares

             

Basic and diluted

    5,742,669       6,529,092       7,381,230       7,381,230       7,184,086       126,758,926       126,758,926  

Net loss per share attributable to ordinary shareholders

             

Basic

    (51.93     (61.70     (201.19     (29.63     (153.59     (4.50     (0.66

Diluted

    (51.93     (61.70     (201.19     (29.63     (153.59     (4.50     (0.66

 

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Note:

(1)

Share-based compensation expenses were allocated as follows:

 

     For the Year Ended December 31,      For the Nine Months Ended
September 30,
 
     2017      2018      2019      2019      2020  
    

RMB

    

RMB

    

RMB

    

US$

    

RMB

    

RMB

    

US$

 
     (in thousands)  

Research and development expenses

     2,112        1,056        470        69        467        224,619        33,083  

Administrative expenses

     4,927        2,464        514,733        75,812        514,726        167,957        24,737  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7,039        3,520        515,203        75,881        515,193        392,576        57,820  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents our selected consolidated statements of balance sheet data as of December 31, 2017, 2018 and 2019 and September 30, 2020:

 

    As of December 31,     As of September 30,  
    2017     2018     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

US$

 
    (in thousands)  

Selected Consolidated Statements of Balance Sheet Data:

           

Current assets:

           

Cash and cash equivalents

    307,930       1,588,278       1,137,473       167,532       2,960,017       435,963  

Restricted cash

    104,783       92,653       55,810       8,220       —         —    

Contract assets

    —         11,000       —         —         —         —    

Short-term investments

    —         —         32,000       4,713       28,526       4,201  

Prepayments and other receivables

    12,633       88,972       136,036       20,036       219,839       32,379  

Other financial assets

    266,245       255,958       —         —         —         —    

Total current assets

    691,591       2,036,861       1,361,319       200,501       3,208,382       472,543  

Property, equipment and software

    22,336       27,659       30,069       4,429       27,058       3,985  

Operating lease right-of-use assets

    —         —         16,435       2,421       15,061       2,218  

Intangible assets

    148,844       148,844       148,844       21,922       122,000       17,969  

Goodwill

    162,574       162,574       162,574       23,945       162,574       23,945  

Investment accounted for using the equity method

    —         —         —         —         762,997       112,377  

Other non-current assets

    —         —         18,331       2,699       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    1,025,345       2,375,938       1,737,572       255,917       4,298,072       633,037  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    309,151       415,684       668,090       98,399       556,437       81,954  

Total mezzanine equity

    1,015,989       2,915,358       3,104,177       457,196       —         —    

 

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    As of December 31,     As of September 30,  
    2017     2018     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

US$

 
    (in thousands)  

Shareholders’ equity (deficit)

           

Ordinary shares (US$0.0001 par value, 500,000,000 shares authorized as of December 31, 2018 and 2019 and 800,000,000 shares authorized as of September 30, 2020, respectively; 8,363,719 shares issued and outstanding as of December 31, 2018 and 2019 and 153,543,910 shares issued and outstanding September 30, 2020, respectively)

    6       6       6       1       106       16  

Treasury stock

    (1     (1     —         —         —         —    

Additional paid-in capital

    52,369       —         389,379       57,349       6,720,714       989,854  

Accumulated other comprehensive income

    5,691       59,380       70,127       10,329       85,657       12,616  

Accumulated deficit

    (357,860     (1,014,489     (2,494,207     (367,357     (3,064,842     (451,403
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ equity (deficit)

    (299,795     (955,104     (2,034,695     (299,678     3,741,635       551,083  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ equity (deficit)

    1,025,345       2,375,938       1,737,572       255,917       4,298,072       633,037  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents our selected consolidated statements of cash flow data for the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2019 and 2020:

 

     For the Year Ended December 31,     For the Nine Months Ended
September 30,
 
     2017     2018     2019     2019     2020  
    

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
     (in thousands)  

Selected Consolidated Statements of Cash Flow Data:

              

Net cash used in operating activities

     (252,157     (280,705     (867,982     (127,840     (651,993     (582,631     (85,812

Net cash (used in) generated from investing activities

     (157,665     9,500       212,462       31,292       135,128       (256,381     (37,760

Net cash (used in) generated from financing activities

     758,585       1,479,669       152,709       22,493       39,413       2,595,692       382,304  

Effect of exchange rate changes on cash and cash equivalents and restricted cash

     (132     59,754       15,163       2,233       77,581       10,054       1,480  

Net increase (decrease) in cash, cash equivalents and restricted cash

     348,631       1,268,218       (487,648     (71,822     (399,871     1,766,734       260,212  

Cash, cash equivalents and restricted cash, beginning of the year/period

     64,082       412,713       1,680,931       247,574       1,680,931       1,193,283       175,751  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of the year/period

     412,713       1,680,931       1,193,283       175,752       1,281,060       2,960,017       435,963  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section sets forth certain information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this prospectus supplement. This discussion contains forward-looking statements that reflect our current expectations and views of future events, which may involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus supplement.

Overview

We are a clinical stage biopharmaceutical company committed to the discovery, development and commercialization of novel or highly differentiated biologics to treat diseases with significant unmet medical needs, particularly cancers and autoimmune disorders.

We were founded to capture the opportunities presented by the confluence of two major developments—the emergence of an attractive and growing biologics market in China, and the revolutionary scientific breakthroughs in cancer and autoimmune disease medicines. We believe we are well-positioned to become a biotech leader in China because of our innovative discovery expertise, fit-for-purpose technology platforms, biomarker-enabled translational medicine capabilities, and clinical development capabilities. These integrated capabilities are further enhanced by our deep understanding of China’s biologics regulatory framework and our direct access to extensive pre-clinical and clinical trial resources in China. To date, we have developed an innovative pipeline of more than 10 clinical and pre-clinical stage assets through our internal research and development efforts and in-licensing arrangements with global pharmaceutical and biotech companies.

We are fully aware of the competitive and regulatory challenges we face as an innovative clinical stage biotech company based in China, including need to raise significant capital, significant competition from global and other China-based biopharmaceutical companies, less streamlined regulatory pathway compared to countries with long-established regulatory systems, and potential implementation challenges and uncertainties of the recent government reform of the drug approval system. However, with these challenges in mind, we have been mitigating the risks through our internal R&D system that integrates multi-functional aspects of our drug development process to proactively deal with some of the regulatory challenges mentioned above. Furthermore, through our Beijing office which focuses on regulatory matters, we have established an effective communication channel with the regulatory agencies to discuss and resolve various regulatory issues promptly and effectively. We see vast opportunities for immuno-oncology and autoimmune biologics therapies in China. First, both the incidence and mortality of cancers in China have been increasing in recent years and are outpacing those in the United States and the rest of the world. Second, many innovative biologics approved to treat cancer and autoimmune diseases in the United States and Europe are not yet available in China. Third, the Chinese government has implemented new policies and regulations to simplify the review and approval cycle of clinical trials and new drug applications to encourage biologics innovation. Fourth, there has been a continuous and rapid increase in personal disposable income in China coupled with ongoing improvement in basic national health insurance coverage, making innovative biologics more accessible to more Chinese patients.

We believe we are uniquely positioned as a China-based global player to tap into these vast commercial opportunities. This is best demonstrated by our short journey in becoming one of the top clinical stage

 

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immunology companies in China. For example, in 2018 and 2019, we are the only China-based biotech company recognized by Genetic Engineering & Biotechnology News (GEN) as a top 10 immuno-oncology start-up in the world. To date, our research and development capabilities encompass discovery, translational medicine, biologics CMC development, pre-clinical development and clinical development with footprints in Shanghai, Beijing and the United States. We are now at a critical juncture to transition from a clinical stage biotech company into a fully integrated end-to-end global biopharmaceutical company in the next few years.

Since the commencement of our operation in 2014, we have devoted most of our efforts and financial resources to organize and staff our operations, business planning, raise capital, establish our intellectual property portfolio and conduct pre-clinical and clinical trials of our drug candidates.

We have raised in excess of US$940 million in the past four years. We have not generated any revenue from product sales, and as a result, we have never been profitable and have incurred net losses since the commencement of our operations. In 2017, 2018, 2019 and the nine months ended September 30, 2020, our net losses were RMB298.2 million, RMB402.8 million, RMB1,452.0 million (US$213.8 million) and RMB570.6 million (US$84.0 million), respectively. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits.

Key Factors Affecting Our Results of Operations

Our results of operations, financial condition, and the year-to-year comparability of our financial results have been, and are expected to continue to be, principally affected by the below factors:

Cost and Expenses Structure

Our results of operations are significantly affected by our cost structure, which primarily consists of research and development expenses and administrative expenses.

Research and development activities are central to our business model. We believe our ability to successfully develop drug candidates will be the primary factor affecting our long-term competitiveness, as well as our future growth and development. Developing high-quality drug 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 this area. Since our inception, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical trials, and activities related to regulatory filings for our drug candidates. Our research and development expenses primarily include the following:

 

   

costs related to development of our pipeline assets under all stages including discovery, pre-clinical testing or clinical trials;

 

   

patent license fees and other fees under the licensing, collaboration and development agreements with respect to our in-licensed drug candidates; and

 

   

employee salaries and related benefit costs, including share-based compensation expenses, for research and development personnel and key management.

At this time, we are unable to predict when, if ever, we will be able to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods thereafter. 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;

 

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establishing an appropriate safety profile;

 

   

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

 

   

receipt of marketing approvals from applicable regulatory authorities;

 

   

commercializing the drug candidates, if and when approved, whether alone or in collaboration with others;

 

   

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

 

   

continued acceptable safety profiles of the products following approval; and

 

   

retention of key research and development personnel.

Any change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs, timing and viability associated with the development of that drug candidate. We expect research and development costs to continue to increase for the foreseeable future as we expand our operations and our development programs progress, including as we continue to support and advance the clinical trials of our drug candidates.

Our administrative expenses consist primarily of employee salaries and related benefit costs. Other administrative expenses include professional fees for consulting and auditing as well as other direct and allocated expenses for rental expenses for our facilities, travel costs and other supplies used in administrative activities. We expect our administrative expenses to increase in the future to support our pipeline assets and research and development efforts, and the commercialization of our drug candidates once approval is obtained. We also anticipate that our administrative expenses will increase as we operate as a public company.

Revenue from Out-Licensing Agreements

We continue to seek out-licensing opportunities for our de-prioritized assets to streamline our pipeline. In 2017, 2018 and 2019, our revenue consisted primarily of payments from granting licenses to use and otherwise exploit certain of our intellectual properties linked to our de-prioritized assets. See “Business—Licensing and Collaboration Arrangements” for more information on the existing out-licensing arrangements. In addition, after validating clinical safety and preliminary efficacy of a drug candidate in our Global Portfolio in clinical trials in the United States, we may elect to out-license the global rights (excluding Greater China) of such drug candidate, while retaining the Greater China rights for further development and commercialization. But we may also choose to retain these rights for the United States or other countries or regions as we may deem fit. Before the commercialization of one or more of our drug candidates, we expect that the majority of our revenue will continue to be generated from out-licensing our intellectual properties.

Funding for Our Operations

During the periods presented, we funded our operations primarily from financing through the issuance and sale of preferred shares and convertible promissory notes in private placement transactions. Going forward, in the event of successful commercialization of one or more of our drug candidates, we expect to fund our operations in part with revenue generated from sales of our commercialized drug products. However, with the continuing expansion of our business and our product pipeline, we may require further funding through public or private offerings, debt financing, collaboration, and licensing arrangements or other sources. Any fluctuation in our ability to fund our operations will impact our cash flow plan and our results of operations.

 

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Our Ability to Commercialize Our Drug Candidates

Our business and results of operations depend on our ability to commercialize our drug candidates, once and if those candidates are approved for marketing by the respective health authority. Currently, our pipeline consists of more than ten drug candidates ranging in development status from pre-clinical to late-stage clinical programs. Although we currently do not have any product approved for commercial sale and have not generated any revenue from product sales, we expect to generate revenue from sales of a drug candidate after we complete the clinical development, obtain regulatory approval, and successfully commercialize such drug candidate. Our late-stage investigational drugs at or potentially near pivotal trials are felzartamab, eftansomatropin, olamkicept and enoblituzumab. See “Business—Our Drug Pipeline” for more information on the development status of our various drug candidates.

The Effect of Our Acquisition of I-Mab Tianjin

We acquired a controlling interest in I-Mab Tianjin on July 15, 2017 and the remaining interest in I-Mab Tianjin in May 2018. Since our acquisition of the controlling interest in I-Mab Tianjin on July 15, 2017, I-Mab Tianjin has been consolidated into our results of operations. Shortly after we acquired the controlling interest in I-Mab Tianjin, we integrated the operations of I-Mab Tianjin into our operations.

I-Mab Tianjin did not generate any external revenue from July 15, 2017 to September 30, 2020. In connection with our acquisition of I-Mab Tianjin, we identified RMB148.8 million of intangible assets and RMB162.6 million of goodwill of I-Mab Tianjin. Goodwill is not amortized, but impairment of goodwill assessment is performed on an least an annual basis on December 31 or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. No impairment was identified as of December 31, 2017, 2018 and 2019 and September 30, 2020. Impairment charges could substantially affect our results of operations in the periods of such charges. In addition, impairment charges would negatively impact our financial ratios and could limit our ability to obtain financing in the future. See “Risk Factors—Risks Related to Our Industry, Business and Operations––Change in business prospects of acquisitions may result in impairment to our goodwill, which could negatively affect our reported results of operations.”

Impact of the COVID-19 Outbreak on Our Business

As of the date of this prospectus supplement, the impact of the ongoing global coronavirus- 19 (COVID-19) pandemic to our business has been limited. To date, although COVID-19 has caused some delays in the initiation of the ongoing trials of certain clinical-stage drug candidates in early 2020, the COVID-19 pandemic has not had a material impact on our ongoing clinical activities, in particular, clinical activities related to our late-stage drug candidates, such as felzartamab, eftansomatropin and olamkicept. See “Our Business––Our Drug Candidates” for our clinical development plans for our drug candidates. As of the date of this prospectus supplement, the outbreak of COVID- 19 has not caused any early termination of our clinical trials or necessitated removal of any enrolled patients. We have employed various measures to mitigate impacts of the COVID- 19 outbreak on our currently ongoing trials in Greater China and the United States. We worked closely with our CROs to monitor the situation and manage the process of our clinical trials. We maintained contact with our patients to ensure that they remain on the trials and that any information they need will be readily available. In addition, we believe the COVID- 19 outbreak has not significantly impacted our ability to carry out our obligations under existing contracts or disrupted any supply chains that we rely upon.

As of the date of this prospectus supplement, we have not had any suspected or confirmed COVID-19 cases on our premises or among our employees. To prevent any spread of COVID-19 in our offices and research facilities, we have adopted a thorough disease prevention scheme to protect our employees from contracting COVID-19. The measures we have implemented include, among others, regularly sterilizing and ventilating our offices, checking the body temperature of our employees, keeping track of the travel history and health

 

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conditions of employees and their immediate family members, providing face masks to employees attending the office, minimizing in-person meetings to the extent possible and encouraging employees to wear masks when needed. As of the date of this prospectus supplement, our ongoing clinical trials and CROs had resumed full and normal operations and the COVID- 19 outbreak had not resulted in a major disruption to our operations.

Taking into account our past and prospective cash burn rate, including but not limited to future clinical development and administrative expenses, lease payment, capital expenditure and current financial position, our ability to control the speed and breadth of our clinical development and business development activities and our expansion in headcount, our current internal resources, we estimate that our financial resources can support our research and development activities and business operations for at least the next 12 months.

Although we believe we have implemented strategies to potentially minimize the impact of the COVID-19 pandemic to our business, we expect that we may experience delays with respect to the initiation and patient enrollment of certain additional trials. The extent to which the COVID- 19 pandemic impacts the timing of these additional trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, any restrictions on the ability of hospitals and trial sites to conduct trials that are not designed to address the COVID-19 pandemic and the perceived effectiveness of actions taken in China and the United States to contain and treat the disease. We will continue to evaluate the impact of the COVID-19 pandemic to our business.

In addition, there are still uncertainties with regard to the continued development of COVID-19 and its implications, and we will continue to assess the situation and seek to put in place relevant mitigating measures where necessary. The above analyses are made by our management based on currently available information concerning COVID-19. We cannot guarantee that the outbreak of COVID- 19 will not further escalate or have a material adverse effect on our business operations. Please also see “Risk Factors—Risks Related to Our Industry, Business and Operations—Our business, financial condition and results of operations could be adversely affected by the COVID-19 outbreak.” and “Risk Factors—Risks Related to Our Industry, Business and Operations—Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.”

Key Components of Results of Operations

Revenues

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future before the successful commercialization of one or more of our drug candidates.

We generated substantially all of our revenues for the years ended December 31, 2017, 2018 and 2019 from granting licenses to use and otherwise exploit certain of our intellectual properties in connection with our de-prioritized assets.

Research and Development Expenses

Research and development expenses primarily consist of: (i) payroll and other related expenses of research and development personnel, (ii) fees associated with the exclusive development rights of our in-licensed drug candidates, (iii) fees for services provided by contract research organizations, investigators and clinical trial sites that conduct our clinical studies, and (iv) expenses relating to the development of our drug candidates, including raw materials and supplies, product testing, depreciation, and facility related expenses.

 

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Our current research and development activities primarily relate to the clinical development of the following investigational drugs:

 

   

Felzartamab, a potential highly differentiated CD38 antibody for multiple myeloma and autoimmune diseases, if approved;

 

   

Efineptakin, the first long-acting recombinant human IL-7 with the potential for cancer treatment-related lymphopenia and cancer immunotherapy, if approved;

 

   

Eftansomatropin, a potential highly differentiated long-acting growth hormone for growth hormone deficiency, if approved;

 

   

Olamkicept, a potential highly differentiated IL-6 blocker for ulcerative colitis and other autoimmune diseases, if approved;

 

   

Enoblituzumab, the most advanced clinical stage humanized B7-H3 antibody as a potential immuno-oncology treatment, if approved;

 

   

Lemzoparlimab, a potential highly differentiated CD47 monoclonal antibody with unique RBC-sparing differentiation, if approved;

 

   

Uliledlimab, a potential highly differentiated CD73 antibody for immuno-oncology, if approved; and

 

   

Plonmarlimab, a GM-CSF monoclonal antibody for rheumatoid arthritis and CAR-T-related therapies, if approved.

We incurred research and development expenses of RMB267.1 million, RMB426.0 million and RMB840.4 million (US$123.8 million) for the years ended December 31, 2017, 2018 and 2019, respectively, representing 91.3%, 86.5% and 56.2% of our total research and development and administrative expenses for the corresponding periods. We incurred research and development expenses of RMB578.4 million and RMB698.5 million (US$102.9 million) for the nine months ended September 30, 2019 and 2020, respectively. We expect our research and development expenses to continue to increase for the foreseeable future, as we continue to expand our operations and to advance our pipeline and our drug candidates toward later stages.

Administrative Expenses

Administrative expenses primarily consist of salaries and related benefit costs, including share-based compensation, for employees engaged in managerial and administrative positions or involved in general corporate functions, professional fees for consulting and auditing as well as other direct and allocated expenses for rental expenses for our facilities, travel costs and other supplies used in administrative activities. For the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2020, our administrative expenses amounted to RMB25.4 million, RMB66.4 million, RMB654.6 million (US$96.4 million) and RMB310.8 million (US$45.8 million), respectively.

Interest Expense

Interest expense consist primarily of interest expenses on our (i) short-term bank borrowings and (ii) convertible promissory notes issued to certain investors.

Interest Income

Interest income consists primarily of interest income derived from our term deposit and restricted cash pledged as collateral for a working capital loan.

 

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Other Income (Expenses), Net

Other income consists primarily of income from the equity transfer of I-Mab Hangzhou and other financial assets.

Other expenses consist primarily of the net loss resulting from the conversion of a portion of our convertible promissory notes and loss on the termination agreement with Everest.

Fair Value Change of Warrants

Fair value change of warrants consists primarily of the non-cash items incurred in connection with changes in the fair value of our warrant liabilities that we issued to certain investors.

Taxation

Cayman Islands

I-Mab, our holding entity, is incorporated in the Cayman Islands. The Cayman Islands currently has no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders. I-Mab did business registration in Hong Kong and had a HK tax file number.

Hong Kong

I-Mab Biopharma Hong Kong Limited is incorporated in Hong Kong. Companies registered in Hong Kong are subject to Hong Kong profits tax on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant Hong Kong tax laws. Under the current Hong Kong Inland Revenue Ordinance, from the year of assessment 2018/2019 onwards, our subsidiary in Hong Kong is subject to profits tax at the rate of 8.25% on assessable profits up to HK$2,000,000; and 16.5% on any part of assessable profits over HK$2,000,000. For the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2020, I-Mab Biopharma Hong Kong Limited did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earnings in Hong Kong for any of the periods presented. Under the Hong Kong tax law, I-Mab Biopharma Hong Kong Limited is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

United States

I-Mab Biopharma US Ltd. is incorporated in Maryland and is subject to U.S. federal corporate income tax at a rate of 21%. It is also subject to state income tax in Maryland at a rate of 8.25%. I-Mab Biopharma US Ltd. has no taxable income for all periods presented and therefore no provision for income taxes is required.

China

On March 16, 2007, the National People’s Congress of PRC enacted a new Corporate Income Tax Law (“new CIT law”) (as amended in 2017 and 2018), under which Foreign Investment Enterprises (“FIEs”) and domestic companies would be subject to corporate income tax at a uniform rate of 25%. The new CIT law became effective on January 1, 2008. Under the new CIT law, preferential tax treatments will continue to be granted to entities which conduct businesses in certain encouraged sectors and to entities otherwise classified as “High and New Technology Enterprises.”

I-Mab Shanghai has been qualified as a “High and New Technology Enterprise” and enjoys a preferential income tax rate of 15% from 2018 to 2020. Our company’s other PRC subsidiaries are subject to the statutory income tax rate of 25%. No provision for income taxes has been accrued because all of our PRC subsidiaries are in cumulative loss positions for all the periods presented.

 

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A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized in the foreseeable future. In making such determination, we evaluate a variety of positive and negative factors including our operating history, accumulated deficit, the existence of taxable temporary differences and reversal periods.

We have incurred net accumulated operating losses for income tax purposes since our inception.

We evaluate each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2017, 2018 and 2019 and September 30, 2020, we did not have any significant unrecognized uncertain tax positions.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus supplement. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 

    For the Year Ended December 31,     For the Nine Months Ended September 30,  
    2017     2018     2019     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
    (in thousands, except for share and per share data)  

Revenues

             

Licensing and collaboration revenue

    11,556       53,781       30,000       4,419       30,000       —         —    

Expenses

             

Research and development expenses(1)

    (267,075     (426,028     (840,415     (123,780     (578,377     (698,461     (102,872

Administrative expenses(1)

    (25,436     (66,391     (654,553     (96,405     (582,732     (310,775     (45,772
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (280,955     (438,638     (1,464,968     (215,766     (1,131,109 )      (1,009,236 )      (148,644 ) 

Interest income

    858       4,597       30,570       4,502       22,828       18,658       2,748  

Interest expense

    (5,643     (11,695     (2,991     (441     (2,466     (957     (141

Other income (expenses), net

    1,527       (16,780     (20,205     (2,976     1,758       420,900       61,992  

Fair value change of warrants

    (14,027     61,405       5,644       832       5,609       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (298,240     (401,111     (1,451,950     (213,849     (1,103,380 )      (570,635 )      (84,045 ) 

Income tax expense

    —         (1,722     —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to I-Mab

    (298,240     (402,833     (1,451,950     (213,849     (1,103,380 )      (570,635 )      (84,045 ) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    For the Year Ended December 31,     For the Nine Months Ended September 30,  
    2017     2018     2019     2019     2020  
   

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
    (in thousands, except for share and per share data)  

Deemed dividend to Series C-1 preferred shareholders at extinguishment of Series C-1 Preferred Shares

    —         —         (5,283     (778     —         —         —    

Deemed dividend to Series B-1, B-2 and C preferred shareholders at modification of Series B-1, B-2 and C Preferred Shares

    —         —         (27,768     (4,090     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (298,240     (402,833     (1,485,001     (218,717     (1,103,380 )      (570,635 )      (84,045 ) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

             

Foreign currency translation adjustments, net of nil tax

    5,918       53,689       10,747       1,583       66,254       15,530       2,288  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to I-Mab

    (292,322     (349,144     (1,441,203     (212,266     (1,037,126 )      (555,105 )      (81,757 ) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

    (298,240     (402,833     (1,485,001     (218,717     (1,103,380 )      (570,635 )      (84,045 ) 

Weighted-average number of ordinary shares used in calculating net loss per shares

             

Basic and diluted

    5,742,669       6,529,092       7,381,230       7,381,230       7,184,086       126,758,926       126,758,926  

Net loss per share attributable to ordinary shareholders

             

Basic

    (51.93     (61.70     (201.19     (29.63     (153.59     (4.50     (0.66

Diluted

    (51.93     (61.70     (201.19     (29.63     (153.59     (4.50     (0.66

Non-GAAP Measure:(2)

             

Adjusted Net Loss

    (291,201     (399,313     (969,798     (142,836     (588,187     (178,059     (26,225

 

Note:

(1)

Share-based compensation expenses were allocated as follows:

 

     For the Year Ended December 31,      For the Nine Months Ended
September 30,
 
     2017      2018      2019      2019      2020  
    

RMB

    

RMB

    

RMB

    

US$

    

RMB

    

RMB

    

US$

 
     (in thousands)  

Research and development expenses

     2,112        1,056        470        69        467        224,619        33,083  

Administrative expenses

     4,927        2,464        514,733        75,812        514,726        167,957        24,737  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7,039        3,520        515,203        75,881        515,193        392,576        57,820  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

See “—Non-GAAP Financial Measure.”

 

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Comparison of Nine Months Ended September 30, 2020 and 2019

Revenues

Our revenues generated from licensing and collaboration decreased from RMB30.0 million for the nine months ended September 30, 2019 to nil the nine months ended September 30, 2020. Our revenues generated for the nine months ended September 30, 2019 consisted of CSPC entity’s upfront payment and first milestone payment to us pursuant to our out-licensing arrangement with CSPC entity.

Research and Development Expenses

The following table sets forth a breakdown of the major components of our research and development expenses in absolute amounts and as a percentage of our total research and development expenses for the periods indicated:

 

     For the Nine Months Ended September 30,  
     2019      2020  
    

RMB

    

%

    

RMB

    

US$

    

%

 
     (in thousands, except percentages)  

CRO service fees

     316,594        54.7        330,266        48,643        47.3  

In-licensed patent right fees

     160,351        27.7        15,376        2,265        2.2  

Employee benefit expenses

     72,132        12.5        315,455        46,461        45.2  

Material costs for drug candidates

     1,269        0.2        11,197        1,649        1.6  

Other expenses

     28,031        4.8        26,167        3,854        3.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     578,377        100.0        698,461        102,872        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Our research and development expenses increased by 20.8% from RMB578.4 million for the nine months ended September 30, 2019 to RMB698.5 million (US$102.9 million) for the nine months ended September 30, 2020, primarily attributable to (i) an increase in the CRO service fees from RMB316.6 million for the nine months ended September 30, 2019 to RMB330.3 million (US$48.6 million) for the nine months ended September 30, 2020, as we advanced some of our existing investigational drugs into more advanced clinical development stages; and (ii) an increase in employee benefit expenses of employees involved in research and development from RMB72.1 million for the nine months ended September 30, 2019 to RMB315.5 million (US$46.5 million) for the nine months ended September 30, 2020, mainly due to an increase in share-based compensation by RMB224.6 million (US$33.1 million).

In the nine months ended September 30, 2020, 78.8% and 21.2% of our total research and development expenses were attributable to clinical programs and preclinical programs, respectively. In the nine months ended September 30, 2019, 90.3% and 9.7% of our total research and development expenses were attributable to clinical programs and preclinical programs, respectively. For the nine months ended September 30, 2020, felzartamab represented approximately 51.2% of our external research and development expenses, which primarily included payments to CROs and CMOs. No other programs represented a significant amount of research and development expenses in the nine months ended September 30, 2020 and 2019. Though 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 time.

Administrative Expenses

Our administrative expenses decreased from RMB582.7 million for the nine months ended September 30, 2019 to RMB310.8 million (US$45.8 million) for the nine months ended September 30, 2020, primarily attributable to the decrease in employee benefit expenses by RMB310.6 million (US$45.7 million) due to decrease of share-based compensation expenses.

 

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Interest Income

We recorded RMB22.8 million of interest income for the nine months ended September 30, 2019 and RMB18.7 million (US$2.7 million) of interest income for the nine months ended September 30, 2020. The change was primarily attributable to the interest income derived from bank deposits.

Interest Expense

We recorded RMB2.5 million of interest expense for the nine months ended September 30, 2019 and RMB1.0 million (US$0.1 million) of interest expense for the nine months ended September 30, 2020. The change was primarily attributable to the interest expense related to our short-term borrowings, which were borrowed in June 2019 and repaid in June 2020.

Other Income (Expenses), Net

We recorded RMB1.8 million of other income for the nine months ended September 30, 2019 and RMB420.9 million (US$62.0 million) of other income for the nine months ended September 30, 2020. The increase was primarily attributable to the RMB407.6 million gain recognized as a result of transfer of equity of I-Mab Hangzhou from I-Mab Hong Kong to a group of domestic investors. The equity transfer realized the fair value appreciation in the pipeline assets as well as the employment of a team of designated management and workforce.

Fair Value Change of Warrants

We recorded a loss from change in the fair value of warrant liability of RMB5.6 million for the nine months ended September 30, 2019 and nil for the nine months ended September 30, 2020. The change was primarily attributable to the fact that the holders of Series B Warrants have unconditionally and irrevocably waived and cancelled the Tranche II of Series B Warrants in July 2019.

Comparison of Year Ended December 31, 2019 and 2018

Revenues

Our revenues generated from licensing and collaboration decreased by 44.2% from RMB53.8 million for the year ended December 31, 2018 to RMB30.0 million (US$4.4 million) for the year ended December 31, 2019. Our revenues generated for the year ended December 31, 2018 consisted of both HDYM’s milestone payment and ABL Bio’s upfront payment to us pursuant to our out-licensing arrangements with them, respectively. Our revenues generated for the year ended December 31, 2019 solely consisted of CSPC entity’s upfront and milestone payments to us pursuant to our out-licensing arrangement with CSPC entity.

 

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Research and Development Expenses

The following table sets forth a breakdown of the major components of our research and development expenses in absolute amounts and as a percentage of our total research and development expenses for the periods indicated:

 

     For the Year Ended December 31,  
     2018      2019  
    

RMB

    

%

    

RMB

    

US$

    

%

 
     (in thousands, except percentages)  

CRO service fees

     212,278        49.8        521,920        76,871        62.1  

In-licensed patent right fees

     108,794        25.5        166,844        24,573        19.9  

Employment benefit expenses

     56,630        13.3        106,313        15,658        12.7  

Material costs for drug candidates

     19,652        4.6        6,117        901        0.7  

Other expenses

     28,674        6.8        39,221        5,777        4.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     426,028        100.0        840,415        123,780        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Our research and development expenses increased by 97.3% from RMB426.0 million for the year ended December 31, 2018 to RMB840.4 million (US$123.8 million) for the year ended December 31, 2019, primarily attributable to (i) an increase in the CRO service fees from RMB212.3 million for the year ended December 31, 2018 to RMB521.9 million (US$76.9 million) for the year ended December 31, 2019, as we initiated a few more research and development programs and advanced some of our existing investigational drugs into more advanced clinical development stages; (ii) an increase in in-licensed patent right fees from RMB108.8 million for the year ended December 31, 2018 to RMB166.8 million (US$24.6 million) for the year ended December 31, 2019, mainly due to upfront fees paid to MacroGenics; and (iii) an increase in employee benefit expenses of employees involved in research and development from RMB56.6 million for the year ended December 31, 2018 to RMB106.3 million (US$15.7 million) for the year ended December 31, 2019, due to an increase in the headcount.

In 2019, 87.3% and 12.7% of our total research and development expenses were attributable to clinical programs and preclinical programs, respectively. In 2018, 72.3% and 27.7% of our total research and development expenses were attributable to clinical programs and preclinical programs, respectively. In 2019, felzartamab represented approximately 41.4% of our external research and development expenses, which primarily included licensing fees and payments to CROs and CMOs. In 2018, efineptakin and felzartamab represented approximately 25.0% and 9.9% of our external research and development expenses, which primarily included licensing fees and payments to CROs and CMOs. No other programs represented a significant amount of research and development expenses in 2019 and 2018. Though 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 time.

Administrative Expenses

Our administrative expenses increased from RMB66.4 million for the year ended December 31, 2018 to RMB654.6 million (US$96.4 million) for the year ended December 31, 2019, primarily attributable to (i) RMB365.3 million (US$53.8 million) in connection with stock options granted to a director of our company under the 2018 Plan which were immediately vested, (ii) RMB148.3 million (US$21.8 million) in connection with repurchase of share awards held by a director of our company, (iii) the increase in employee benefit expenses by RMB7.9 million (US$1.2 million) due to headcount increase, and (iv) the increase in third-party professional expenses by RMB41.4 million (US$6.1 million).

 

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Interest Income

We recorded RMB4.6 million of interest income for the year ended December 31, 2018 and RMB30.6 million (US$4.5 million) of interest income for the year ended December 31, 2019. The change was primarily attributable to the interest income derived from bank deposits.

Interest Expense

We recorded RMB11.7 million of interest expense for the year ended December 31, 2018 and RMB3.0 million (US$0.4 million) of interest expense for the year ended December 31, 2019. The change was primarily attributable to the interest expense related to our convertible promissory notes, which were converted in June and July 2018.

Other Income (Expenses), Net

We recorded RMB16.8 million of other expenses for the year ended December 31, 2018 and RMB20.2 million (US$3.0 million) of other income for the year ended December 31, 2019. The change was primarily attributable to the conversion of our convertible promissory notes and onshore convertible loans and loss on the termination agreement with Everest in 2019.

Fair Value Change of Warrants

We recorded a gain from change in the fair value of warrant liability of RMB61.4 million for the year ended December 31, 2018 and RMB5.6 million (US$0.8 million) for the year ended December 31, 2019. The change was primarily attributable to the change in fair value of warrants due to the increase in the valuation of our company.

Comparison of Year Ended December 31, 2018 and 2017

Revenues

Our revenues generated from licensing and collaboration increased by 365.4% from RMB11.6 million for the year ended December 31, 2017 to RMB53.8 million for the year ended December 31, 2018. Our revenues generated for the year ended December 31, 2017 consisted solely of HDYM’s milestone payment to us pursuant to our out-licensing arrangement with it. Our revenues generated for the year ended December 31, 2018 consisted of both HDYM’s milestone payment and ABL Bio’s upfront payment to us pursuant to our out-licensing arrangements with them, respectively.

Research and Development Expenses

The following table sets forth a breakdown of the major components of our research and development expenses in absolute amounts and as a percentage of our total research and development expenses for the periods indicated:

 

     For the Year Ended December 31,  
     2017      2018  
    

RMB

    

%

    

RMB

    

%

 
     (in thousands, except percentages)  

CRO service fees

     83,047        31.1        212,278        49.8  

In-licensed patent right fees

     134,846        50.5        108,794        25.5  

Employment benefit expenses

     26,799        10.0        56,630        13.3  

Material costs for drug candidates

     10,393        3.9        19,652        4.6  

Other expenses

     11,990        4.5        28,674        6.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     267,075        100.0        426,028        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Our research and development expenses increased by 59.5% from RMB267.1 million for the year ended December 31, 2017 to RMB426.0 million for the year ended December 31, 2018, primarily attributable to (i) an increase in the CRO service fees from RMB83.0 million in 2017 to RMB212.3 million in 2018, as we initiated a few more research and development programs and advanced some of our existing investigational drugs into more advanced clinical development stages; and (ii) an increase in employee benefit expenses of employees involved in research and development from RMB26.8 million in 2017 to RMB56.6 million in 2018, due to an increase in the headcount.

In 2018, 72.3% and 27.7% of our total research and development expenses were attributable to clinical programs and pre-clinical programs, respectively. In 2017, 77.5% and 22.5% of our total research and development expenses were attributable to clinical programs and pre-clinical programs, respectively. In 2018, TJ107 and TJ202 represented approximately 25.0% and 9.9% of our external research and development expenses, which primarily included licensing fees and payments to CROs and CMOs. In 2017, TJ202 represented approximately 59.1% of our external research and development expenses, which primarily included licensing fees and payments to CROs and CMOs. No other programs represented a significant amount of research and development expenses in 2018 and 2017. Though 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 time.

Administrative Expenses

Our administrative expenses increased from RMB25.4 million for the year ended December 31, 2017 to RMB66.4 million for the year ended December 31, 2018, primarily attributable to (i) the increase in employee benefit expenses due to headcount increase, and (ii) the increase in third-party professional expenses.

Interest Income

We recorded RMB0.9 million of interest income for the year ended December 31, 2017 and RMB4.6 million of interest income for the year ended December 31, 2018. The change was primarily attributable to the interest income derived from our bank deposits.

Interest Expense

We recorded RMB5.6 million of interest expense for the year ended December 31, 2017 and RMB11.7 million of interest expense for the year ended December 31, 2018. The change was primarily attributable to (i) the interest expense accrued on the one-year bank borrowing facilities we entered into in the third quarter of 2017 and 2018, respectively; and (ii) the interest expense related to our convertible promissory notes, which were converted in June and July 2018.

Other Income (Expenses), Net

We recorded RMB1.5 million of other income for the year ended December 31, 2017 and RMB16.8 million of other expenses for the year ended December 31, 2018. The change was primarily attributable to the net loss resulting from the conversion of a portion of our convertible promissory notes, partially offset by an increase in the income from the other financial assets.

Fair Value Change of Warrants

We recorded a loss from change in the fair value of warrant liability of RMB14.0 million for the year ended December 31, 2017, and a gain from change in the fair value of warrant liability of RMB61.4 million for the year ended December 31, 2018. The change was primarily attributable to (i) the change in fair value of warrants due to the increase in the valuation of our company, and (ii) the modification in 2018 that added certain forfeiture conditions to the warrants, which increased the possibility of forfeiture of the warrants and therefore resulted in a reduction in our warrant liabilities.

 

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Non-GAAP Financial Measure

To supplement our consolidated financial statements, which are presented in accordance with GAAP, we also use adjusted net loss as an additional financial measure, which is not required by, or presented in accordance with, GAAP. We believe adjusted net loss facilitates comparisons of operating performance from period to period and company to company by eliminating potential impacts of items which our management considers non-indicative of our operating performance.

We believe adjusted net loss provides useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as they help our management. However, our presentation of adjusted net loss may not be comparable to similarly titled measures presented by other companies. The use of adjusted net loss has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for an analysis of, our results of operations or financial condition as reported under GAAP.

We define adjusted net loss as net loss for the year/period, excluding share-based compensation expenses. We exclude share-based compensation expenses because they are not expected to result in future cash payments that are recurring in nature and they are not indicative of our core operating results and business outlook.

The following table reconciles our adjusted net loss for the periods presented to the most directly comparable financial measure calculated and presented in accordance with GAAP, which is net loss for the year/period:

 

     For the Year Ended December 31,     For the Nine Months
Ended September 30,
 
     2017     2018     2019     2019     2020  
    

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
     (in thousands)  

Reconciliation of net loss to adjusted net loss:

              

Net loss for the year/period

     (298,240     (402,833     (1,451,950     (213,849     (1,103,380     (570,635     (84,045

Add back:

              

Share-based compensation expenses

     7,039       3,520       515,203       75,881       515,193       392,576       57,820  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net loss for the year/period

     (291,201     (399,313     (936,747     (137,968     (588,187     (178,059     (26,225
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

Since 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 administrative costs associated with our operations. We incurred net losses of RMB298.2 million, RMB402.8 million, RMB1,452.0 million (US$213.8 million) and RMB570.6 million (US$84.0 million) for the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2020, respectively. Our primary use of cash is to fund our research and development activities. We used RMB252.2 million, RMB280.7 million, RMB868.0 million (US$127.8 million) and RMB582.6 million (US$85.8 million) in cash for our operating activities for the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2020, respectively. Historically, we have financed our operations principally through proceeds from the issuance and sale of preferred shares and convertible promissory notes in private placement transactions, and we also received total net proceeds of approximately US$105.3 million from our initial public offering. For more information of our financing, see “Description of Share Capital—History of Securities Issuances.” As of

 

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September 30, 2020, we had cash, cash equivalents and restricted cash of RMB2,960 million (US$436.0 million). Our cash, cash equivalents and restricted cash consist primarily of cash in bank and on hand. In September 2020, we entered into definitive subscription agreements with a consortium of institutional investors (the “Investors”) to raise approximately US$418 million through a private placement. The private placement consists of (i) the sale to the Investors of approximately US$418 million of our 29,133,502 ordinary shares (equivalent to 12,666,740 ADSs) at a purchase price equivalent to US$33 per ADS, representing a 2.9% premium to the 30-day volume weighted average price; and (ii) warrants (the “Warrants”) to subscribe for an aggregate of 5,341,267 ordinary shares (equivalent to 2,322,290 ADSs) at an exercise price equivalent to US$45 per ADS, representing a 40.3% premium to the 30-day volume weighted average price, which may further increase the proceeds of approximately US$104.5 million if the Warrants are fully exercised. The Warrants will remain exercisable at the election of the Investors within 12 months after the closing of the private placement.

The following table sets forth a summary of our cash flows for the periods presented:

 

     For the Year Ended December 31,     For the Nine Months Ended
September 30,
 
     2017     2018     2019     2019     2020  
    

RMB

   

RMB

   

RMB

   

US$

   

RMB

   

RMB

   

US$

 
     (in thousands)  

Net cash used in operating activities

     (252,157     (280,705     (867,982     (127,840     (651,993     (582,631     (85,812

Net cash (used in) generated from investing activities

     (157,665     9,500       212,462       31,292       135,128       (256,381     (37,760

Net cash (used in) generated from financing activities

     758,585       1,479,669       152,709       22,493       39,413       2,595,692       382,304  

Effect of exchange rate changes on cash and cash equivalents and restricted cash

     (132     59,754       15,163       2,233       77,581       10,054       1,480  

Net increase (decrease) in cash, cash equivalents and restricted cash

     348,631       1,268,218       (487,648     (71,822     (399,871     1,766,734       260,212  

Cash, cash equivalents and restricted cash, beginning of the year/period

     64,082       412,713       1,680,931       247,574       1,680,931       1,193,283       175,751  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of the year/period

     412,713       1,680,931       1,193,283       175,752       1,281,060       2,960,017       435,963  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future drug candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our drug candidates and begin to commercialize any approved products. We also expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing. Accordingly, we anticipate that we will need substantial additional funding in connection with our continuing operations.

Based on our current operating plan, we believe that our current cash and cash equivalents will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months. In that time, we expect that our expenses will increase substantially as we fund new and ongoing research and development activities and working capital needs. We have based our estimates on

 

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assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our drug candidates.

We may decide to enhance our liquidity position or increase our cash reserve for future operations and investments through additional financing. The issuance and sale of additional equity would result in further dilution to our shareholders and ADS holders, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as an ADS holder. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations, which could potentially dilute your interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or drug candidates that we would otherwise prefer to develop and market ourselves.

As of September 30, 2020, 31% of our cash and cash equivalents were denominated in RMB and held in China. We may make additional capital contributions to our PRC subsidiaries, establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, make loans to our PRC subsidiaries, or acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. See “Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our wholly foreign-owned subsidiaries in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business”. In addition, the COVID-19 outbreaks may materially and adversely affect our ability to raise additional capital in future and our liquidity. See “Risk Factors—Risks Related to Our Business and Our Industry—Our business and results of operations could be adversely affected by public health crisis (including the COVID-19 global pandemic) and natural catastrophes or other disasters outside of our control in the locations in which we, our suppliers, CROs, CMOs and other contractors operate.”

We expect that the majority of our future revenues will be denominated in RMB. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2020 was RMB582.6 million (US$85.8 million). Our net loss was RMB570.6 million (US$84.0 million) for the same period. The difference between our net loss and our net cash used in operating activities was primarily attributable to certain non-cash expenses, including share-based compensation of RMB392.6 million (US$57.8 million) and depreciation of property, equipment and software of RMB7.7 million (US$1.1 million), and changes in certain working capital items, including an increase in the prepayments and other receivables of RMB3.3 million (US$0.5 million), an increase in the deferred subsidy income of RMB3.7 million (US$0.5 million), an increase in the other non-current liabilities of RMB8.4 million (US$1.2 million), partially offset by an decrease in accruals

 

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and other payables of RMB17.6 million (US$2.6 million). The change in share-based compensation was attributable to the grant of stock options to certain directors and employees of our company under the 2017 Plan, 2018 Plan and 2019 Plan.

Net cash used in operating activities for the year ended December 31, 2019 was RMB868.0 million (US$127.8 million). Our net loss was RMB1,452.0 million (US$213.9 million) for the same period. The difference between our net loss and our net cash used in operating activities was primarily attributable to certain non-cash expenses, including share-based compensation of RMB366.9 million (US$54.0 million) and loss on the termination agreement with Everest of RMB23.0 million (US$3.4 million), and changes in certain working capital items, including an increase in the research and development funding of RMB53.1 million (US$7.8 million), an increase in the accruals and other payables of RMB188.4 million (US$27.7 million), partially offset by an decrease in advance from customers of RMB14.2 million (US$2.1 million) and an decrease in repayments and other receivables of RMB48.8 million (US$7.2 million). The change in share-based compensation was attributable to the grant of stock options to a director of our company under the 2018 Plan.

Net cash used in operating activities for the year ended December 31, 2018 was RMB280.7 million. Our net loss was RMB402.8 million for the same period. The difference between our net loss and our net cash used in operating activities was primarily attributable to certain non-cash expenses or gains, including fair value gains of warrants of RMB61.4 million, and changes in certain working capital items, including (i) an increase in the research and development funding of RMB178.7 million and (ii) an increase in accruals and other payables of RMB55.6 million, partially offset by an increase in prepayments and other receivables of RMB76.3 million. The accruals and other payables principally consist of accrued external research and development activities related expenses and staff salaries and welfare payables. The change in fair value of warrant liabilities was attributable to the exercise of part of the warrants issued in 2017 and the modification in 2018 that added certain forfeiture conditions to the warrants. Prepayments and other receivables primarily consist of our prepayment to CRO partners and value-added tax recoverable.

Net cash used in operating activities for the year ended December 31, 2017 was RMB252.2 million. Our net loss was RMB298.2 million. The difference between our net loss and our net cash used in operating activities was primarily attributable to certain non-cash expenses or gains, including the fair value loss of warrant liabilities of RMB14.0 million, and changes in certain working capital items, including (i) an increase in contract liabilities of RMB15.8 million and (ii) a decrease in prepayments and other receivables of RMB8.8 million.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2020 was RMB256.4 million (US$37.8 million). The net cash decrease was primarily attributable to RMB270.9 million (US$39.9 million) of the cash received from proceeds from purchase of short-term investments and RMB257.7 million (US$37.9 million) of the cash injection of I-Mab Hangzhou, an affiliate of us, partially offset by RMB276.9 million (US$40.8 million) of disposal of short-term investments.

Net cash generated from investing activities for the year ended December 31, 2019 was RMB212.5 million (US$31.3 million). The net cash increase was primarily attributable to RMB256.0 million (US$37.7 million) of the cash received from disposal of other financial assets and RMB134.0 million (US$19.7 million) of purchase of short-term investments, partially offset by RMB102.0 million (US$15.0 million) of proceeds from disposal of short-term investments.

Net cash generated from investing activities for the year ended December 31, 2018 was RMB9.5 million. The net cash increase was primarily attributable to RMB40.0 million of the cash received from disposal of other financial assets, partially offset by RMB30.0 million of the cash used in other financial assets.

Net cash used in investing activities for the year ended December 31, 2017 was RMB157.7 million. The net cash decrease was primarily attributable to RMB369.0 million of investments in other financial assets,

 

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partially offset by RMB133.0 million of proceeds from disposal of other financial assets and RMB93.3 million of cash acquired from acquisition of I-Mab Tianjin.

Financing Activities

Net cash generated from financing activities for the nine months ended September 30, 2020 was RMB2,595.7 million (US$382.3 million), primarily attributable to the proceeds from the initial public offering of our company, net of payment of offering issuance cost of RMB726.3 million (US$107.0 million), the proceeds from private placement of our company, net of payment of issuance cost of RMB1,980.5 million (US$291.7 million), partially offset by the repayment of bank borrowings of RMB50.0 million (US$7.4 million).

Net cash generated from financing activities for the year ended December 31, 2019 was RMB152.7 million (US$22.5 million), primarily attributable to the proceeds from issuance of convertible preferred shares, net of issuance cost of RMB183.5 million (US$27.0 million) and the repayment of bank borrowings of RMB80.0 million (US$11.8 million), partially offset by the proceeds of bank borrowings of RMB50.0 million (US$7.4 million).

Net cash generated from financing activities in the year ended December 31, 2018 was RMB1,479.7 million, primarily attributable to (i) proceeds from issuance of RMB1,306.6 million convertible preferred shares and (ii) receipt of RMB132.3 million resulting from the exercise of warrants by investors.

Net cash generated from financing activities in the year ended December 31, 2017 was RMB758.6 million, primarily attributable to proceeds of our issuance of RMB346.5 million convertible preferred shares, RMB161.2 million redeemable non-controlling interest and RMB99.0 million proceeds from bank borrowings.

Capital Expenditures

Our capital expenditures were incurred for purposes of purchasing property, equipment and software. Our capital expenditures were RMB20.3 million, RMB14.4 million, RMB12.2 million (US$1.8 million) and RMB4.8 million (US$0.7 million) in the years ended December 31, 2017, 2018 and 2019 and nine months ended September 30, 2020, respectively.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2019:

 

    Total     Less Than
1 Year
    1-3 Years     3-5 Years     More Than
5 Years
 
   

RMB

   

US$

   

RMB

   

US$

   

RMB

   

US$

   

RMB

   

US$

   

RMB

   

US$

 
    (in thousands)  

Operating lease commitments

    15,437       2,274       7,634       1,124       7,502       1,105       120       18       181       27  

Our operating lease commitments relate to leases for our office premises pursuant to non-cancellable operating lease agreements. Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2019.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity

 

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that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Internal Control Over Financial Reporting

In connection with the audits of our consolidated financial statements included in this prospectus supplement, we and our independent registered public accounting firm identified the following material weaknesses and other control deficiencies in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses that have been identified relate to (i) our lack of sufficient and competent financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements, to formalize key controls over financial reporting and to prepare consolidated financial statements and related disclosures; and (ii) our lack of sufficient documented financial closing policies and procedures, specifically those related to (a) accounting for licensing and collaboration agreements and (b) period end expenses cut-off and accruals. These material weaknesses, if not timely remedied, may lead to significant misstatements in our consolidated financial statements in the future.

We have implemented and plan to implement a number of measures to address the material weaknesses that have been identified in connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2017, 2018 and 2019 and the review of the consolidated financial statements as of and for the nine months ended September 30, 2020. We have hired additional qualified financial and accounting staff with working experience of U.S. GAAP and SEC reporting requirements, and plan to continue such hiring efforts. We intend to conduct regular and continuous U.S. GAAP accounting and financial reporting training programs for our financial reporting and accounting personnel. We further intend to establish sufficient and formal financial closing policies and procedures, specifically those related to accounting for licensing and collaboration arrangements and period end cut-off and accruals. We plan to, as work-in-progress, engage an external consulting firm to assist us to assess Sarbanes-Oxley Act compliance requirements and improve our overall internal controls. Furthermore, we plan to prepare more detailed guidance on accounting policies, manuals and closing procedures to improve the quality and accuracy of our period end financing closing process. We will continue to implement these and other measures to remediate our internal control deficiencies. We may incur significant costs in the implementation of such measures. However, the implementation of these measures may not fully address the deficiencies in our internal control over financial reporting, and we cannot assure you that all of these measures will be sufficient to remediate our material weakness in time, or at all.

As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.

Inflation

To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2017, 2018 and 2019 were increases of 1.8%, 1.9% and 4.5%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation in China in the future.

 

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Holding Company Structure

We are a holding company with no material operations of its own. We currently conduct our operations primarily through our PRC subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and their subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, our wholly foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion, and their subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

Quantitative and Qualitative Disclosures about Market Risk

Interest and Credit Risk

We had cash, cash equivalents and restricted cash of RMB412.7 million, RMB1,680.9 million, RMB1,193.3 million (US$175.8 million) and RMB2,960.0 million (US$436.0 million) as of December 31, 2017, 2018 and 2019 and September 30, 2020, respectively. Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.

Our credit risk is primarily attributable to the carrying amounts of cash and cash equivalents. The carrying amounts of cash and cash equivalents represent the maximum amount of loss due to credit risk. We mainly place or invest cash and cash equivalents with state-owned or reputable financial institutions in the PRC, and reputable financial institutions outside of the PRC. We do not believe that our cash and cash equivalents have significant risk of default or illiquidity, and we will continually monitor the credit worthiness of these financial institutions. While we believe our cash and cash equivalents do not contain excessive risk, future investments may be subject to adverse changes in market value.

Foreign Exchange Risk

Most of our revenues and expenses are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and RMB because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between RMB and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion.

 

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Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amounts available to us.

As of September 30, 2020, we had RMB-denominated cash and cash equivalents, restricted cash and short-term investments of RMB940 million (US$138.4 million). A 10% depreciation of RMB against U.S. dollar based on the foreign exchange rate on September 30, 2020 would result in a decrease of US$13.8 million in cash and cash equivalents. A 10% appreciation of RMB against U.S. dollar based on the foreign exchange rate on September 30, 2020 would result in an increase of US$13.8 million in cash and cash equivalents.

Critical Accounting Policies and Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities and other intangible assets as well as subsequent fair value measurements. Additionally, estimates are used in determining items such as fair value measurements of wealth management products, impairment of other receivables, contract assets, long-lived assets, intangible assets and goodwill, useful lives of property, equipment and software, recognition of right-of-use assets and lease liabilities, fair value measurements of warrant liabilities, variable consideration in collaboration revenue agreements, determination of the standalone compensation arrangement. We base 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 those estimates.

Revenue Recognition

We adopted Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) for all periods presented. Consistent with the criteria of Topic 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.

Under ASC 606, 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 ASC 606, 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, including variable consideration, if any; (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. We only apply the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

Once a contract is determined to be within the scope of ASC 606 at contract inception, we audit the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.

Collaboration Revenue

At contract inception, we analyze its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve

 

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joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine if the collaboration is deemed to be within the scope of ASC 808. For any units of account that are reflective of a vendor-customer relationship those units of account are accounted for within the scope of ASC 606. For any units of account that are not accounted for under ASC 606 and therefore accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently.

Our collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreement to provide research and development services and other deliverables. The collaborative arrangements do not include a right of return for any deliverable. As part of the accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. In developing the stand-alone selling price for a performance obligation, we consider competitor pricing for a similar or identical product, market awareness of and perception of the product, expected product life and current market trends. In general, the consideration allocated to each performance obligation is recognized when the respective obligation is satisfied either by delivering a good or providing a service, limited to the consideration that is not constrained.

When the timing of the delivery of product is different from the timing of payments made by the customers, we recognize either a contract asset (performance precedes the contractual due date) or a contract liability (customer payment precedes performance). Our contractual payment terms are typically due in no more than 30 days from invoicing. In limited situations, certain customer contractual payment terms require us to bill in arrears; thus, we satisfy some or all of our performance obligations before we are contractually entitled to bill the customer. In these situations, billing occurs subsequent to revenue recognition, which results in a contract asset. For example, certain of the contractual arrangements do not permit us to bill until the completion of the production of the samples. In other limited situations, certain customer contractual payment terms allow us to bill in advance; thus, we receive customer cash payment before satisfying some or all of its performance obligations. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities.

Licenses of Intellectual Property

Upfront non-refundable payments for licensing our intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, we recognize revenues from non-refundable, up-front fees allocated to the license at a point in time, when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

Research and Development Services

The portion of the transaction price allocated to research and development services performance obligations is deferred and recognized as revenue over time as delivery or performance of such services occurs.

Milestone Payments

At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development milestones and any related

 

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constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties or milestone payments based on the level of sales relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Research and Development Expenses

Elements of research and development expenses primarily include: (1) payroll and other related expenses of personnel engaged in research and development activities, (2) in-licensed patent rights fee of exclusive development rights of drugs granted to us, (3) expenses related to pre-clinical testing of our technologies under development and clinical trials such as payments to contract research organizations (“CRO”), investigators and clinical trial sites that conduct our clinical studies, (4) expenses to develop the product candidates, including raw materials and supplies, product testing, depreciation, and facility related expenses, and (5) other research and development expenses. 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.

We have 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 U.S. 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 would be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. The conditions enabling capitalization of development expenses as an asset have not yet been met and, therefore, all development expenditures are recognized in profit or loss when incurred.

Share-Based Compensation

We grant restricted shares and stock options to eligible employees and account for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation.

Employees’ share-based compensation awards are measured at the grant date fair value of the awards and recognized as expenses (i) immediately at the grant date if no vesting conditions are required; (ii) for share-based awards granted with only service conditions, using the graded vesting method net of estimated forfeitures over the vesting period; or (iii) for share-based awards granted with service conditions and the occurrence of an initial public offering as performance condition cumulative share-based compensation expenses for the options that have satisfied the service condition should be recorded upon the completion of the initial public offering using the graded vesting method.

A change in any of the terms or conditions of share-based awards is accounted for as a modification of the awards. We calculate incremental compensation expense of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified at the modification date. For vested awards, we recognize incremental compensation cost in the period when the modification occurs. For awards not being fully vested, we recognize the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original awards over the remaining requisite service period after modification.

 

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Share-based compensation in relation to the restricted shares is measured based on the fair market value of our ordinary shares at the grant date of the award. Prior to the listing, estimation of the fair value of our ordinary shares involves significant assumptions that might not be observable in the market, and a number of complex and subjective variables, including discount rate, and subjective judgments regarding our projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants are made. Share-based compensation in relation to the share options is estimated using the Binominal Option Pricing Model. The determination of the fair value of share options is affected by the share price of our ordinary shares as well as the assumptions regarding a number of complex and subjective variables, including the expected share price volatility, risk-free interest rate, exercise multiple and expected dividend yield. The fair value of these awards was determined with the assistance from an independent valuation firm.

Restricted ordinary shares

During the year ended December 31, 2016, we issued 4,019,554 ordinary shares to Mr. Zang Jingwu Zhang, Ms. Qian Lili, Mr. Wang Zhengyi and Mr. Fang Lei (collectively the “Founders”), including the 369,301 shares which represented the equity interests of Third Venture held by the Founders, and we recorded share-based compensation expense of RMB18.7 million for issuance and grant of 3,650,253 ordinary shares to the Founders in June 2016.

In October 2016, the Founders entered into an arrangement with our other investors, and the 87,441 ordinary shares issued to the Founders in June 2016 were cancelled, and out of the remaining 3,932,113 ordinary shares held by the Founders, 70% became restricted and subject to service vesting conditions, that shall vest 20%, 20% and 30% over the next three years, respectively. By October 2019, all the restricted shares were vested.

Deferred share-based compensation was measured for the restricted shares using the estimated fair value of our ordinary shares of US$0.77 at the date of imposition of the restriction in October 2016, and was amortized to the consolidated statements of comprehensive loss by using graded vesting method over the vesting term of 3 years. The following table summarizes our Founders’ restricted shares activities for the years ended December 31, 2017, 2018 and 2019 and the nine months ended September 30, 2019 and 2020:

 

    

Numbers of
Shares

    

Weighted-
Average
Grant
Date Fair

Value

 

Outstanding at December 31, 2017

     1,966,056        0.77  

Vested

     (786,423   

Outstanding at December 31, 2018 and September 30, 2019

     1,179,633        0.77  

Vested

     (1,179,633   
  

 

 

    

Outstanding at December 31, 2019 and September 30, 2020

     —          —    
  

 

 

    

The amounts of share-based compensation expense in relation to the restricted shares recognized in the year ended December 31, 2019 was RMB1,566 thousand, of which RMB1,566 thousand was recognized in the nine months ended September 30, 2019.

 

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No share-based compensation expense was recognized in the nine months ended September 30, 2020. Share-based compensation expenses relating to restricted shares were included in:

 

     Year Ended December 31,      Nine Months Ended
September 30,
 
     2017      2018      2019      2019      2020  
    

RMB

    

RMB

    

RMB

    

US$

    

RMB

    

RMB

    

US$

 
     (in thousands)  

Research and development expenses

     2,112        1,056        470        69        467        —          —    

Administrative expenses

     4,927        2,464        1,096        161        1,089        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     7,039        3,520        1,566        231        1,556        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Second Amended and Restated 2017 Employee Stock Option Plan (the “2017 Plan”)

In October 2017, we adopted the 2017 Plan (as last amended and restated on December 25, 2019). Under the 2017 Plan, a maximum aggregate number of 13,376,865 shares that may be issued pursuant to all awards granted were approved. Stock options granted to an employee under the 2017 Plan will be exercisable upon the completion of a listing and the employee renders service to us in accordance with a stipulated service schedule starting from the employee’s date of employment. Employees are generally subject to a three-year service schedule, under which an employee earns an entitlement to vest in 50% of the option grants on the second anniversary of the grant date, a vesting of the remaining fifty percent 50% on the third anniversary of the applicable grant date. The stock options under the 2017 Plan, to the extent then vested, shall become exercisable only upon the earlier of (i) a listing, and (ii) occurrence of a change in control.

On December 25, 2019, the 2017 Plan was approved by our shareholders and board of directors, pursuant to which, in connection with our initial public offering, the maximum aggregate number of shares that may be granted pursuant to all awards under the 2017 Plan shall be adjusted in accordance with a formula pre-approved by the shareholders. In connection with above amendments to the 2017 Plan, each of our founders, namely, Zheru Zhang, Lili Qian, Zhengyi Wang and Lei Fang, is willing to irrevocably surrender by him or her, for no consideration, of a portion of the unvested options granted to him or her, which, if vested, would entitle him or her to acquire up to 130,000 ordinary shares of our company, par value US$0.0001 per share, at an exercise price of US$1.0, respectively, under the 2017 Plan (in respect of each individual, the “Founder’s Surrendered Options”). On December 25, 2019, our board of directors approved that our company accepts all Founder’s Surrendered Options from each of the founders, namely, Zheru Zhang, Lili Qian, Zhengyi Wang and Lei Fang, for no consideration, with effect immediately prior to the completion of the initial public offering and such surrendered options be cancelled with effect immediately prior to the completion of the initial public offering.

Prior to our completion of a listing, all stock options granted to an employee shall be forfeited at the time the employee terminates his employment with us. After we complete a listing, vested options not exercised by an employee shall be exercised until later of: (i) 90 days after the date when the options become exercisable, or (ii) 30 days after the date of cessation of employment or directorship, or such longer period as the board of directors may otherwise determine.

We granted 11,051,230, 1,470,000, 640,000, 640,000 and nil stock options to employees, all with an exercise price of US$1, for the years ended December 31, 2017, 2018 and 2019 and for the nine months ended September 30, 2019 and 2020, respectively. No options are exercisable as of December 31, 2017, 2018 and 2019 and 8,047,548 stock options are exercisable as of September 30, 2020.

 

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The following table sets forth the stock options activities for the periods presented:

 

    Number of
Shares
    Weighted
Average
Exercise
Price
US$
    Weighted
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic
Value US$’000
 

Outstanding as of December 31, 2017

    11,761,596       0.94       9.50       24,890  

Granted

    1,470,000       1.00       —         —    

Forfeited

    (226,000     1.00       —         —    

Outstanding as of December 31, 2018

    13,005,596       0.95       8.61       70,129  

Granted

    640,000       1.00       —         —    

Forfeited

    (397,500     1.00       —         —    

Repurchased

    (3,435,215     1.00       —         —    

Outstanding as of December 31, 2019

    9,812,881       0.93       7.76       47,671  

Exercisable as of December 31, 2019

    —         —         —         —    

Exercised

    (115,888     —         —         —    

Forfeited

    (336,377     1.00       —         —    

Surrendered

    (332,566     1.00       —         —    

Outstanding as of September 30, 2020

    9,028,050       0.93       7.01       175,576  

Exercisable as of September 30, 2020

    8,047,548       0.92       6.91       156,567  

 

Note:

Other addition represented the modified share options that originally granted to two senior management employees in October 2016 (see “—other share-based compensation”).

Stock options granted to the employees were measured at fair value on the dates of grant using the Binomial Option Pricing Model with the following assumptions:

 

     Year Ended December 31,     Nine Months
Ended
September 30,
 
     2017     2018     2019     2019     2020  

Expected volatility

     62.34     61.32%—62.13     54.64     54.64     N/A  

Risk-free interest rate (per annum)

     2.32     2.81%—3.06     2.15     2.15     N/A  

Exercise multiple

     2.80       2.80       2.80       2.8       N/A  

Expected dividend yield

     —         —         —         —         N/A  

Contractual term (in years)

     10       10       10       10       N/A  

The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expected term of our options. The risk-free interest rate was estimated based on the yield to maturity of U.S. treasury bonds denominated in US$ for a term consistent with the expected term of our options in effect at the option valuation date. The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price when employees would decide to voluntarily exercise their vested options. As we did not have sufficient information of past employee exercise history, it was estimated by referencing to a widely-accepted academic research publication. Expected dividend yield is zero as we have never declared or paid any cash dividends on its shares, and we do not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the option.

There were no stock options granted to employees under the 2017 Plan for the nine months ended September 30, 2020. On January 17, 2020, we completed our initial public offering. After achieving this performance condition, the options continue to vest based only on service period completed according to the graded vesting schedule. We have begun recognizing share-based compensation expense for the options granted using the graded vesting method with a cumulative catch-up for the service period completed to date during the nine months ended September 30, 2020 and recognized RMB56,019 thousand and RMB69,204 thousand share-based compensation expenses in administrative expenses and research and development expenses, respectively,

 

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relating to options vested cumulatively. According to the amendments to the 2017 Plan, the maximum aggregate number of shares which may be granted pursuant to all awards under the 2017 Plan was changed to 9,609,084. Each of our founders, namely Zheru Zhang, Lili Qian, Zhengyi Wang and Lei Fang surrendered 83,142 unvested stock options that were granted to him or her under the 2017 Plan before, totaling 332,566 unvested options, for no consideration, and these stock options were cancelled immediately.

Second Amended and Restated 2018 Employee Stock Option Plan (the “2018 Plan”)

On February 22, 2019, our company adopted the 2018 Plan, which was subsequently amended and restated on July 22, 2019. Under the amended and restated the 2018 Plan, the maximum aggregate number of ordinary shares which may be issued pursuant to all awards is 14,005,745, and if we successfully list on an internationally recognized securities exchange for a qualified public offering by December 31, 2019, the maximum aggregate number of ordinary shares which may be issued shall be 15,452,620.

On December 25, 2019, the 2018 Plan was approved by the shareholders and board of directors of our company, pursuant to which, in connection with offering, the maximum aggregate number of shares that may be granted pursuant to all awards under the 2018 Plan may be adjusted in accordance with a formula pre-approved by our shareholders. In connection with above amendments to the 2018 Plan, the director of our company, Dr. Jingwu Zhang Zang is willing to irrevocably surrender by him, for no consideration, of the right to acquire a certain amount of ordinary shares of our company, par value US$0.0001 per share, at an exercise price of US$1.0 pursuant to the options granted to him under the 2018 Plan (the “Dr. Zang’s Surrendered Options”). On December 25, 2019, the board of directors of our company approved that our company accepts the irrevocable surrender of Dr. Zang’s Surrendered Options for no consideration, with effect immediately prior to the completion of the initial public offering and such surrendered options be cancelled with effect immediately prior to the completion of the initial public offering. See “Management—Share Incentive Plans—Second Amended and Restated 2018 Employee Stock Option Plan.”

Stock options granted to an employee under the 2018 Plan will be generally exercisable when our company completes a listing and the employee renders service to our company in accordance with a stipulated service schedule starting from the employee’s date of employment. The vesting schedule shall generally be a two-year vesting schedule consisting of a cliff vesting of 50% of the stock options on the first anniversary of the applicable vesting commencement date and a vesting of the remaining 50% on the second anniversary of the applicable vesting commencement date. If a listing occurs at any time prior to any stock option granted under the 2018 Plan becoming fully vested, to the extent such stock option has been granted and is outstanding, any such stock option shall vest in full with immediate effect upon the listing. Except as otherwise approved by the Board of Directors, any vested portion of the stock options shall become exercisable upon the earlier of six months after a listing or the occurrence of a change in control; provided, however, that in each case, no stock option of an employee shall become exercisable until the third anniversary of such employee’s employment commencement date.

Pursuant to the board of director’s approval of the 2018 Plan on February 22, 2019, the 10,893,028 stock options granted to a director of our company under the 2018 Plan were fully vested and exercisable upon the adoption of 2018 Plan. Out of these 10,893,028 stock options, 454,940 stock options were repurchased by our company (see Note 14 (d) to our unaudited interim condensed consolidated financial statements for further details).

The amount of share-based compensation expense in relation to the aforementioned grant of stock options to a director of our company (except for those repurchased by our company as described in Note 14 (d) to our unaudited interim condensed consolidated financial statements) recognized in the year ended December 31, 2019 was RMB365,329 thousand, which were allocated to our administrative expenses.

 

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The following table sets forth the stock options activities under the 2018 Plan for the nine months ended September 30, 2020:

 

     Number of
Shares
     Weighted
Average
Exercise
Price
US$
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value
US$
 

Outstanding as of December 31, 2018

     —          —          —          —    

Granted

     13,991,528        1.00        —          —    

Repurchased

     (454,940      1.00        —          —    

Outstanding as of December 31, 2019

     13,536,588        1.00        9.15        64,840  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable as of December 31,2019

     10,438,088        1.00        8.86        49,998  
  

 

 

    

 

 

    

 

 

    

 

 

 

Surrendered

     (2,544,917      1.00        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding as of September 30, 2020

     10,991,671        1.00        8.40        213,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable as of September 30, 2020

     10,166,671        1.00        8.40        197,720  
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock options granted to certain directors and employees of our company were measured at fair value on the dates of grant using the Binomial Option Pricing Model with the following assumptions:

 

     Year Ended December 31,     Nine Months Ended September 30,  
     2018      2019     2019     2020  

Expected volatility

     N/A        54.64—56.31     54.64—56.31     N/A  

Risk-free interest rate (per annum)

     N/A        2.15—2.75     2.15—2.75     N/A  

Exercise multiple

     N/A        2.80       2.80       N/A  

Expected dividend yield

     N/A        —         —         N/A  

Contractual term (in years)

     N/A        10       10       N/A  

The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expected term of our company’s options. The risk-free interest rate was estimated based on the yield to maturity of U.S. treasury bonds denominated in US$ for a term consistent with the expected term of our company’s options in effect at the option valuation date. The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price when employees would decide to voluntarily exercise their vested options. As our company did not have sufficient information of past employee exercise history, it was estimated by referencing to a widely-accepted academic research publication. Expected dividend yield is zero as our company has never declared or paid any cash dividends on its shares, and our company does not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the option.

Except for the aforementioned grant of stock options to a director of our company under the 2018 Plan, since the exercisability is dependent upon the listing, and it is not probable that this performance condition can be achieved until a listing, no share-based compensation expense related to the 2018 Plan was recorded for the year ended December 31, 2019.

On January 17, 2020, our Company completed its IPO. After achieving this performance condition, the options continue to vest based only on service period completed according to the graded vesting schedule. We have begun recognizing share-based compensation expenses for the options granted using the graded vesting method with a cumulative catch-up for the service period completed to date during the nine months ended September 30, 2020 and recognized RMB46,312 thousand and RMB66,496 thousand share-based compensation expense in administrative expenses and research and development expenses, respective, relating to options vested cumulatively. According to the amendments to the 2018 Plan, the maximum aggregate number of shares which

 

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may be granted pursuant to all awards under the 2018 Plan was changed to 11,005,888. Dr. Jingwu Zhang Zang, a director of our Company, surrendered 2,544,917 unvested options that were granted to him under the 2018 Plan, for no consideration, and these stock options were cancelled immediately.

Repurchase of share awards held by a director

On February 22, 2019, the amendment and restated 2017 equity incentive plan was approved by the Board of Directors of our company, pursuant to which only the 3,435,215 stock options held by a director of our company under the 2017 equity incentive plan became fully vested and exercisable on February 22, 2019. As a result of the performance condition being waived, the shares held by a director of our company were accounted for as a Type III modification where a condition that our company expects will not be satisfied is changed to a condition that our company expects will be satisfied.

Additionally, on the same day, our company repurchased such 3,435,215 stock options under the amendment and restated 2017 equity incentive plan that was held by a director of our company along with 454,940 of his stock options under the 2018 equity incentive plan for which the share awards also became fully vested and exercisable, at a total consideration of US$21,902 thousand (equivalent to approximately RMB148,308 thousand) at an average share price of US$5.63 per share.

For the nine months ended September 30, 2019, our company recorded the total payment of US$21,902 thousand (equivalent to approximately RMB148,308 thousand) as share-based compensation costs (included in administrative expenses) in the condensed consolidated statement of comprehensive loss. There was no impact to the overall stockholder’s equity balance as the amended shares vested immediately and were repurchased.

2019 Share Incentive Plan (the “2019 Plan”)

On October 29, 2019, we adopted the 2019 Plan. Under the 2019 Plan, the maximum aggregate number of ordinary shares available for issuance shall initially be 100,000. The options shall vest when our Company completes a listing and the employee renders service to our Company in accordance with a stipulated service schedule starting from the employee’s date of employment. Stock options granted to 3 independent directors under the 2019 Plan will be generally exercisable under the following terms: (a) a cliff vesting of 1/3 of the option on the first anniversary of the vesting commencement date (January 17, 2020); (b) a cliff vesting of 1/3 of the option on the second anniversary of the vesting commencement date (January 17, 2020); (c) a vesting of the remaining 1/3 of the option on the third anniversary of the vesting commencement date (January 7, 2020). In the last year of the grantee’s service, the options shall vest on a prorated basis to reflect the portion of the year during which the grantee provided services to our Company.

For the nine months ended September 30, 2020, our Company granted 72,000 stock options to three independent directors (all with an exercise price of US$6.09) and recognized RMB741 thousand share-based compensation expenses relating to the options vested. No options were exercisable as of September 30, 2020.

The following table sets forth the stock option activities of the 2019 Plan for the periods presented:

 

    

Number of
Shares

    

Weighted
Average
Exercise
Price
US$

    

Weighted
Average
Remaining
Contractual
Term

    

Aggregate
Intrinsic
Value
US$

 

Outstanding as of December 31, 2019

     —          —          —          —    

Granted

     72,000        6.09        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding as of September 30, 2020

     72,000        6.09        9.59        1,034  
  

 

 

    

 

 

    

 

 

    

 

 

 

Exercisable as of September 30, 2020

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Stock options granted to certain directors and employees of our company were measured at fair value on the dates of grant using the Binomial Option Pricing Model with the following assumptions:

 

    Nine Months Ended September 30,  
    2020  

Expected volatility

    54.88

Risk-free interest rate (per annum)

    0.79

Exercise multiple

    2.8  

Expected dividend yield

    —    

Contractual term (in years)

    10  

The expected volatility was estimated based on the historical volatility of comparable peer public companies with a time horizon close to the expected term of our company’s options. The risk-free interest rate was estimated based on the yield to maturity of U.S. treasury bonds denominated in US$ for a term consistent with the expected term of our options in effect at the option valuation date. The expected exercise multiple was estimated as the average ratio of the stock price to the exercise price when employees would decide to voluntarily exercise their vested options. As our Company did not have sufficient information of past employee exercise history, it was estimated by referencing to a widely-accepted academic research publication. Expected dividend yield is zero as our Company has never declared or paid any cash dividends on its shares, and our Company does not anticipate any dividend payments in the foreseeable future. Expected term is the contract life of the option.

2020 Share Incentive Plan (the “2020 Plan”)

In July 2020, we adopted the 2020 Plan. Under the 2020 Plan, the maximum aggregate number of ordinary shares which may be issued pursuant to all awards shall be 10,760,513, provided that the maximum number of shares may be issued pursuant to awards in the form of restricted share units under this plan shall not exceed 7,686,081 ordinary shares. From August 2020 through September 2020, we granted 1,068,733 stock options and 4,892,918 restricted share units under the 2020 Plan to employees, respectively.

Other share-based compensation

In October 2017, in connection with the adoption of the 2017 Plan, we amended the stock option agreement with the two aforementioned employees, under which the stock options would become exercisable only upon the earlier of (i) a listing, and (ii) occurrence of a change in control that defined in the stock option agreements. As the modification of terms and conditions of share-based compensation were not beneficial to its employees, no further accounting impact was resulting from it.

Establishment of Biomaster Trust

Biomaster Trust was established under the trust deed, dated October 23, 2019, between us and TMF Trust (HK) Limited, or TMF Trust, as the trustee of the Biomaster Trust. Through the Biomaster Trust, our company’s ordinary shares and other rights and interests under awards granted pursuant to the 2017 Plan and the 2018 Plan may be provided to certain recipients of equity awards. Upon satisfaction of the vesting conditions, TMF Trust will exercise the equity awards and transfer the relevant ordinary shares and other rights and interests under the equity awards to the relevant grant recipients with the consent of the advisory committee of Biomaster Trust. TMF Trust shall not exercise the voting rights attached to such ordinary shares unless otherwise directed by the advisory committee, whose members shall be appointed by our company. Our company has the power to direct the relevant activities of Biomaster Trust and has the ability to use its power over Biomaster Trust to affect its exposure to returns. Therefore, the assets and liabilities of Biomaster Trust are included in our consolidated statements of financial position.

 

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Surrender of stock options

On January 17, 2020, our Company completed its IPO. According to the amendments to 2017 Plan, the maximum aggregate number of shares which may be granted pursuant to all awards under 2017 Plan was changed to 9,609,084. Each of our founders, namely Zheru Zhang, Lili Qian, Zhengyi Wang and Lei Fang surrendered 83,142 unvested stock options that were granted to him or her under 2017 Plan before, totally 332,566 unvested options, for no consideration, and these stock options were cancelled immediately. According to the amendments to 2018 Plan, the maximum aggregate number of shares which may be granted pursuant to all awards under 2018 Plan was changed to 11,005,888. Dr. Jingwu Zhang Zang, a director of our Company, surrendered 2,544,917 unvested options that were granted to him under 2018 Plan, for no consideration, and these stock options were cancelled immediately. Upon the completion of our initial public offering in January 2020, we recorded RMB91,051 thousand share-based compensation expense related to these surrendered options.

The stock options surrendered by the founders should be accounted for as capital contribution. As the founders did not get the title of the options to be surrendered and the number of share options would not be determined until listing, the capital contribution was not accounted for during the year ended December 31, 2019. For the nine months ended September 30, 2020, our Company has reclassified RMB91,051 thousand from additional paid-in capital—share-based compensation to additional paid-in capital—capital contribution relating to the options surrendered in the condensed consolidated financial statement of comprehensive loss.

Fair Value of Ordinary Shares

We are required to estimate the fair value of the ordinary shares on grant dates of share-based compensation awards/share option to our employees and the issuance of financial instruments to investors. Therefore, our board of directors has estimated the fair value of our ordinary shares on various dates, with inputs from management, considering the third-party valuations. The valuations of our ordinary shares were performed using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Audit and Accounting Practice Aid Series: Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the AICPA Practice Guide.

In addition, our board of directors considered various objective and subjective factors, along with inputs from management and the independent third-party valuation firm, to determine the fair value of our ordinary shares, including: external market conditions affecting the biopharmaceutical industry, trends within the biopharmaceutical industry, the prices at which we sold convertible preferred shares, the superior rights and preference of the convertible preferred shares or other senior securities relative to our ordinary shares at the time of each grant and the likelihood of achieving a liquidity event such as an initial public offering. The option-pricing method was used to allocate the enterprise’s value to preferred shares or other senior securities and ordinary shares, taking into account the guidance prescribed by the AICPA Practice Guide. This method treats ordinary shares and convertible preferred shares or other senior securities as call options on the enterprise’s value, with exercise prices based on their respective payoffs upon a liquidity event.

In determining the enterprise’s value, we applied the market approach/backsolve method based on pricing from recent transactions in our own securities. The basis for application of this method is our transactions in equity securities with unrelated parties or among unrelated parties themselves. No evidence is observed to indicate these transactions are not arm’s-length transactions.

Our board of directors determined the fair value of our share options and the restricted shares as of the dates of grant, taking into consideration the various objective and subjective factors described above, including the conclusion of valuation of our ordinary shares as of dates close to the grant dates of our share options and the restricted shares. We computed the per share estimated fair value for share options based on the binomial option pricing model and the per share estimated fair value for restricted shares based on per share estimated fair value of ordinary shares as of the date of grant.

 

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Once public trading market of the ADSs has been established in connection with the completion of our initial public offering, it is no longer necessary for our board of directors to estimate the fair value of our ordinary shares in connection with our accounting for granted share options and restricted shares.

Fair Value Measurements

Our financial assets and liabilities primarily comprise of cash and cash equivalents, restricted cash, short-term investments, other financial assets, contract assets, other receivables, short-term borrowings, accruals and other payables and warrant liabilities. As of December 31, 2017, 2018 and 2019 and September 30, 2020, except for short-term investments, other financial assets and warrants liabilities, the carrying values of these financial assets and liabilities approximated their fair values because of their generally short maturities. We report short-term investments, other financial assets and warrant liabilities at fair value at each balance sheet date and changes in fair value are reflected in the consolidated statements of comprehensive loss.

We measure our financial assets and liabilities using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the management has the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect the management’s assumptions about the assumptions that market participants would use in pricing the asset. The management develops these inputs based on the best information available, including the own data.

We measured our short-term investments, other financial assets and warrant liabilities at fair value on a recurring basis. As our short-term investments, other financial assets and warrant liabilities are not traded in an active market with readily observable prices, we use significant unobservable inputs to measure the fair value of short-term investments, other financial assets and warrant liabilities. These instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement.

Recent Accounting Pronouncements

A list of recently issued accounting pronouncements that are relevant to us is included in note 2 “Principal Accounting Policies—2.26 Recent Accounting Pronouncements” of our consolidated financial statements included elsewhere in this prospectus supplement.

 

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CAPITALIZATION

The following section sets forth certain information in the section titled “Capitalization” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

The following table sets forth our capitalization as of September 30, 2020. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus supplement and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of September 30, 2020  
    

RMB

    

US$

 

Convertible promissory notes

     64,771        9,540  

Shareholders’ equity

     

Ordinary shares (US$0.0001 par value, 800,000,000 shares authorized as of September 30, 2020; 153,543,910 shares issued and outstanding as of September 30, 2020)

     106        16  

Additional paid-in capital

     6,720,714        989,854  

Accumulated other comprehensive income

     85,657        12,616  

Accumulated deficit

     (3,064,842      (451,403
  

 

 

    

 

 

 

Total shareholders’ equity

     3,741,635        551,083  
  

 

 

    

 

 

 

Total capitalization

     3,806,406        560,623  
  

 

 

    

 

 

 

 

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BUSINESS

The following section sets forth certain information in the section titled “Business” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

Our Unique Business Model

Fast-to-Market China Strategy

 

   

For enoblituzumab, a humanized antibody directed at B7-H3, in the first quarter of 2021, MacroGenics expects to initiate a Phase 2 study of enoblituzumab in a chemo-free regimen in combination with either retifanlimab (an investigational PD-1 antibody) in front-line patients with SCCHN who are PD-L1 positive or with tebotelimab (an investigational PD-1 x LAG-3 bispecific DART® antibody) in SCCHN patients who are PD-L1 negative. We expect to participate in a subsequent Phase 3 global study if and when initiated, as we deem appropriate. In addition, considering the dynamic regulatory environment and evolving clinical practice, we have been continually refining the development of enoblituzumab in our territory.

 

   

For efineptakin (TJ107), a long-acting interleukin 7, we obtained regulatory clearance from the NMPA in April 2020 to initiate a Phase 2 clinical trial in glioblastoma multiforme (GBM) patients with lymphopenia. We had the first patient in on December 31, 2020 and expect to have the first patient dosed in the first quarter of 2021.

Our Capabilities

Our Clinical Development Capabilities

Our clinical development capabilities are best demonstrated by the rapid implementation of 11 clinical trials, including one completed trial in the United States and ten on-going Phase 1/2 or registration trials in the United States and China in the past three years. To ensure regulatory approval and subsequent product launch as currently planned, we strive to reach the following critical clinical milestones by early 2021: 11 active clinical programs consisting of two Phase 3 or registrational trials in China, three Phase 2 trials and six Phase 1/2 trials in the United States and China.

Our Global Strategic Collaborations

Global Strategic Partnership with AbbVie

Pursuant to this collaboration, AbbVie has paid us an upfront payment of US$180 million.

Our Strategies

Build our manufacturing capabilities

We believe it is strategically important and advantageous that we own and control our GMP manufacturing process in order to ensure quality, secure production slots and maximize cost-effectiveness for clinical trial materials and commercial supplies. We intend to build a comprehensive biologics manufacturing facility in Hangzhou, China (the “Hangzhou Facility”) as part of our strategic plan to become a fully integrated biopharma company. We have taken concrete steps to execute this plan. These steps include detailed operational planning for the facility, actions taken to secure an appropriate site, and negotiations with external financing providers. The Hangzhou Facility targets to have a pilot capacity of 2 production lines (1 line configured with

 

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2 x 2,000L and another line with 1 x 2,000L) by 2022 and commercially progressive capacity up to 8 x 4,000L to begin operation by the end of 2023. Construction is expected to commence in April 2021 and ready for use by the end of 2023. The project will be financed by a combination of internal and external sources. In September 2020, a group of domestic investors in China invested a total of US$120 million (in RMB equivalent) in cash. Upon closing, I-Mab Hangzhou became an affiliate of us. We, through our wholly owned subsidiary and parties acting in concert, remain the majority shareholder of I-Mab Biopharma (Hangzhou) Limited (“I-Mab Hangzhou”), the entity holding the Hangzhou Facility, and retain a managing role and take full control to build and operate the manufacturing facility. We plan to prioritize our therapeutic focus and resources on immuno-oncology in our global ambition to become a leading immuno-oncology company. This goal has been accelerated by our recent global strategic collaboration with AbbVie and its commercialization plan for the initial oncology products. I-Mab Hangzhou is positioned to provide manufacturing capabilities for us, as well as the continued development of selected biologics assets that are non-essential to our immuno-oncology focus, i.e. olamkicept, plonmarlimab (excluding cytokine release syndrome indications) and a few pre-clinical CMC-stage programs. We believe that this strategic alignment is necessary to maximize the pipeline value and balance the development risk for us.

Licensing and Collaboration Arrangements

A. In-Licensing Arrangements

Licensing Agreement with Genexine (GX-I7/TJ107)

In May 2020, we and Genexine entered into an amendment to this agreement, whereby both parties desire to establish a collaboration on TJ107 GBM Study in Greater China. Under the terms of the expanded collaboration, we will be mainly responsible for using commercially reasonable efforts to conduct the Phase 2 GBM clinical trial in Greater China, and Genexine will share the development strategies, data and costs for success of this clinical trial. As of September 30, 2020, the costs incurred for the development of this new indication was immaterial and had no material impact to our unaudited interim condensed consolidated financial statements for the first nine months ended September 30, 2020.

Other In-Licensing Arrangements

In November 2018, we entered into a license and collaboration agreement with MorphoSys for MorphoSys’s proprietary antibody (MOR210/TJ210) directed against C5aR (the “C5aR Agreement”).

As of the date of this prospectus supplement, we have made an upfront payment of US$3.5 million and milestone payment of US$1 million to MorphoSys. No other milestone payments or royalties are due under this agreement.

R&D Governance

Quality Committees

We have formed two Quality Committees, namely, I-Mab Biopharma Quality Management Review and R&D Quality Council.

I-Mab Biopharma Quality Management Review (“I-Mab QMR”) is composed of Dr. Joan Huaqiong Shen, Dr. Zheru Zhang, Yuan Meng and Thomas Song, co-chaired by R&D Quality Assurance officer Yuan Meng and CMC Quality Assurance officer Jack Qin. I-Mab QMR is a company-level cross-functional senior leadership meeting to provide management oversight of our company’s Quality Management System (“QMS”) and the compliance status of our company’s regulated activities with applicable laws, regulations, policies and procedures, focusing on R&D and CMC GXP activities. To ensure our Corporate Quality Plan is set, key QMS elements are established and maintained, quality requirements are met, and trends, changes and risks are identified and addressed proactively.

 

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R&D Quality Council is composed of representatives from each research and development function, including Dr. Joan Huaqiong Shen, Sophie Song, Yuan Meng, Michelle Yang, Dr. Claire Xu, Dr. Jane Meng and heads of therapeutic areas (in China and the United States), chaired by Dr. Joan Huaqiong Shen. R&D Quality Council is a governance body that oversees the performance of the QMS and serves as the final decision-making body for critical quality issues that affect subject and patient safety, data integrity and compliance with global and local regulatory authorities. The QMS encompasses the structure, responsibilities and procedures that enable the organization to identify, measure, control and enhance core regulated processes and activities.

 

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PRINCIPAL AND SELLING SHAREHOLDERS

The following section sets forth certain information in the section titled “Principal and Selling Shareholders” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this prospectus supplement by:

 

   

each of our directors and executive officers;

 

   

each of our principal shareholders, including all shareholders who own beneficially more than 5% of our total outstanding shares; and

 

   

each selling shareholder.

The ordinary shares registered under this prospectus supplement include (i) 20,421,378 ordinary shares (represented by 8,878,860 ADSs) issued to the selling shareholders identified in this prospectus supplement on September 11, 2020, (ii) 3,744,032 ordinary shares (represented by 1,627,840 ADSs) that certain selling shareholders identified in this prospectus supplement have the right to purchase from our company through the exercise of the warrants issued to them, and (iii) 958,341 ordinary shares (represented by 416,670 ADSs) that certain selling shareholders identified in this prospectus supplement have the right to purchase pursuant to a call option agreement with certain members of our management team.

The ordinary shares held by the selling shareholders reflected in the table below may be sold by the selling shareholders from time to time in one or more offerings described in this prospectus supplement and any applicable prospectus supplement. The selling shareholders may sell all, some or none of these ordinary shares (or the ADSs representing these ordinary shares) beneficially owned by them, and therefore we cannot estimate either the number or the percentage of ordinary shares (or the ADSs representing these ordinary shares) that will be beneficially owned by the selling shareholders following any offering or sale hereunder. We cannot advise you as to whether the selling shareholders will in fact sell any or all of the ordinary shares (or the ADSs representing these ordinary shares) that they own.

The selling shareholders listed in the table below may have sold or transferred, or pledged as collateral, in transactions pursuant to this prospectus supplement or exempt from the registration requirements of the Securities Act, some or all of their ordinary shares (or the ADSs representing their ordinary shares) since the date as of which the information is presented in the table below. Information concerning the selling shareholders may change from time to time, and any changed information will, if required, be set forth in prospectus supplements or post-effective amendments to the registration statement of which this prospectus supplement is a part, as may be appropriate.

The calculations in the table below are based on 165,477,620 ordinary shares outstanding as of the date of this prospectus supplement (excluding 4,036,868 ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercising or vesting of awards granted under our share incentive plans).

We intend to use our reasonable efforts to keep the Registration Statement effective for a period of 90 days after the effectiveness of the Registration Statement.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any

 

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option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 

     Ordinary Shares
Beneficially Owned
     Ordinary Shares
Being Registered
 
    

Number

    

%

    

Number

    

%

 

Directors and Executive Officers**:

           

All Directors and Executive Officers as a Group

     47,059,711        26.5        —          —    

Wei Fu(2)

     31,043,576        18.8        —          —    

Jingwu Zhang Zang(1)

     11,069,136        6.4        —          —    

Joan Huaqiong Shen

     1,921,497        1.1        —          —    

Zheru Zhang

     1,963,257        1.2        —          —    

Jielun Zhu

     *        *        —          —    

Mengjiao Jiang

     —          —          —          —    

Jie Yu

     —          —          —          —    

Bing Yuan

     —          —          —          —    

Chun Kwok Alan Au

     —          —          —          —    

Conor Chia-hung Yang

     *        *        —          —    

Pamela M. Klein

     —          —          —          —    

Weimin Tang

     *        *        —          —    

Yunhan Lin

     *        *        —          —    

Neil Warma

     —          —          —          —    

Ivan Yifei Zhu

     —          —          —          —    

Gigi Qi Feng

     —          —          —          —    

Principal and Selling Shareholders:

           

C-Bridge entities(2)

     31,043,576        18.8        —          —    

Hillhouse entities(3)

     22,492,602        13.2        7,143,961        4.3  

Tasly entities(4)

     14,664,020        8.9        —          —    

GIC Private Limited(5)

     12,099,770        7.3        5,773,253        3.5  

Genexine(6)

     10,572,823        6.4        —          —    

Hony entity(7)

     9,465,631        5.7        —          —    

Avidity entities(8)

     3,092,833        1.9        3,092,833        1.9  

Temasek entity(9)

     1,649,537        1.0        1,649,537        1.0  

OrbiMed entities(10)

     1,649,537        1.0        1,649,537        1.0  

Octagon Investments Master Fund LP(11)

     1,237,147        0.7        1,237,147        0.7  

Invus Public Equities, L.P.(12)

     1,072,191        0.6        1,072,191        0.6  

Lake Bleu Prime Healthcare Master Fund Limited (13)

     824,780        0.5        824,780        0.5  

Perceptive Life Sciences Master Fund, Ltd.(14)

     742,279        0.4        742,279        0.4  

Cormorant Global Healthcare Master Fund, LP(15)

     618,585        0.4        618,585        0.4  

Sphera entities(16)

     494,868        0.3        494,868        0.3  

Alyeska entities(17)

     412,390        0.2        412,390        0.2  

CVI Investments, Inc.(18)

     412,390        0.2        412,390        0.2  

 

Notes:

*

Less than 1% of our total ordinary shares on an as-converted basis outstanding as of the date of this prospectus supplement.

 

**

Except as otherwise indicated below, the business address of our directors and executive officers is Suite 802, West Tower, OmniVision, 88 Shangke Road, Pudong District, Shanghai, China. The business address of Wei Fu and Mengjiao Jiang is Suite 3306-3307, Two Exchange Square, 8 Connaught Place, Central, Hong Kong. The business address of Jie Yu is Tasly Great Health Town, No. 2, East Puji River Road, Beichen District, Tianjin, China. The business address of Bing Yuan is Flat B, 31/F BLK 2, The

 

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  Hermitage, Mongkok, Hong Kong. The business address of Chun Kwok Alan Au is 22 Pottinger Street, Central, Hong Kong. The business address of Conor Chia-hung Yang is 7th Floor, Building C, Luneng International Center, No. 209 Guoyao Road, Pudong New Area, Shanghai, China. The business address of Dr. Pamela M. Klein is 231 Fort Mason, San Francisco, California 94123, the United States.

 

(1)

Represents (i) 3,817,113 ordinary shares directly held by Mabcore Limited, a British Virgin Islands company and (ii) 7,252,023 ordinary shares issuable upon exercise of options exercisable within 60 days after the date of this prospectus supplement held by Dr. Zang through Doctor Zang 2020 Dynasty Trust. Dr. Zang, through himself and The Jingwu Zhang Zang 2018 Irrevocable Family Trust, owns a 55.6% equity interest in Mabcore Limited. Dr. Lili Qian and two other individuals own the remaining equity interest in Mabcore Limited. Dr. Zang is the sole director of Mabcore Limited. The Jingwu Zhang Zang 2018 Irrevocable Family Trust was established under the laws of New York and is managed by Ms. Ying Qin Zang, as the trustee and Dr. Zang as the settlor. The Doctor Zang 2020 Dynasty Trust was established under the laws of the State of California and is managed by Dr. Zang as the settlor and investment trustee and Ms. Ying Qin Zang as the trustee. Pursuant to the currently effective memorandum and articles of association of Mabcore Limited, Dr. Zang, as the sole director, has the power to direct the actions of Mabcore Limited, including the voting and disposal of Mabcore Limited’s shares in I-Mab. Accordingly, Dr. Zang is deemed to indirectly own all of the 3,817,113 ordinary shares held by Mabcore Limited, while Dr. Qian and the other two individuals are only entitled to their respective pro-rata economic interest in Mabcore Limited. The registered address of Mabcore Limited is Trinity Chambers, P.O. Box 4301, Road Town, Tortola, British Virgin Islands.

 

(2)

Represents (i) 3,931,802 ordinary shares directly held by IBC Investment Seven Limited, a Hong Kong limited liability company, (ii) 5,574,560 ordinary shares directly held by CBC SPVII LIMITED, a Hong Kong limited liability company, (iii) 12,229,916 ordinary shares directly held by CBC Investment I-Mab Limited, a British Virgin Islands limited liability company, (iv) 2,369,546 ordinary shares directly held by C-Bridge II Investment Ten Limited, a British Virgin Islands limited liability company, (v) 6,078,571 ordinary shares directly held by Everest, and (vi) 373,557ADSs (representing 859,181 ordinary shares) held by C-Bridge II Investment Thirteen Limited, a British Virgin Islands limited liability company. IBC Investment Seven Limited, CBC SPVII LIMITED, CBC Investment I-Mab Limited, C-Bridge II Investment Ten Limited, Everest, and C-Bridge II Investment Thirteen Limited are collectively referred to as the C-Bridge entities. CBC Investment I-Mab Limited, C-Bridge II Investment Ten Limited and C-Bridge II Investment Thirteen Limited are controlled by C-Bridge Healthcare Fund II, L.P., whose general partner is C-Bridge Healthcare Fund GP II, L.P., and its general partner is C-Bridge Capital GP, Ltd. CBC SPVII Limited and IBC Investment Seven Limited are controlled by I-Bridge Healthcare Fund, L.P., whose general partner is I-Bridge Healthcare GP, L.P., and its general partner is I-Bridge Capital GP, Ltd., which is indirectly controlled by C-Bridge Capital GP, Ltd. Mr. Wei Fu is the sole director of C-Bridge Capital GP, Ltd. Everest is a public company listed on the Hong Kong Stock Exchange and controlled by funds which are under common control of the C-Bridge group, which, in turn, is controlled by Mr. Wei Fu. The business address of each of C-Bridge entities is Suite 3306-3307, Two Exchange Square, 8 Connaught Place, Central, Hong Kong.

 

(3)

Represents (i) 9,614,299 ordinary shares and 2,187,280 ADSs (representing 5,030,744 ordinary shares), 1,229,741 ordinary shares issuable upon exercise of call options and 2,459,482 ordinary shares issuable upon exercise of warrants directly held by Gaoling Fund, L.P., or Gaoling, an exempted limited partnership organized under the laws of the Cayman Islands, (ii) 375,631 ordinary shares and 85,450 ADSs (representing 196,535 ordinary shares), 48,047 ordinary shares issuable upon exercise of call options and 96,094 ordinary shares issuable upon exercise of warrants directly held by YHG Investment, L.P., or YHG, an exempted limited partnership organized under the laws of the Cayman Islands, and (iii) 5 ordinary shares and 1,496,540 ADSs (representing 3,442,042 ordinary shares) directly held by HH IMB Holdings Limited, or HH IMB, an exempted Cayman Islands company. Hillhouse Capital Advisors, Ltd., or HCA, an exempted Cayman Islands company, acts as sole management company of Gaoling and the sole general

 

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  partner of YHG, and is deemed to be the beneficial owner of, and to control the voting power of, the ordinary shares held by Gaoling and YHG. HH IMB is wholly owned by Hillhouse Fund IV, L.P., whose sole management company is Hillhouse Capital Management, Ltd., or HCM. HCM is deemed to be the beneficial owner of, and to control the voting power of, the ordinary shares held by HH IMB. HCA and HCM are under common control and share certain policies, personnel and resources. Accordingly, each of HCA and HCM has shared voting and dispositive power of the ordinary shares beneficially owned by each of HCA and HCM. The business address of each of Gaoling, YHG and HH IMB is Suite 2202, 22nd Floor, Two International Finance Centre, 8 Finance Street, Central Hong Kong.

 

(4)

Represents (i) 12,942,997 ordinary shares directly held by Tasly Biopharm Limited, a British Virgin Islands limited liability company, and (ii) 1,721,023 ordinary shares directly held by Tasly International BioInv One Limited. Tasly Biopharm Limited and Tasly International BioInv One Limited are collectively referred to as the Tasly entities. Tasly Biopharm Limited’s sole shareholder is Tasly Biopharmaceuticals Co., Ltd., which is controlled by Tasly Pharmaceutical Group Co., Ltd., which is in turn controlled by Tasly Holding Group Co., Ltd. Tasly International BioInv One Limited is wholly-owned by Tasly International Capital Limited, whose sole shareholder is Tasly Holding Group Co., Ltd. Tasly Holding Group Co., Ltd. is controlled by Tianjin Tasly Health Industry Investment Group Co., Ltd., which is in turn controlled by Tianjin Fuhuade Science & Technology Development Co., Ltd. Kaijing Yan is the controlling shareholder of Tianjin Fuhuade Science & Technology Development Co., Ltd. and the ultimate beneficial owner of Tasly entities. The registered address of Tasly Biopharm Limited is P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands. The registered address of Tasly International BioInv One Limited is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands.

 

(5)

Represents 8,677,996 ordinary shares, 1,098,838 ADSs (representing 2,527,327 ordinary shares) and 894,447 ordinary shares issuable upon exercise of warrants held by GIC Private Limited, a Singapore fund manager. GIC Private Limited only has two clients: the Government of Singapore, or GoS, and the Monetary Authority of Singapore, or MAS. Under the investment management agreement with GoS, GIC Private Limited has been given the sole discretion to exercise the voting rights attached to, and the disposition of, any shares managed on behalf of GoS. As such, GIC Private Limited has the sole power to vote and dispose of securities beneficially owned by it. GIC Private Limited shares the power to vote and dispose of securities beneficially owned by it with MAS. The business address of GIC Private Limited is 168 Robinson Road, #37-01 Capital Tower, Singapore 068912.

 

(6)

Represents (i) 9,261,823 ordinary shares directly held by Genexine, Inc. (Genexine), and (ii) 570,000 ADSs (representing 1,311,000 ordinary shares) purchased by Genexine. Genexine is a Korean public company. The registered address of Genexine is 4th Fl., Bldg. B, Korea Bio Park, 700 Daewangpangyo-ro, Seongnam-si, Gyeonggi-do 13488, Republic of Korea.

 

(7)

Represents 9,465,631 ordinary shares directly held by Fortune Eight Jogging Limited, a British Virgin Islands limited liability company, which we refer to as the Hony entity. Fortune Eight Jogging Limited is wholly-owned by Hony Hongling (Shanghai) Investment Center, a PRC limited partnership, whose general partner is Hony Investment (Shanghai) Limited. The sole shareholder of Hony Investment (Shanghai) Limited is Beijing Hony Hezhong Enterprise Management Limited. Each of Yonggang Cao, Minsheng Xu and Wen Zhao holds 33.3% equity interests in Beijing Hony Hezhong Enterprise Management Limited. The registered address of Fortune Eight Jogging Limited is Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. Mr. Bing Yuan, our director, is a managing director of the sole director of the Hony entity.

 

(8)

Represents (i) 1,018,190 ADSs (representing 2,341,837 ordinary shares) and 429,364 ordinary shares issuable upon exercise of warrants directly held by Avidity Master Fund LP, or Avidity Master, a Delaware limited partnership, and (ii) 118,180 ADSs (representing 271,814 ordinary shares) and 49,818 ordinary shares issuable upon exercise of warrants directly held by Avidity Capital Fund II LP, or Avidity Capital, a

 

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  Delaware limited partnership. Avidity Master and Avidity Capital are collectively referred to as the Avidity entities. The general partner of each of the Avidity entities is Avidity Capital Partners Fund (GP) LP, a Delaware limited partnership, whose general partner is Avidity Capital Partners (GP) LLC, a Delaware limited liability company. David Witzke and Michael Gregory are the managing members of Avidity Capital Partners (GP) LLC. The address of David Witzke and Michael Gregory’s principal office is 2828 N Harwood Street, Suite 1220, Dallas, Texas 75201. The registered address of each of Avidity entities is 2828 N. Harwood St., Suite 1220, Dallas, TX 75201.

 

(9)

Represents 1,393,961 ordinary shares and 255,576 ordinary shares issuable upon exercise of warrants directly held by ARANDA INVESTMENTS PTE. LTD., a company incorporated under the laws of Singapore. ARANDA INVESTMENTS PTE. LTD. is an indirect wholly-owned subsidiary of Temasek Holdings (Private) Limited. The registered address of ARANDA INVESTMENTS PTE. LTD. is 60B Orchard Road, #06-18 Tower 2, The Atrium@Orchard, Singapore 238891.

 

(10)

Represents (i) 303,040 ADSs (representing 696,992 ordinary shares) and 127,788 ordinary shares issuable upon exercise of warrants directly held by OrbiMed Partners Master Fund Limited, or OPM, an exempted company organized under the laws of Bermuda, (ii) 166,670 ADSs (representing 383,341 ordinary shares) and 70,288 ordinary shares issuable upon exercise of warrants directly held by The Biotech Growth Trust PLC, or BIOG, a publicly-listed investment trust organized under the laws of England, (iii) 75,760 ADSs (representing 174,248 ordinary shares) and 31,947 ordinary shares issuable upon exercise of warrants directly held by OrbiMed Genesis Master Fund, L.P., or OrbiMed Genesis, an exempted limited partnership organized under the laws of the Cayman Islands, and (iv) 60,600 ADSs (representing 139,380 ordinary shares) and 25,553 ordinary shares issuable upon exercise of warrants directly held by OrbiMed New Horizons Master Fund, L.P., or ONH, an exempted limited partnership organized under the laws of the Cayman Islands. OPM, BIOG, OrbiMed Genesis and ONH are collectively referred to as the OrbiMed Entities. OrbiMed Capital LLC, or OrbiMed Capital, is the portfolio manager of BIOG and the investment advisor to OPM. OrbiMed Advisors LLC, or OrbiMed Advisors, is the investment manager of OrbiMed Genesis and ONH. OrbiMed Capital and OrbiMed Advisors exercise voting and investment power through a management committee comprised of Carl L. Gordon, Sven H. Borho, and Jonathan T. Silverstein, each of whom disclaims beneficial ownership of the shares held by OPM, BIOG, OrbiMed Genesis, and ONH. The business address of each of OrbiMed Entities is c/o OrbiMed Advisors LLC, 601 Lexington Avenue, 54th Floor, New York, NY 10022.

 

(11)

Represents 454,550 ADSs (representing 1,045,465 ordinary shares) and 191,682 ordinary shares issuable upon exercise of warrants directly held by Octagon Investments Master Fund LP, or Octagon, an exempted limited partnership organized under the laws of the Cayman Islands. Octagon’s shareholders are comprised of global institutions such as university endowments, non-profit foundations, family offices, pension funds and established asset managers. The registered address of Octagon Investments Master Fund LP is at c/o Ogier, 89 Nexus Way, Camana Bay, Grand Cayman, Cayman Islands KY1-9009.

 

(12)

Represents 906,062 ordinary shares and 166,129 ordinary shares issuable upon exercise of warrants directly held by Invus Public Equities, L.P., a Bermuda limited partnership. Invus is a investment firm with source of capital from a European family group. The registered address of Invus Public Equities, L.P. is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

 

(13)

Represents 303,040 ADSs (representing 696,992 ordinary shares) and 127,788 ordinary shares issuable upon exercise of warrants directly held by Lake Bleu Prime Healthcare Master Fund Limited, or Lake Bleu Prime, an exempted limited partnership organized under the laws of the Cayman Islands. LBC Prime Management Limited is the ultimate controlling shareholder of Lake Bleu Prime. The registered address of Lake Bleu Prime Healthcare Master Fund Limited is Cayman Corporate Centre, 27 Hospital Road, George Town, Grand Cayman KY1-9008, Cayman Islands.

 

(14)

Represents 627,279 ordinary shares and 115,000 ordinary shares issuable upon exercise of warrants directly held by Perceptive Life Sciences Master Fund, Ltd., a Cayman Islands limited liability company. The

 

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  registered address of Perceptive Life Sciences Master Fund, Ltd. is 190 Elgin Avenue, George Town, Grand Cayman, KY1-9007, Cayman Islands.

 

(15)

Represents 522,744 ordinary shares and 95,841 ordinary shares issuable upon exercise of warrants directly held by Cormorant Global Healthcare Master Fund, LP, or Cormorant Global, an exempted limited partnership organized under the laws of the Cayman Islands. Cormorant Global is a long-term investment partnership whose beneficial owners include institutional and other sophisticated investors. The registered address of Cormorant Global Healthcare Master Fund, LP is PO Box 309, Ugland House, Grand Cayman, KY14104, Cayman Islands.

 

(16)

Represents (i) 136,370 ADSs (representing 313,651 ordinary shares) and 57,500 ordinary shares issuable upon exercise of warrants directly held by Sphera Global Healthcare Master Fund, or Sphera Global, a Cayman Islands limited liability company, and (ii) 45,450 ADSs (representing 104,535 ordinary shares) and 19,182 ordinary shares issuable upon exercise of warrants directly held by Sphera Biotech Master Fund L.P., or Sphera Biotech, an exempted limited partnership organized under the laws of the Cayman Islands. Sphera Global and Sphera Biotech are collectively referred to as the Sphera entities. Both Sphera Global and Sphera Biotech appointed Sphera Global Healthcare Management LP or Sphera Management, as their investment manager. Sphera Management also serves as Sphera Biotech’s general partner, and has day-to-day investment discretion for the Sphera entities. The registered address of each of Sphera entities is at c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

 

(17)

Represents (i) 150,310 ADSs (representing 345,713 ordinary shares) and 63,388 ordinary shares issuable upon exercise of warrants directly held by Alyeska Master Fund, L.P., an exempted limited partnership organized under the laws of the Cayman Islands, and (ii) 1,210 ADSs (representing 2,783 ordinary shares) and 506 ordinary shares issuable upon exercise of warrants directly held by Alyeska Master Fund 3, L.P., a Delaware limited partnership. Alyeska Master Fund, L.P. and Alyeska Master Fund 3, L.P. are collectively referred to as the Alyeska entities. Alyeska entities are controlled by Alyeska Investment Group, L.P., a limited partnership incorporated in the United States, whose chief executive officer is Anand Parekh. Mr. Parekh, however, disclaims any beneficial ownership of the shares held by Alyeska entities. The registered address of Alyeska Master Fund, L.P. is at c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, South Church Street George Town, Grand Cayman, KY1-1104, Cayman Islands. The registered address of Alyeska Master Fund 3, L.P. is 251 Little Falls Drive, Wilmington, DE 19808.

 

(18)

Represents 151,520 ADSs (representing 348,496 ordinary shares) and 63,894 ordinary shares issuable upon exercise of warrants directly held by CVI Investments, Inc., or CVI, a Cayman Islands limited liability company. Heights Capital Management, Inc., the authorized agent of CVI, has discretionary authority to vote and dispose of the shares held by CVI and may be deemed to be the beneficial owner of these shares. Martin Kobinger, in his capacity as Investment Manager of Heights Capital Management, Inc., may also be deemed to have investment discretion and voting power over the shares held by CVI. Mr. Kobinger disclaims any such beneficial ownership of the shares. CVI is affiliated with one or more FINRA members. CVI purchased the shares being registered hereunder in the ordinary course of business and at the time of purchase, had no agreements or understandings, directly or indirectly, with any other person to distribute such shares. The registered address of CVI Investments, Inc. is at c/o Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY l-1104, Cayman Islands.

As of the date of this prospectus supplement, 53,600,672 of our ordinary shares are held by one record holder in the United States (including 4,036,868 ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercising or vesting of awards granted under our share incentive plans), representing approximately 36.9% of our total outstanding shares. The holder is Citibank, N.A., the depositary of our ADS program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.

 

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On February 5, 2021, we announced a registered follow-on public offering (the “ADS Offering”) by certain shareholders identified therein of 3,283,950 ADSs. The underwriters in the ADS Offering will have a 30-day option to purchase up to 492,590 additional ADSs from certain selling shareholders identified therein. We will not receive any proceeds from the sale of the ADSs by those selling shareholders in the ADS Offering. The ADS Offering is being made only by means of a prospectus supplement and the accompanying prospectus included in an automatic shelf registration statement on Form F-3 filed with the SEC on February 5, 2021, which automatically became effective upon filing. The registration statement on Form F-3 and the preliminary prospectus supplement dated February 5, 2021 are available at the SEC website at: http://www.sec.gov. The final prospectus supplement will be filed with the SEC and will be available on the SEC’s website at: http://www.sec.gov.

Upon the completion of the ADS Offering and assuming the underwriters do not exercise their over-allotment option, (i) the beneficial ownership of the Tasly entities in our company is expected to decrease from 8.9% to 8.3%; (ii) the beneficial ownership of Genexine in our company is expected to decrease from 6.4% to 6.0% and (iii) the beneficial ownership of the Hony entity in our company is expected to decrease from 5.7% to 5.2%.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. See “Description of Share Capital—History of Securities Issuances” for historical changes in our shareholding structure.

 

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DESCRIPTION OF SHARE CAPITAL

The following section sets forth certain information in the section titled “Description of Share Capital” of the accompanying prospectus that has been updated and/or supplemented to reflect changes since the effectiveness of the accompanying prospectus.

As of the date of this prospectus supplement, our authorized share capital is US$80,000 divided into 800,000,000 ordinary shares of a par value of US$0.0001 each. As of the date of this prospectus supplement, there are 165,477,620 ordinary shares issued and outstanding (excluding 4,036,868 ordinary shares issued to our depositary bank for bulk issuance of ADSs reserved for future issuances upon the exercising or vesting of awards granted under our share incentive plans).

History of Securities Issuances

Ordinary Shares

In September 2020, we entered into definitive subscription agreements (collectively, the “Subscription Agreements,” and each, a “Subscription Agreement”) with a consortium of institutional investors (including Hillhouse Entities), pursuant to which we agree to issue and sell to these investors (i) a total of 29,133,502 ordinary shares of our company for an aggregate purchase price of approximately US$418 million (equivalent to a price of US$33 per ADS); and (ii) warrants (the “Investor Warrants”) to subscribe for up to 5,341,267 ordinary shares of our company at an exercise price of US$45 per ADS, subject to the closing conditions set forth in the Subscription Agreements. Each ten ADSs of our company represents twenty-three ordinary shares of our company. On September 11, 2020 and December 17, 2020, we issued 20,421,378 ordinary shares and 8,712,124 ordinary shares, respectively, to these investors, pursuant to the Subscription Agreements.

The Subscription Agreement with the Hillhouse Entities contemplates two closings. The first closing occurred on September 11, 2020, and the second closing occurred on December 17, 2020. The closings of the Subscription Agreements with investors other than the Hillhouse Entities have occurred in September 2020.

On December 17, 2020, we issued 900,000 ordinary shares to Genexine, Inc. as a result of its full conversion of interest-free convertible promissory notes issued to it on February 5, 2018.

On December 31, 2020, we issued 115,000 ordinary shares to Biomaster Holding Limited upon exercise of options granted to certain of our employees for an aggregate exercise price of US$115,000.

Convertible Promissory Notes

On February 5, 2018, we issued a US$9.0 million convertible promissory note due February 2021 to Genexine. Genexine can at any time prior to February 5, 2021 convert this note into preferred shares of I-Mab at US$10 per share, subject to certain price adjustments. On December 17, 2020, Genexine converted this note to 900,000 ordinary shares.

Options and Warrants

Pursuant to the Subscription Agreements, we agree to issue and sell to the investors thereunder the Investor Warrants, exercisable at the election of the applicable investors within 12 months after the initial or subsequent closing dates set forth in the applicable Subscription Agreements. On September 11, 2020 and December 17, 2020, we issued and sold a portion of the Investor Warrants, allowing the applicable investors to purchase 3,744,032 ordinary shares and 1,597,235 ordinary shares, respectively. As of the date of this Prospectus supplement, none of the Investor Warrants has been exercised.

 

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Subscription Agreement with Hillhouse Entities

In September 2020, we entered into a Subscription Agreement with the Hillhouse Entities, as amended by an amendment to Subscription Agreement entered into between Hillhouse Entities and our company in December 2020. The Subscription Agreement, as amended, provides for (i) certain investors’ rights, such as registration rights, board representation rights and anti-dilution rights and (ii) lock-up and other transfer restrictions. Set forth below is a description of certain rights and restrictions thereof.

Mandatory Registration after Initial Closing (September 11, 2020). We agree to file with the SEC a registration statement to register the resale of Hillhouse Entities’ registrable securities, which include ordinary shares issued and issuable upon exercise of Investor Warrants under the Subscription Agreement, on Form F-3 or Form F-1, as applicable. We shall have the relevant registration statement declared effective by the SEC no later than ninety (90) calendar days after September 11, 2020, which period could be extended to one hundred and twenty (120) calendar days if the SEC reviews and comments on the registration statement. However, if the SEC prevents inclusion of the registrable securities in the registration statement pursuant to limitations under Rule 415 of the Securities Act, the number of registrable securities to be registered for each selling shareholder named in the registration statement shall be reduced pro rata among all such selling shareholders. We shall maintain the continuous effectiveness of the registration statement for a period of ninety (90) days after its effectiveness or such shorter period upon which the Hillhouse Entities have notified us that their registrable securities have actually been sold. We have fulfilled this obligation. On December 14, 2020, the SEC declared effective a registration statement on Form F-1, under which the selling shareholders identified therein (including the Hillhouse Entities) may offer, from time to time, up to 25,123,751 ordinary shares, including ordinary shares represented by ADSs of our company.

Mandatory Registration after Subsequent Closing (December 17, 2020). With respect to the registrable securities then held by the Hillhouse Entities which have not been previously registered pursuant to an effective registration statement, we agree to file a prospectus supplement or a registration statement to register the resale of such registrable securities on a Form F-3 or Form F-3ASR registration statement (or, if Form F-3 or Form F-3ASR is not then available to us, on Form F-1 or such other form of registration statement as is then available to effect a registration for resale of such registrable securities), and have such registration statement declared effective by the SEC no later than (a) the ten (10) business days after the later of (i) the first date when we become eligible to use registration statement on F-3, or (ii) the expiration of the lock-up period with respect to the subsequent closing, or forty-five (45) calendar days after such lock-up period expiration date if the SEC reviews and comments on the registration statement. We shall maintain the effectiveness of such registration statement for a period ending on the date the registrable securities registered thereon have ceased to be registrable securities.

Demand Registration Rights. Upon written request from the Hillhouse Entities at any time after we have effected two registration statements abovementioned, with respect to the registrable securities then held by the Hillhouse Entities, and in no event later than the forty-five (45) calendar days following the delivery of such request, we shall file a prospectus supplement or a registration statement to register the resale of such registrable securities on a Form F-3 or Form F-3ASR registration statement (or, if Form F-3 or Form F-3ASR is not then available to us, on Form F-1 or such other form of registration statement as is then available to effect a registration for resale of such registrable securities), have such registration statement declared effective, and maintain the effectiveness of such registration statement for a period ending on the date the registrable securities registered thereon have ceased to be registrable securities. If the registrable securities are offered by means of an underwritten offering, and we or the underwriters determine that marketing factors require a limitation of the number of securities to be underwritten, the number of registrable securities that may be included in the underwriting shall be reduced and allocated (i) first, to us and each holder in accordance with the terms of the Shareholders Agreement; (ii) second, to investors in the private placements entered into in September 2020 (including the Hillhouse Entities) requesting inclusion of their registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such investor; and (iii) third, to other holders of registrable securities, if any.

 

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Expenses. We will bear all registration expenses, except any (i) portions of fees and disbursements of counsel for the Hillhouse Entities exceeding US$30,000, (ii) underwriting discounts and selling commissions applicable to sale of registrable securities, and (iii) fees payable pursuant to the deposit agreement.

Ranking of Registration Rights. Registration rights granted to the Hillhouse Entities shall not be senior to, or on a parity with, those granted to holders under the Shareholders Agreement.

Board Representation Rights. As long as the Hillhouse Entities continue to jointly beneficially own at least five percent (5.0%) of our total issued and outstanding share capital, it is entitled to nominate and maintain one representative to our board of directors. We shall cause an individual jointly designated by the Hillhouse Entities to be appointed as the investor director with immediate effect no later than the fifteenth (15th) business day after receiving written notice from the Hillhouse Entities or such later date on which we receive necessary shareholder approval.

Lock-up. The Hillhouse Entities shall not dispose of any of the ordinary shares purchased by Hillhouse Entities on September 11, 2020 or December 17, 2020 within a 90-day period following September 11, 2020 or December 17, 2020, as applicable, to any person other than affiliates of the Hillhouse Entities, who shall be bound by the Hillhouse Entities’ lock-up obligations for the balance of each applicable lock-up period. Each of the Hillhouse Entities and their affiliates may directly or indirectly, place any charge, mortgage, lien, pledge, restrictions, security interest or other encumbrance in respect of the lock-up securities in connection with such Hillhouse Entity’s (or any of its affiliates’) margin loans, collars, derivative transactions or other such downside protection transactions to be entered into on or after the date of the subscription agreement.

Anti-dilution rights. We agree not to issue, offer, sell, or grant any option or right to purchase any new securities, without the prior written consent of the Hillhouse Entities, (i) during the 90-day period following each closing date; or (ii) at an effective purchase price per share lower than the purchase price under the Subscription Agreement with Hillhouse Entities during the 90-day period commencing from the expiration of each lock-up period.

Subscription Agreements with Other Investors

In September 2020, we entered into subscription agreements with various investors other than HillHouse Entities. The subscription agreements are of the same form and provide for certain investors’ rights, such as registration rights and anti-dilution right. Set forth below is a description of certain rights and restrictions thereof.

Mandatory Registration. We agree to file with the SEC a registration statement to register the resale of such investors’ registrable securities, which include ordinary shares issued and issuable upon exercise of Investor Warrants under the Subscription Agreement, on Form F-3 or Form F-1, as applicable. We shall have the relevant registration statement declared effective by the SEC no later than ninety (90) calendar days after the initial closing date, which period could be extended to one hundred and twenty (120) calendar days if the SEC reviews and comments on the registration statement. However, if the SEC prevents inclusion of the registrable securities in the registration statement pursuant to limitations under Rule 415 of the Securities Act, the number of registrable securities to be registered for each selling shareholder named in the registration statement shall be reduced pro rata among all such selling shareholders. We shall maintain the continuous effectiveness of the registration statement for a period of ninety (90) days after its effectiveness or such shorter period upon which such investors have notified us that their registrable securities have actually been sold. We have fulfilled this obligation. On December 14, 2020, the SEC declared effective a registration statement on Form F-1, under which the selling shareholders identified therein (including these investors) may offer, from time to time, up to 25,123,751 ordinary shares, including ordinary shares represented by ADSs of our company.

Piggyback Registration. We agree to notify such investors at least thirty (30) days prior to filing any registration statement for purposes of effecting a public offering of ADSs (excluding registration statements

 

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relating to the mandatory registration described above). The Private Placement Investors has 20 days after receiving notice from us to notify us in writing of their desire to include their registrable securities in the registration statement. However, if the registrable securities in such registration statement are offered by means of an underwritten offering, and we or the underwriters determine that marketing factors require a limitation of the number of securities to be underwritten, the number of registrable securities that may be included in the underwriting shall be reduced and allocated (i) first, to us and each holder in accordance with the terms of the Shareholders Agreement; (ii) second, to investors in the private placements entered into in September 2020 requesting inclusion of their registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such investor; and (iii) third, to other holders of registrable securities, if any.

Suspension of Registration. We may suspend the use of any registration statement for a period not exceeding thirty (30) consecutive trading days, if we (i) determine that we would be required to make disclosure of material information in the registration statement that we have a bona fide business purpose for preserving as confidential; (ii) determine that we must amend or supplement the registration statement so that it shall not include an untrue statement of a material fact or omit to state a material fact; or (iii) have experienced or are experiencing some other material non-public event, the disclosure of which at such time would adversely affect us. However, we cannot exercise the suspension right more than once in any twelve (12) month period and may not register any other securities during such suspension period.

Expenses. We will bear all registration expenses, except any (i) portions of fees and disbursements of counsel for such investors, and (ii) underwriting discounts and selling commissions applicable to sale of registrable securities.

Ranking of Registration Rights. Registration rights granted to such investors shall not be senior to, or on a parity with, those granted to holders under the Shareholders Agreement.

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Interim Condensed Consolidated Financial Statements for the Nine Months Ended September 30, 2019 and 2020

 

    

Page

 

Consolidated Balance Sheet as of December 31, 2019 and Unaudited Interim Condensed Consolidated Balance Sheet as of September 30, 2020

     F-2  

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss for the Nine Months Ended September 30, 2019 and 2020

     F-4  

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Nine Months Ended September 30, 2019 and 2020

     F-5  

Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2020

     F-6  

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

     F-8  

 

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I-MAB

Consolidated Balance Sheet as of December 31, 2019 and

Unaudited Interim Condensed Consolidated Balance Sheet

as of September 30, 2020

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

            As of December 31,      As of September 30,  
            2019      2020  
    

Notes

    

RMB

    

RMB

    

US$
(Note 2.5)

 

Assets

        

Current assets

           

Cash and cash equivalents

     2.6        1,137,473        2,960,017        435,963  

Restricted cash

     2.7        55,810        —          —    

Short-term investments

     2.8        32,000        28,526        4,201  

Prepayments and other receivables

     3        136,036        219,839        32,379  
     

 

 

    

 

 

    

 

 

 

Total current assets

        1,361,319        3,208,382        472,543  

Property, equipment and software

     4        30,069        27,058        3,985  

Operating lease right-of-use assets

        16,435        15,061        2,218  

Intangible assets

     5        148,844        122,000        17,969  

Goodwill

     6        162,574        162,574        23,945  

Investment accounted for using the equity method

     7        —          762,997        112,377  

Other non-current assets

        18,331        —          —    
     

 

 

    

 

 

    

 

 

 

Total assets

        1,737,572        4,298,072        633,037  
     

 

 

    

 

 

    

 

 

 

Liabilities, mezzanine equity and shareholders’ equity (deficit)

           

Current liabilities

           

Short-term borrowings

     8        50,000        —          —    

Accruals and other payables

     9        273,553        338,317        49,829  

Operating lease liabilities, current

        6,807        8,001        1,178  

Deferred subsidy income

     2.14        —          3,078        453  

Ordinary shares to be issued to Everest

     21        258,119        —          —    
     

 

 

    

 

 

    

 

 

 

Total current liabilities

        588,479        349,396        51,460  

Convertible promissory notes

     13        68,199        64,771        9,540  

Put right liabilities

     7        —          124,100        18,278  

Operating lease liabilities, non-current

        7,492        5,177        762  

Deferred subsidy income

     2.14        3,920        4,560        672  

Other non-current liabilities

     9        —          8,433        1,242  
     

 

 

    

 

 

    

 

 

 

Total liabilities

        668,090        556,437        81,954  
     

 

 

    

 

 

    

 

 

 

Commitments and contingencies

     20           

 

F-2


Table of Contents

I-MAB

Consolidated Balance Sheet as of December 31, 2019 and

Unaudited Interim Condensed Consolidated Balance Sheet

as of September 30, 2020 (Continued)

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

            As of December 31,     As of September 30,  
            2019     2020  
    

Notes

    

RMB

   

RMB

   

US$
(Note 2.5)

 

Mezzanine equity

         

Series A convertible preferred shares (US$0.0001 par value, 30,227,056 shares authorized, issued and outstanding as of December 31, 2019, and nil authorized, issued and outstanding as of September 30, 2020)

     12        687,482       —         —    

Series B convertible preferred shares (US$0.0001 par value, 30,305,212 shares authorized, issued and outstanding as of December 31, 2019, and nil authorized, issued and outstanding as of September 30, 2020)

     12        921,243       —         —    

Series C convertible preferred shares (US$0.0001 par value, 31,046,360 shares authorized, issued and outstanding as of December 31, 2019, and nil authorized, issued and outstanding as of September 30, 2020)

     12        1,306,633       —         —    

Series C-1 convertible preferred shares (US$0.0001 par value, 3,857,143 shares authorized, issued and outstanding as of December 31, 2019, and nil authorized, issued and outstanding as of September 30, 2020)

     12        188,819       —         —    
     

 

 

   

 

 

   

 

 

 

Total mezzanine equity

        3,104,177       —         —    
     

 

 

   

 

 

   

 

 

 

Shareholders’ equity (deficit)

         

Ordinary shares (US$0.0001 par value, 500,000,000 and 800,000,000 shares authorized as of December 31, 2019 and September 30, 2020, respectively; 8,363,719 and 153,543,910 shares issued and outstanding as of December 31, 2019 and September 30, 2020, respectively)

     11        6       106       16  

Additional paid-in capital

        389,379       6,720,714       989,854  

Accumulated other comprehensive income

        70,127       85,657       12,616  

Accumulated deficit

        (2,494,207     (3,064,842     (451,403
     

 

 

   

 

 

   

 

 

 

Total shareholders’ equity (deficit)

        (2,034,695     3,741,635       551,083  
     

 

 

   

 

 

   

 

 

 

Total liabilities, mezzanine equity and shareholders’ equity (deficit)

        1,737,572       4,298,072       633,037  
     

 

 

   

 

 

   

 

 

 

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

 

F-3


Table of Contents

I-MAB

Unaudited Interim Condensed Consolidated Statements of Comprehensive Loss

For the Nine Months Ended September 30, 2019 and 2020

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

            Nine Months Ended September 30,  
            2019     2020  
    

Notes

    

RMB

   

RMB

   

US$

(Note 2.5)

 

Revenues

         

Licensing and collaboration revenue

     16        30,000       —         —    

Expenses

         

Research and development expenses

     2.17        (578,377     (698,461     (102,872

Administrative expenses

        (582,732     (310,775     (45,772
     

 

 

   

 

 

   

 

 

 

Loss from operations

        (1,131,109     (1,009,236     (148,644

Interest income

        22,828       18,658       2,748  

Interest expense

        (2,466     (957     (141

Other income, net

     17        1,758       420,900       61,992  

Fair value change of warrants

     14        5,609       —         —    
     

 

 

   

 

 

   

 

 

 

Loss before income tax expense

        (1,103,380     (570,635     (84,045

Income tax expense

     10        —         —         —    
     

 

 

   

 

 

   

 

 

 

Net loss attributable to I-MAB

        (1,103,380     (570,635     (84,045

Net loss attributable to ordinary shareholders

        (1,103,380     (570,635     (84,045
     

 

 

   

 

 

   

 

 

 

Net loss attributable to I-MAB

        (1,103,380     (570,635     (84,045

Other comprehensive income:

         

Foreign currency translation adjustments, net of nil tax

        66,254       15,530       2,288  
     

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to I-MAB

        (1,037,126     (555,105     (81,757
     

 

 

   

 

 

   

 

 

 

Net loss attributable to ordinary shareholders

        (1,103,380     (570,635     (84,045

Weighted-average number of ordinary shares used in calculating net loss per share—basic and diluted

     18        7,184,086       126,758,926       126,758,926  

Net loss per share attributable to ordinary shareholders

         

—Basic

     18        (153.59     (4.50     (0.66

—Diluted

     18        (153.59     (4.50     (0.66

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

 

F-4


Table of Contents

I-MAB

Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

For the Nine Months Ended September 30, 2019 and 2020

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

    Ordinary shares (Note 11)     Treasury
stock
    Additional
paid-in
capital
    Accumulated
other
comprehensive
income
    Accumulated
deficit
    Total
shareholders’
deficit
 
  (US$0.001 par value)  
  Number of
shares
    Amount  
         

RMB

   

RMB

   

RMB

   

RMB

   

RMB

   

RMB

 

Balance as of December 31, 2018

    8,363,719       6       (1     —         59,380       (1,014,489     (955,104

Foreign currency translation adjustments

    —         —         —         —         66,254       —         66,254  

Net loss

    —         —         —         —           (1,103,380     (1,103,380

Share-based compensation

    —         —         —         366,885       —         —         366,885  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2019

    8,363,719       6       (1     366,885       125,634       (2,117,869     (1,625,345
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2019

    8,363,719       6       —         389,379       70,127       (2,494,207     (2,034,695

Foreign currency translation adjustments

    —         —         —         —         15,530       —         15,530  

Net loss

    —         —         —         —         —         (570,635     (570,635

Share-based compensation

    —         —         —         301,525       —         —         301,525  

Exercise of stock options

    115,888       1       —         790       —         —         791  

Capital contribution from stock option surrender (Note 15 (h))

    —         —         —         91,051       —         —         91,051  

Conversion of preferred shares to ordinary shares upon the completion of initial public offering (“IPO”)

    99,760,129       69       —         3,104,108       —         —         3,104,177  

Issuance of ordinary shares to Everest

    6,078,571       4       —         254,844       —         —         254,848  

Issuance of ordinary shares upon IPO and over-allotment, net of issuance cost

    18,804,225       13       —         697,865       —         —         697,878  

Issuance of ordinary shares upon private placement, net of issuance cost

    20,421,378       13       —         1,809,278       —         —         1,809,291  

Issuance of warrants

    —         —         —         71,874       —         —         71,874  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2020

    153,543,910       106       —         6,720,714       85,657       (3,064,842     3,741,635  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

F-5


Table of Contents

I-MAB

Unaudited Interim Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2019 and 2020

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     Nine Months Ended September 30,  
     2019     2020  
    

RMB

   

RMB

   

US$

(Note 2.5)

 

Cash flows from operating activities

      

Net loss

     (1,103,380     (570,635     (84,045

Adjustments to reconcile net loss to net cash used in operating activities

      

Depreciation of property, equipment and software

     6,835       7,738       1,140  

Loss on disposal of property, equipment and software

     —         8       1  

Fair value change of short-term investments

     (332     (2,557     (377

Fair value change of warrants

     (5,609     —         —    

Fair value change of other financial assets

     145       —         —    

Share-based compensation

     366,885       392,576       57,820  

Amortization of right-of use assets and interest of lease liabilities

     4,427       6,935       1,021  

Gains on deconsolidation of a subsidiary

     —         (407,598     (60,033

Changes in operating assets and liabilities

      

Prepayments and other receivables

     12,310       3,309       488  

Accruals and other payables

     32,200       (17,623     (2,596

Advance from customers

     (14,151     —         —    

Research and development funding received

     52,207       —         —    

Deferred subsidy income

     1,420       3,718       548  

Other non-current liabilities

     —         8,433       1,242  

Lease liabilities

     (4,950     (6,935     (1,021
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (651,993     (582,631     (85,812
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Purchase of property, equipment and software

     (4,617     (4,761     (701

Proceeds from disposal of property, equipment and software

     12       —         —    

Proceeds from disposal of short-term investments

     35,332       276,884       40,781  

Purchase of short-term investments

     (88,000     (270,853     (39,892

Cash disposed of resulting from deconsolidation of a subsidiary

     —         (257,651     (37,948

Cash received from disposal of other financial assets

     192,401       —         —    
  

 

 

   

 

 

   

 

 

 

Net cash generated from (used in) investing activities

     135,128       (256,381     (37,760
  

 

 

   

 

 

   

 

 

 

 

F-6


Table of Contents

I-MAB

Unaudited Interim Condensed Consolidated Statements of Cash Flows (Continued)

For the Nine Months Ended September 30, 2019 and 2020

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

     Nine Months Ended September 30,  
     2019     2020  
    

RMB

   

RMB

   

US$

(Note 2.5)

 

Cash flows from financing activities

      

Consideration received in advance from a preferred shares investor

     70,729       —         —    

Proceeds from initial public offering and over-allotment, net of underwriting discounts and commissions

     —         726,300       106,972  

Payment of issuance cost for initial public offering and over-allotment

     (1,316     (27,088     (3,990

Proceeds from private placement, net of payment of issuance cost

     —         1,980,548       291,703  

Proceeds from exercise of stock options

     —         791       117  

Proceeds from bank borrowings

     50,000       —         —    

Prepayment for stock repurchase program

     —         (34,859     (5,134

Repayment of bank borrowings

     (80,000     (50,000     (7,364
  

 

 

   

 

 

   

 

 

 

Net cash generated from financing activities

     39,413       2,595,692       382,304  
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

     77,581       10,054       1,480  

Net increase (decrease) in cash and cash equivalents and restricted cash

     (399,871     1,766,734       260,212  

Cash, cash equivalents, and restricted cash, beginning of period

     1,680,931       1,193,283       175,751  
  

 

 

   

 

 

   

 

 

 

Cash, cash equivalents, and restricted cash, end of the period

     1,281,060       2,960,017       435,963  
  

 

 

   

 

 

   

 

 

 

Additional ASC 842 supplemental disclosures

      

Cash paid for fixed operating lease costs included in the measurement of lease obligations in operating activities

     4,950       6,935       1,021  

Right-of-use assets obtained in exchange for operating lease obligations

     2,952       5,029       741  

Other supplemental cash flow disclosures

      

Interest paid

     2,466       957       141  

Non-cash activities

      

Accrued initial public offering costs payable

     4,850       508       75  

Accrued private placement offering costs payable

     —         96,837       14,263  

Ordinary shares issued to Everest

     —         254,848       37,535  

Conversion of preferred shares to ordinary shares

     —         3,104,177       457,196  

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

 

F-7


Table of Contents

I-MAB

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

1. Principal Activities and Organization

I-Mab (the “Company”) was incorporated in the Cayman Islands on June 30, 2016 as an exempted company with limited liability under the Companies Act of the Cayman Islands. The Company and its subsidiaries (together the “Group”) are principally engaged in discovering and developing transformational biologics in the fields of immuno-oncology and immuno-inflammation diseases in the People’s Republic of China (the “PRC”) and other countries and regions.

Prior to the incorporation of the Company, the Group carried out its operation in the PRC since November 2014 mainly through Third Venture Biopharma (Nanjing) Co., Ltd. (“Third Venture”), which was incorporated on November 17, 2014 in the PRC. For the purpose of introduction of overseas investors and in preparation for a listing of the Company’s shares on the overseas capital markets, the Group underwent a reorganization (the “Reorganization”) in 2016. The Reorganization was approved by the Board of Directors and a restructuring framework agreement was entered into by Third Venture, the Company, and the shareholders of the Company based on Reorganization framework agreement, pursuant to which on July 7, 2016, Third Venture transferred all of its assets and operations to the Company’s wholly owned subsidiary, I-Mab Biopharma Co., Ltd. (“I-Mab Shanghai”), which was a transaction in which shareholders had identical ownership interests before and after the transaction and was accounted for in a manner similar to a common control transaction.

The Reorganization, as described above has been accounted for at historical cost. That Reorganization was reverse merger of Third Venture and Third Venture is the predecessor of the Company. As such, the assets and liabilities of Third Venture are consolidated in the Company’s financial statements at historical cost.

On January 17, 2020, the Company consummated its IPO on the Nasdaq Global Market, where 7,407,400 American Depositary Shares (“ADSs”) were issued at the price of US$14.00 per ADS for total gross proceeds of US$103.7 million. On February 10, 2020, the underwriters of the IPO have exercised their over-allotment option to purchase an additional 768,350 ADSs of the Company at the IPO price of US$14.00 per ADS. After giving effect to the exercise of the over-allotment option, the Company has issued and sold a total of 8,175,750 ADSs in the IPO, for total gross proceeds of US$114.5 million. Each ten ADSs represents twenty-three ordinary shares of the Company.

As of September 30, 2020, the Company’s principal subsidiaries are as follows:

 

Subsidiaries

 

Place of
incorporation

 

Date of
incorporation or
acquisition

 

Percentage
of direct
or indirect
ownership
by the
Company

   

Principal activities

I-Mab Biopharma Hong Kong Limited (“I-Mab Hong Kong”)

  Hong Kong   July 8, 2016     100   Investment holding

I-Mab Shanghai

  PRC   August 24, 2016     100   Research and development
of innovative medicines

I-Mab Bio-tech (Tianjin) Co., Ltd. (“I-Mab Tianjin”)

  PRC   July 15, 2017     100   Research and development
of innovative medicines

I-Mab Biopharma US Ltd.

  U.S.   February 28, 2018     100   Research and development
of innovative medicines

 

F-8


Table of Contents

I-MAB

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

 

2. Principal Accounting Policies

2.1 Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes normally included in the annual financial statements prepared in accordance with U.S. GAAP. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, the Group’s unaudited interim condensed consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the Group’s financial position as of September 30, 2020, and results of operations and cash flows for the nine months ended September 30, 2019 and 2020. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, and related notes included in the Group’s audited consolidated financial statements. The financial information as of December 31, 2019 presented in the unaudited interim condensed consolidated financial statements is derived from the audited consolidated financial statements as of December 31, 2019.

Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.

2.2 Basis of consolidation

The accompanying consolidated financial statements reflect the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All inter-company balances and transactions have been eliminated in consolidation.

2.3 Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for amounts recorded in connection with acquisitions, including initial fair value determinations of assets and liabilities and other intangible assets as well as subsequent fair value measurements. Additionally, estimates are used in determining items such as fair value measurements of wealth management products, impairment of other receivables, long-lived assets, intangible assets and goodwill, useful lives of property, equipment and software, recognition of right-of-use assets and lease liabilities, fair value measurements of warrants, variable consideration in collaboration revenue arrangements, determination of the standalone selling price of each performance obligation in the Company’s revenue arrangements, valuation of share-based compensation arrangements, deferred tax assets valuation allowances and fair value of put right liabilities. 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 those estimates.

 

F-9


Table of Contents

I-MAB

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

 

2.4 Fair value measurements

Financial assets and liabilities of the Group primarily comprise of cash and cash equivalents, restricted cash, short-term investments, other financial assets, contract assets, other receivables, short-term borrowings, accruals and other payables and put right liabilities. As of December 31, 2019, and September 30, 2020, except for short-term investments and put right liabilities, the carrying values of these financial assets and financial liabilities approximated their fair values because of their generally short maturities. The Group reports short-term investments and put right liabilities at fair value at each balance sheet date and changes in fair value are reflected in the consolidated statements of comprehensive loss.

The Group measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the management has the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 includes unobservable inputs that reflect the management’s assumptions about the assumptions that market participants would use in pricing the asset. The management develops these inputs based on the best information available, including the own data.

Assets and liabilities measured at fair value on a recurring basis

The Group measured its short-term investments and put right liabilities at fair value on a recurring basis. As the Group’s short-term investments and put right liabilities are not traded in an active market with readily observable prices, the Group uses significant unobservable inputs to measure the fair value of short-term investments and put right liabilities. These instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement.

The following table summarizes the Group’s financial assets and financial liabilities measured and recorded at fair value on a recurring basis as of December 31, 2019 and September 30, 2020:

 

     As of December 31, 2019  
     Active market
(Level 1)
     Observable input
(Level 2)
     Non-observable input
(Level 3)
     Total  
    

RMB

    

RMB

    

RMB

    

RMB

 

Assets:

           

Short-term investments

     —          —          32,000        32,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.4 Fair value measurements (Continued)

 

     As of September 30, 2020  
     Active market
(Level 1)
     Observable input
(Level 2)
     Non-observable input
(Level 3)
     Total  
    

RMB

    

RMB

    

RMB

    

RMB

 

Assets:

           

Short-term investments

     —          —          28,526        28,526  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Put right liabilities

     —          —          124,100        124,100  
  

 

 

    

 

 

    

 

 

    

 

 

 

The roll forward of major Level 3 financial assets and financial liabilities are as follows:

 

     Short-term investments      Put right liabilities  

Fair value of Level 3 financial assets and financial liabilities as of December 31, 2019

     32,000        —    

Purchase of short-term investments

     270,853        —    

Disposal of short-term investments

     (276,884      —    

Grant of put right liabilities

     —          124,321  

Fair value changes

     2,557        —    

Effect of exchange rate changes

     —          (221
  

 

 

    

 

 

 

Fair value of Level 3 financial assets and financial liabilities as of September 30, 2020

     28,526        124,100  
  

 

 

    

 

 

 

Refer to Note 7 for additional information about Level 3 put right measured at fair value on a recurring basis for the nine months ended September 30, 2020.

2.5 Foreign currency translation

The Group uses Chinese Renminbi (“RMB”) as its reporting currency. The United States Dollar (“US$”) is the functional currency of the Group’s entities incorporated in the Cayman Islands, the United States of America (“U.S.”) and Hong Kong, the Australia Dollar (“AUD”) is the functional currency of the Group’s entity incorporated in Australia and the RMB is the functional currency of the Company’s PRC subsidiaries.

Transactions denominated in other than the functional currencies are translated into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in other than the functional currencies are translated at the balance sheet date exchange rate. The resulting exchange differences are recorded in the consolidated statements of comprehensive loss.

The unaudited interim condensed consolidated financial statements of the Group are translated from the functional currency to the reporting currency, RMB. Assets and liabilities of the subsidiaries are translated into RMB using the exchange rate in effect at each balance sheet date. Income and expenses are translated at the

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.5 Foreign currency translation (Continued)

 

average exchange rates prevailing for the year. Foreign currency translation adjustments arising from these are reflected in the accumulated other comprehensive income. The exchange rates used for translation on December 31, 2019 and September 30, 2020 were US$1.00 = RMB6.9762 and RMB6.8101 respectively, representing the index rates stipulated by the People’s Bank of China.

Translations of balances in the consolidated balance sheets, consolidated statements of comprehensive loss, consolidated statements of changes in shareholders’ equity (deficit) and consolidated statements of cash flows from RMB into US$ as of and for the nine months ended September 30, 2020 are solely for the convenience of the readers and were calculated at the rate of US$1.00=RMB6.7896, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on September 30, 2020. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2020, or at any other rate. The US$ convenience translation is not required under U.S. GAAP and all US$ convenience translation amounts in the accompanying consolidated financial statements are unaudited.

2.6 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents.

2.7 Restricted cash

Restricted cash consists of the guarantee deposits held in a designated bank account as security deposits under bank borrowing agreements. Such restricted cash was released when the Group repaid the related bank borrowings.

2.8 Short-term investments

Short-term investments represent the investments issued by commercial banks or other financial institutions with a variable interest rate indexed to the performance of underlying assets within one year. These investments are stated at fair value. Changes in the fair value are reflected in the consolidated statements of comprehensive loss.

2.9 Property, equipment and software

Property, equipment and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives, taking into account any estimated residual value:

 

Laboratory equipment

  

3 to 5 years

Software

  

2 to 5 years

Office furniture and equipment

  

5 years

Leasehold improvements

  

Lesser of useful life or lease term

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.9 Property, equipment and software (Continued)

 

The Group recognized the gain or loss on the disposal of property, equipment and software in the consolidated statements of comprehensive loss.

2.10 Intangible assets

Intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Amortization is initiated for in-process research and development (IPR&D) intangible assets that are acquired from business combination when their useful lives have been determined. IPR&D intangible assets which are determined to have an impairment in their fair value are adjusted downward and an expense recognized in research and development in the consolidated statements of comprehensive loss. These IPR&D intangible assets are tested at least on an annual basis on December 31 or when a triggering event occurs that could indicate a potential impairment (see Note 5).

2.11 Impairment of long-lived assets

Long-lived assets are reviewed for impairment in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable. Long-lived assets are reported at the lower of carrying amount or fair value less cost to sell. For the year ended December 31, 2019 and nine months ended September 30, 2020, there was no impairment of the value of the Group’s long-lived assets.

2.12 Goodwill

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The Group allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is not amortized, but impairment of goodwill assessment is performed on at least an annual basis on December 31 or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

The Group has elected to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Group’s reporting unit is less than its carrying amount, including goodwill. The qualitative assessment includes the Group’s evaluation of relevant events and circumstances affecting the Group’s single reporting unit, including macroeconomic, industry, market conditions and the Group’s overall financial performance. If qualitative factors indicate that it is more likely than not that the Group’s reporting unit’s fair value is less than its carrying amount, then the Group will perform the quantitative impairment test by comparing the reporting unit’s carrying amount, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. For the year ended December 31, 2019 and nine months ended September 30, 2020, the Group determined that there were no indicators of impairment of the goodwill.

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

 

2.13 Long-term investments

The Group’s long-term investments include equity investments in an affiliate in which it does not have a controlling financial interest, but has the ability to exercise significant influence over the operating and financial policies of the investee. The investment is accounted for using the equity method of accounting in accordance with ASC topic 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Under the equity method, the Group initially records its investments at fair value. The Group subsequently adjusts the carrying amount of the investment to recognize the Group’s proportionate share of the equity investee’s net income or loss after the date of investment. The Group evaluates the equity method investment for impairment under ASC 323. An impairment loss on the equity method investments is recognized in losses when the decline in value is determined to be other-than-temporary. No impairment charge was recognized for the nine months ended September 30, 2020.

2.14 Deferred subsidy income

Deferred subsidy income consists of deferred income from government grants. Government grants mainly consist of cash subsidies received by the Group’s subsidiaries in the PRC from local governments as support on expenses relating to certain projects. Grants received with government specified performance obligations are recognized when all the obligations have been fulfilled. If such obligations are not satisfied, the Group may be required to refund the subsidy. Cash grants of RMB3,920 was recorded in deferred subsidy income as of December 31, 2019. As of September 30, 2020, cash grants of RMB7,638 was recorded in deferred subsidy income, which will be recognized when the government specified performance obligation is satisfied.

2.15 Revenue recognition

The Group adopted Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) for all periods presented. Consistent with the criteria of Topic 606, the Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services.

Under ASC 606, 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 ASC 606, 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, including variable consideration, if any; (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 Group only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

Once a contract is determined to be within the scope of ASC 606 at contract inception, the Group audits the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Group recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.15 Revenue recognition (Continued)

 

Collaboration revenue

At contract inception, the Group analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Group first determines if the collaboration is deemed to be within the scope of ASC 808. For any units of account that are reflective of a vendor-customer relationship those units of account are accounted for within the scope of ASC 606. For any units of account that are not accounted for under ASC 606 and therefore accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently.

The Group’s collaborative arrangements may contain more than one unit of account, or performance obligation, including grants of licenses to intellectual property rights, agreement to provide research and development services and other deliverables. The collaborative arrangements do not include a right of return for any deliverable. As part of the accounting for these arrangements, the Group must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. In developing the stand-alone selling price for a performance obligation, the Group considers competitor pricing for a similar or identical product, market awareness of and perception of the product, expected product life and current market trends. In general, the consideration allocated to each performance obligation is recognized when the respective obligation is satisfied either by delivering a good or providing a service, limited to the consideration that is not constrained.

When the timing of the delivery of product is different from the timing of payments made by the customers, the Group recognizes either a contract asset (performance precedes the contractual due date) or a contract liability (customer payment precedes performance). The Group’s contractual payment terms are typically due in no more than 30 days from invoicing. In limited situations, certain customer contractual payment terms require the Group to bill in arrears; thus, the Group satisfies some or all of the performance obligations before the Group is contractually entitled to bill the customer. In these situations, billing occurs subsequent to revenue recognition, which results in a contract asset. A receivable is recorded when the Group has an unconditional right to consideration. A right to consideration is unconditional if only the passage of the time is required before payment of the consideration is due. A contract asset is recorded when the Group has transferred products or services to the customer before payment is received or is due, and the Group’s right to consideration is conditional on future performance or other factors in the contract. For example, certain of the contractual arrangements do not permit the Group to bill until the completion of the production of the samples. In other limited situations, certain customer contractual payment terms allow the Group to bill in advance; thus, the Group receives customer cash payment before satisfying some or all of its performance obligations. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities.

Licenses of Intellectual Property: Upfront non-refundable payments for licensing the Group’s intellectual property are evaluated to determine if the license is distinct from the other performance obligations identified in the arrangement. For licenses determined to be distinct, the Group recognizes revenues from non-refundable, up-front fees allocated to the license at a point in time, when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.15 Revenue recognition (Continued)

 

Research and Development Services: The portion of the transaction price allocated to research and development services performance obligations is deferred and recognized as revenue over time as delivery or performance of such services provided to the Group’s customers occurs.

Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, the Group evaluates whether the milestones are considered probable of being reached and to the extent that a significant reversal of cumulative revenue would not occur in future periods, estimates the amount to be included in the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Group recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Group re-evaluates the probability of achieving such development milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties or milestone payments based on the level of sales relate, the Group recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

2.16 Value-added-tax (“VAT”) recoverable and surcharges

Value added tax recoverable represent amounts paid by the Group for purchases. The surcharges (i.e., Urban construction and maintenance tax, educational surtax, local educational surtax), vary from 6% to 17% of the value-added-tax depending on the tax-payer’s location. The deductible input VAT balance is reflected in the prepayments and other receivables, and VAT payable balance is recorded in the accruals and other payables.

2.17 Research and development expenses

Elements of research and development expenses primarily include (1) payroll and other related expenses of personnel engaged in research and development activities, (2) in-licensed patent rights fee of exclusive development rights of drugs granted to the Group, (3) expenses related to preclinical testing of the Group’s technologies under development and clinical trials such as payments to contract research organizations (“CRO”), investigators and clinical trial sites that conduct the clinical studies (4) expenses to develop the product candidates, including raw materials and supplies, product testing, depreciation, and facility related expenses, (5) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Group’s research and development services and have no alternative future uses.

The Group 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

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.17 Research and development expenses (Continued)

 

under U.S. 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 would be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product. The conditions enabling capitalization of development expenses as an asset have not yet been met and, therefore, all development expenditures are recognized in profit or loss when incurred.

2.18 Leases

In accordance with ASC 842 adopted on January 1, 2019, the Group determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liability, and operating lease liability, non-current in the Group’s consolidated balance sheets. The Group does not have any finance leases since the adoption date.

ROU assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When determining the lease term, the Group includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Group’s leases do not provide an implicit rate, the Group uses its incremental borrowing rate, which it calculates based on the credit quality of the Group and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease.

The Group has elected to adopt the following lease policies in conjunction with the adoption of ASU 2016-02: (i) elect for each lease not to separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component; (ii) for leases that have lease terms of 12 months or less and does not include a purchase option that is reasonably certain to exercise, the Group elected not to apply ASC 842 recognition requirements; and (iii) the Group elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess (a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and (c) initial direct costs.

In connection with the adoption of ASC 842, on January 1, 2019, the Company recorded an impact of RMB13,100 on its assets and RMB11,333 on its liabilities for the recognition of operating lease right-of-use-assets and operating lease liabilities, respectively, which are primarily related to the lease of the Group’s offices and warehouses. The adoption of ASC 842 did not have a material impact on the Company’s results of operations or cash flows.

2.19 Comprehensive loss

Comprehensive loss is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as components of comprehensive loss be

 

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Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(All amounts in thousands, except for share and per share data, unless otherwise noted)

2. Principal Accounting Policies (Continued)

2.19 Comprehensive loss (Continued)

 

reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Group’s comprehensive loss includes net loss and foreign