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THE ROSEN LAW FIRM, P.A.
Laurence Rosen, Esq.
609 W. South Orange Avenue, Suite 2P
South Orange, NJ 07079
Tel: (973) 313-1887
Fax: (973) 833-0399
Email: [email protected]
Counsel for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
_______________, INDIVIDUALLY AND
ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED,
Plaintiff,
vs.
BEIGENE, LTD., JOHN OYLER, and
HOWARD LIANG,
Defendants.
Case No.:
CLASS ACTION COMPLAINT
FOR VIOLATIONS OF THE
FEDERAL SECURITIES
LAWS
JURY TRIAL DEMANDED
Plaintiff ___________, individually and on behalf of all other
persons
similarly situated, by Plaintiff’s undersigned attorneys, for
Plaintiff’s Complaint
against Defendants (defined below), alleges the following based
upon personal
knowledge as to Plaintiff and Plaintiff’s own acts, and upon
information and belief
as to all other matters based on the investigation conducted by
and through
Plaintiff’s attorneys, which included, among other things, a
review of Securities and
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Exchange Commission (“SEC”) filings by BeiGene, Ltd. (“BeiGene”
or the
“Company”), as well as media and reports about the Company.
Plaintiff believes
that substantial evidentiary support will exist for the
allegations set forth herein after
a reasonable opportunity for discovery.
NATURE OF THE ACTION
1. This is a federal securities class action on behalf of all
persons and
entities, other than Defendants, who purchased the securities of
BeiGene during the
period of November 13, 2017 through September 4, 2019, inclusive
(the “Class
Period”), seeking to recover compensable damages caused by
Defendants’
violations of federal securities laws (the “Class”).
JURISDICTION AND VENUE
2. The claims asserted herein arise under and pursuant to
Sections 10(b)
and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78b-1 and
78t(a), and Rule
10b-5 promulgated thereunder by the SEC, 17 C.F.R.
§240.10b-5.
3. This Court has jurisdiction over the subject matter of this
action
pursuant to Section 27 of the Exchange Act (15 U.S.C. § 78aa)
and 28 U.S.C. §
1331.
4. Venue is proper in this Judicial District pursuant to Section
27 of the
Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b) as the
Company’s
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conducts business in this District and a substantial part of the
conduct complained of
herein occurred in this District.
5. In connection with the acts, conduct, and other wrongs
alleged in this
Complaint, Defendants, directly or indirectly, used the means
and instrumentalities
of interstate commerce, including but not limited to, the United
States mails,
interstate telephone communications and the facilities of the
national securities
exchange.
PARTIES
6. Plaintiff, as set forth in the accompanying certification,
incorporated by
reference herein, purchased BeiGene securities at artificially
inflated prices during
the Class Period and has been damaged thereby.
7. Defendant BeiGene purports to be a commercial-stage
biotechnology
company that develops and commercializes molecularly-targeted
and
immuno-oncology drugs for the treatment of cancer in the
People's Republic of
China, the United States, and internationally. BeiGene is
incorporated in the
Cayman Islands and its principle executive offices are located
at 94 Solaris Avenue,
Camana Bay, Grand Cayman, Cayman Islands. During the Class
Period, BeiGene’s
securities was actively traded on the NASDAQ, under the ticker
“BGNE.”
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8. Defendant John Oyler (“Oyler”) co-founded the Company and
served
as the Company’s Chairman of the Board of Directors and Chief
Executive Officer
(“CEO”) during the Class Period.
9. Defendant Howard Liang (“Liang”) served as the Company’s
Chief
Financial Officer (“CFO”) during the Class Period.
10. Collectively Defendants Oyler and Liang are collectively
the
“Individual Defendants.”
11. Collectively, Defendant BeiGene and Individual Defendants
are herein
referred to as “Defendants.”
12. Each of the Individual Defendants:
(a) directly participated in the management of the Company;
(b) was directly involved in the day-to-day operations of the
Company at
the highest levels;
(c) was privy to confidential proprietary information concerning
the
Company and its business and operations;
(d) was directly or indirectly involved in drafting, producing,
reviewing
and/or disseminating the false and misleading statements and
information
alleged herein;
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(e) was directly or indirectly involved in the oversight or
implementation
of the Company’s internal controls;
(f) was aware of or recklessly disregarded the fact that the
false and
misleading statements were being issued concerning the Company;
and/or
(g) approved or ratified these statements in violation of the
federal
securities laws.
13. BeiGene is liable for the acts of the Individual Defendants
and its
employees under the doctrine of respondeat superior and common
law principles of
agency as all of the wrongful acts complained of herein were
carried out within the
scope of their employment with authorization.
14. The scienter of the Individual Defendants and other
employees and
agents of the Company is similarly imputed to BeiGene under
respondeat superior
and agency principles.
SUBSTANTIVE ALLEGATIONS
Defendants’ False and Misleading Class Period Statements
15. On November 13, 2017, the Company filed its quarterly report
on Form
10-Q with the SEC for the quarter ending September 30, 2017 (the
“3Q 2017
10-Q”). The 3Q 2017 10-Q was signed by Defendants Oyler and
Liang. Attached to
the 3Q 2017 10-Q were certifications pursuant to the
Sarbanes-Oxley Act of 2002
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(“SOX”) signed by Defendants Oyler and Liang attesting to the
disclosure of all
fraud.
16. The 3Q 2017 10-Q discussed the Company’s collaboration
with
Celgene in China, stating in relevant part:
As described in “—Recent Developments” above, we entered
into
the A&R PD-1 License Agreement with Celgene and Celgene
Switzerland, and the China License Agreement with Celgene
Logistics.
We recognized revenues for the three and nine months ended
September 30, 2017 as follows:
Three and Nine Months Ended
September 30, 2017
(in thousands)
Product revenue, net $ 8,822
License revenue 211,391
Total $ 220,213
Revenues from product sales are recognized when persuasive
evidence of an arrangement exists, delivery has occurred and
title of the
product and associated risk of loss has transferred to the
customer, the
price is fixed or determinable, collection from the customer has
been
reasonably assured, all performance obligations have been met,
and
returns and allowances can be reasonably estimated. Product
sales are
recorded net of estimated rebates, estimated product returns and
other
deductions. Provisions for estimated reductions to revenue
are
provided for in the same period the related sales are recorded
and are
based on the sales terms, historical experience and trend
analysis.
Product revenue was $8.8 million for the three months ended
September 30, 2017, which related to our distribution and
promotion of
ABRAXANE® and REVLIMID® in China. We began recognizing
product revenue with sales to our distributors in China,
beginning in
September 2017 following the closing of our strategic
collaboration
with Celgene. Product revenue is net of accrual for rebates and
returns,
which totaled $1.7 million as of September 30, 2017. We had
no
product revenue for the three months ended September 30,
2016.
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We are accounting for the A&R PD-1 License Agreement
with
Celgene under ASC 605, Revenue Recognition (“ASC 605”), and
identified the following deliverables of the collaboration
agreement
with stand-alone value, which are accounted for as separate
units of
accounting: (a) the license provided to Celgene for the
exclusive right
to develop and commercialize BGB-A317, in all fields of
treatment,
other than hematology, in the United States, Europe, Japan and
the rest
of world other than Asia (“the license”); and (b) the research
and
development services provided to Celgene to develop BGB-A317
within specified indications (“R&D services”). For each
deliverable,
we determined the best estimated selling price (“BESP”) and
allocated
the non-contingent consideration allocated to the A&R PD-1
License
Agreement of $250.0 million to the units of accounting using
the
relative selling price method. The consideration allocated to
the
license, $211.4 million was recognized upon transfer of the
license to
Celgene at contract inception and the consideration allocated to
the
R&D services will be recognized over the term of the
respective
clinical studies for the specified indications.
17. On February 28, 2018, the Company issued a press release
announcing
its financial results for the three and twelve months ended
December 31, 2017 (the
“February 28, 2018 Press Release”). A copy of the February 28,
2018 Press Release
was attached to a Form 8-K that the Company filed with the SEC
on the same day.
18. The February 28, 2018 Press Release stated:
Revenue for the fourth quarter and year ended December 31,
2017
was $18.17 million and $238.39 million, respectively, compared
to nil
and $1.07 million in the same periods in 2016, attributable to
product
and collaboration revenue under the Celgene collaboration.
• Product revenue from sales of ABRAXANE and
REVLIMID in China totaled $15.61 million and $24.43 million
for the fourth quarter and from August 31, 2017 (the closing
of
the Celgene transaction) to December 31, 2017, respectively.
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• Collaboration revenue totaled $2.57 million and $213.96
million for the fourth quarter and year ended December 31,
2017, respectively, reflecting recognition of the upfront
licensing fees from Celgene in the third quarter and
deferred
upfront fees recognized in the fourth quarter.
19. On February 28, 2018, the Company filed its annual report on
Form
10-K with the SEC for the year ending December 31, 2017 (the
“2017 10-K”). The
2017 10-K was signed by Defendants Oyler and Liang. Attached to
the 2017 10-K
were SOX certifications signed by Defendants Oyler and Liang
attesting to the
disclosure of all fraud.
20. The 2017 10-K discussed the Company’s collaboration with
Celgene in
China, stating in relevant part:
In 2017, we entered into a strategic collaboration with
Celgene
Corporation, or Celgene, in which we granted Celgene exclusive
rights
to develop and commercialize tislelizumab for solid tumors in
the
United States, Europe, Japan, and the rest of the world outside
of Asia.
We retained rights to tislelizumab for solid tumors in Asia
(ex-Japan)
and for hematological malignancies and internal combinations
globally. In connection with the Celgene collaboration, we
obtained an
exclusive license to market Celgene’s approved cancer
therapies
ABRAXANE®, REVLIMID®, and VIDAZA® in China, excluding
Hong Kong, Macau and Taiwan, which has allowed us to
generate
product revenue in China since September 2017. We also
obtained
Celgene’s commercial operations and personnel in China, which
we
expect to expand in preparation for the potential launch of our
own
internally-developed drug candidates and our other in-licensed
drug
candidates in China.
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21. On May 9, 2018, the Company issued a press release
announcing its
financial results for the three months ended March 31, 2018 (the
“May 9, 2018 Press
Release”). A copy of the May 9, 2018 Press Release was attached
to a Form 8-K that
the Company filed with the SEC on the same day.
22. The May 9, 2018 Press Release stated:
Revenues for the three months ended March 31, 2018 were
$32.54
million, compared to nil in the same period in 2017,
attributable to
product and collaboration revenue under our collaboration
with
Celgene.
• Product revenue from sales of ABRAXANE, REVLIMID
and VIDAZA® in China totaled $23.25 million for the first
quarter 2018.
• Collaboration revenue totaled $9.29 million for the first
quarter 2018, reflecting $7.55 million that was recognized
as
research and development reimbursement revenue from
Celgene and $1.74 million of deferred upfront fees from
Celgene recognized in the first quarter of 2018. In
addition,
unbilled receivables of $23.86 million on the balance sheet
reflect research and development reimbursement under the
Celgene collaboration for expenses incurred through the
first
quarter of 2018.
23. On May 9, 2018, the Company filed its quarterly report on
Form 10-Q
with the SEC for the quarter ending March 31, 2019 (the “1Q 2018
10-Q”). The 1Q
2018 10-Q was signed by Defendants Oyler and Liang. Attached to
the 1Q 2019
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10-Q were SOX certifications signed by Defendants Oyler and
Liang attesting to the
disclosure of all fraud.
24. On August 9, 2018, the Company issued a press release
announcing its
financial results for the three months ended March 31, 2019 (the
“August 9, 2018
Press Release”). A copy of the August 9, 2018 Press Release was
attached to a Form
8-K that the Company filed with the SEC on the same day.
25. The August 9, 2018 Press Release stated:
Revenue for the three months ended June 30, 2018 were $52.80
million, compared to nil in the same period in 2017,
primarily
attributable to product and collaboration revenue under our
collaboration with Celgene.
• Product revenue from sales of ABRAXANE®,
REVLIMID® and VIDAZA® in China totaled $31.43 million
for the second quarter of 2018.
• Collaboration revenue totaled $21.38 million for the
second
quarter of 2018, reflecting $18.18 million of research and
development reimbursement revenue from Celgene, $1.70
million of research and development service revenue from
deferred recognition of upfront fees, and $1.50 million of
milestone revenue under the collaboration agreement for
pamiparib with Merck KGaA, Darmstadt, Germany.
26. On August 9, 2018, the Company filed its quarterly report on
Form
10-Q with the SEC for the quarter ending June 30, 2018 (the “2Q
2018 10-Q”). The
2Q 2018 10-Q was signed by Defendants Oyler and Liang. Attached
to the 2Q 2018
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10-Q were SOX certifications signed by Defendants Oyler and
Liang attesting to the
disclosure of all fraud.
27. On November 7, 2018, the Company issued a press release
announcing
its financial results for the three months ended September 30,
2018 (the “November
7, 2018 Press Release”). A copy of the November 7, 2018 Press
Release was
attached to a Form 8-K that the Company filed with the SEC on
the same day.
28. The November 7, 2018 Press Release stated:
Revenue for the three months ended September 30, 2018 was
$54.20
million, compared to $220.21 million in the same period in 2017.
The
decrease is primarily attributable to the upfront payment
recognized in
the prior year period under our collaboration agreement with
Celgene
for tislelizumab.
• Product revenue from sales of ABRAXANE®,
REVLIMID® and VIDAZA® in China totaled $38.45 million
for the third quarter of 2018, compared to $31.43 million for
the
three months ended June 30, 2018, and $8.82 million for the
three months ended September 30, 2017 (which only included
one month of product sales following the in-license from
Celgene), respectively.
• Collaboration revenue totaled $15.76 million for the third
quarter of 2018, compared to $21.38 million for the three
months ended June 30, 2018, and $211.39 million for the
three
months ended September 30, 2017, respectively. The decrease,
compared to the second quarter of 2018, is primarily due to
lower research and development costs in the period on
clinical
trials that are being reimbursed by Celgene. The decrease,
compared to the third quarter of 2017, is due primarily to
the
upfront revenue recognized in the third quarter of 2017 from
the
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Celgene collaboration.
29. On November 8, 2018, the Company filed its quarterly report
on Form
10-Q with the SEC for the quarter ending September 30, 2018 (the
“3Q 2018
10-Q”). The 3Q 2018 10-Q was signed by Defendants Oyler and
Liang. Attached to
the 3Q 2018 10-Q were SOX certifications signed by Defendants
Oyler and Liang
attesting to the disclosure of all fraud.
30. On February 27, 2019, the Company issued a press release
announcing
its financial results for the three and twelve months ended
December 31, 2018 (the
“February 27, 2019 Press Release”). A copy of the February 27,
2019 Press Release
was attached to a Form 8-K that the Company filed with the SEC
on the same day.
31. The February 27, 2019 Press Release stated:
Revenue for the fourth quarter and year ended December 31,
2018 was $58.67 million and $198.22 million, respectively,
compared
to $18.17 million and $238.39 million in the same periods in
2017. The
increase in the quarter-over-quarter period is attributable to
increased
product revenue in China and collaboration revenue under our
license
and collaboration agreements with Celgene. The decrease in
the
year-over-year period is due to the upfront payment recognized
in 2017
under our collaboration agreement with Celgene for
tislelizumab.
• Product revenue from sales of ABRAXANE®,
REVLIMID® and VIDAZA® in China totaled $37.76 million
and $130.89 million for the fourth quarter and year ended
December 31, 2018, respectively, compared to $15.61 million
and $24.43 million for the same periods in 2017 (2017
revenue
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was from the last four months of the year after the Celgene
transaction closed on August 31, 2017).
• Collaboration revenue totaled $20.91 million and $67.34
million for the fourth quarter and year ended December 31,
2018, respectively, compared to $2.57 million and $213.96
million for the same periods in 2017.
32. On February 28, 2019, the Company filed its annual report on
Form
10-K with the SEC for the year ending December 31, 2018 (the
“2018 10-K”). The
2018 10-K was signed by Defendants Oyler and Liang. Attached to
the 2018 10-K
were SOX certifications signed by Defendants Oyler and Liang
attesting to the
disclosure of all fraud.
33. The 2018 10-K discussed the Company’s collaboration with
Celgene in
China, stating in relevant part:
On July 5, 2017, we and a wholly-owned subsidiary of
Celgene,
Celgene Logistics Sàrl, or Celgene Logistics, entered into a
License
and Supply Agreement, which we refer to as the China License
Agreement and which became effective on August 31, 2017,
pursuant
to which we were granted the right to exclusively distribute
and
promote Celgene’s approved cancer therapies, ABRAXANE®,
REVLIMID® and VIDAZA®, and its investigational agent
avadomide
(CC-122) in clinical development in China, excluding Hong
Kong,
Macau and Taiwan. In addition, if Celgene decides to
commercialize a
new oncology product through a third-party in the licensed
territory
during the first five years of the term, we have a right of
first
negotiation to obtain the right to commercialize the product,
subject to
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certain conditions. We paid an aggregate of US$4.5 million in
cash for
the license and our acquisition of Celgene Shanghai, as
described
below.
The term of the China License Agreement is 10 years and may
be
terminated by either party upon written notice in the event of
uncured
material breach or bankruptcy of the other party, or if the
underlying
regulatory approvals for the covered products are revoked.
Celgene
Logistics also has the right to terminate the agreement with
respect to
REVLIMID® at any time upon written notice to the Company
under
certain circumstances.
In the event of an acquisition of Celgene Logistics by another
party, the
China License Agreement provides that Celgene Logistics
shall
provide notice to us, and within a specified period of time,
requires that
the parties discuss in good faith any changes in the supply
requirements
of the China License Agreement that Celgene Logistics may
request as
a result of the acquisition. During that period, the China
License
Agreement requires us to conduct business in the ordinary course
and
provides that Celgene Logistics is not required to supply more
than a
specified amount more than the amount of our forecasted demand.
We
expect to be able to continue to market ABRAXANE®, REVLIMID®
and VIDAZA® in China under the China License Agreement
following the closing of the announced BMS acquisition of
Celgene, if
that transaction occurs.
The China License Agreement contains customary representations
and
warranties and confidentiality and mutual indemnification
provisions.
On August 31, 2017, our wholly owned subsidiary, BeiGene
(Hong
Kong) Co., Ltd., acquired 100% of the equity interests of
Celgene
Pharmaceutical (Shanghai) Co., Ltd., or Celgene Shanghai, a
wholly-owned subsidiary of Celgene Holdings East Corporation
established under the laws of China. The purchase price of
Celgene
Shanghai was determined to be approximately US$28.1 million
from
an accounting perspective, and comprised of a cash consideration
of
US$4.5 million and non-cash consideration of US$23.6 million.
The
amount allocated to non-cash consideration, related to the
discount on
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ordinary shares issued to Celgene in connection with the
Share
Subscription Agreement and was a result of the increase in fair
value of
our shares between the fixed price of US$59.55 per ADS specified
in
the Share Subscription Agreement and the fair value per ADS
on
August 31, 2017, the date the transaction closed. This company,
which
we subsequently renamed BeiGene Pharmaceutical (Shanghai)
Co.,
Ltd., is in the business of, among other things, providing
marketing and
promotional services for the pharmaceutical products that we
license
from Celgene. Prior to closing, Celgene separated out certain
business
functions, including regulatory and drug safety, that continue
to
support the business acquired by us.
34. On May 9, 2019, the Company issued a press release
announcing its
financial results for the three months ended March 31, 2019 (the
“May 9, 2019 Press
Release”). A copy of the May 9, 2019 Press Release was attached
to a Form 8-K that
the Company filed with the SEC on the same day.
35. The May 9, 2019 Press Release stated:
Revenue for the first quarter ended March 31, 2019 was
$77.83
million, compared to $32.54 million in the same period in 2018.
The
increase is attributable to increased product revenue in China
and
collaboration revenue under our license and collaboration
agreements
with Celgene.
• Product revenue from sales of ABRAXANE®,
REVLIMID® and VIDAZA® in China totaled $57.42 million
for the first quarter ended March 31, 2019, compared to
$23.25
million for the same period in 2018.
• Collaboration revenue totaled $20.41 million for the first
quarter ended March 31, 2019, compared to $9.29 million for
the same period in 2018.
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36. On May 9, 2019, the Company filed its quarterly report on
Form 10-Q
with the SEC for the quarter ending March 31, 2019 (the “1Q 2019
10-Q”). The 1Q
2019 10-Q was signed by Defendants Oyler and Liang. Attached to
the 1Q 2019
10-Q were SOX certifications signed by Defendants Oyler and
Liang attesting to the
disclosure of all fraud.
37. On August 8, 2019, the Company issued a press release
announcing its
financial results for the three months ended June 30, 2019 (the
“August 8, 2019
Press Release”). A copy of the August 8, 2019 Press Release was
attached to a Form
8-K that the Company filed with the SEC on the same day.
38. The August 8, 2019 Press Release stated:
for the quarter ended June 30, 2019 was $243.35 million,
compared to
$52.80 million in the same period in 2018. The increase is
primarily
attributable to the $150 million payment received in connection
with
the termination of the tislelizumab collaboration agreement
with
Celgene, the recognition of previously deferred revenue from
the
collaboration as well as increased product revenue from sales of
the
in-licensed products from Celgene in China.
• Product revenue from sales of ABRAXANE®,
REVLIMID® and VIDAZA® in China totaled $58.14 million
for the second quarter ended June 30, 2019, compared to
$31.43
million for the same period in 2018.
• Collaboration revenue totaled $185.20 million for the
second quarter ended June 30, 2019, compared to $21.38
million for the same period in 2018. The increase is due
primarily to the $150 million payment in connection with the
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termination of our tislelizumab collaboration agreement with
Celgene, as well as the recognition of previously deferred
revenue from the collaboration.
39. On August 8, 2019, the Company filed its quarterly report on
Form
10-Q with the SEC for the quarter ending June 30, 2019 (the “2Q
2019 10-Q”). The
2Q 2019 10-Q was signed by Defendants Oyler and Liang. Attached
to the 2Q 2019
10-Q were SOX certifications signed by Defendants Oyler and
Liang attesting to the
disclosure of all fraud.
40. The statement referenced in ¶¶15-39 above were materially
false and/or
misleading because they misinterpreted and failed to disclose
the following adverse
facts pertaining to the Company’s business and operations which
were known to
Defendants or recklessly disregarded by them. Specifically,
Defendants made false
and/or misleading statements and/or failed to disclose that: (1)
BeiGene engaged in
circular round-tripping transactions that generated fictitious
sales as revenues; (2)
the Company used an undisclosed distributor, China Resources
Pharmaceutical Co.,
to effect its round-tripping scheme; (3) as a result, the
Company overstated its
reported revenues; and (4) as a result, Defendants’ statements
about the BeiGene’s
business, operations and prospects were materially false and
misleading and/or
lacked a reasonable basis at all relevant times.
The Truth Begins to Emerge
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41. On September 5, 2019, J Capital published a report entitled
“No Cure”
asserting the BeiGene may be faking 60% of sales to persuade
investors that it can
develop a successful platform in China and that BeiGene did not
enjoy the fast-track
approval that a fully Chinese firm would. The article, stated,
in relevant part:
Fake revenues: Our extensive interviews in China and re-view
of
Chinese Tax Department financial statements indicate that
BeiGene
has invented over $154 mln in revenues since Q4 2017, when it
took
over sales of Celgene drugs in China, an overstatement of
133%.
* * *
In its eagerness to win distribution rights, BeiGene appears to
have
over-committed to minimum drug purchases from Celgene and
now
cannot unload the drugs. That is why, we believe, BeiGene is
faking
sales. BeiGene buys from Celgene offshore, sells to the
Chinese
distributor then buys the drugs back from that distributor.
We are confident that BeiGene is lying about its sales, because
we have
interviewed Chinese distributors and hospitals who buy the
drugs, all of
which provided estimates of Celgene drug sales that are far
below what
the company claims. We then reviewed financial statements of
BeiGene’s operating companies in China and found evidence of
round-tripping that leads us to our revenue estimate.
42. The report explained that BeiGene faked sales via the
following
methods: (i) buying its own drugs through a shell company; (ii)
acquiring a
company; and (3) by “subsequently” purchasing inventory. Each
method utilized an
undisclosed distributor called China Resources Pharmaceutical
Co. The report
stated, in pertinent part:
BeiGene has a shell company in Guangzhou with a fake address
and
no operations but $70 mln in 2018 costs. The “costs” mean
that
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money can be funneled into Celgene drug purchases.
Established July 11, 2017, BeiGene Guangzhou is described by
BeiGene as a “medical and pharmaceutical research company.” But
we
visited its registered address and discovered that no such
company
resides at the address—and in fact, the address does not even
exist;
there is no No. 333 on the street where BeiGene Guangzhou is
registered. The company’s annual report filed with the State
Administration of Industry and Commerce (SAIC) reports zero
employees. Importantly, BeiGene Guang-zhou was not audited in
2017
or before the Hong Kong listing in 2018.
Although there is no operating company at BeiGene
Guangzhou’s
registered address and no staff, the company shows massive
costs. We
obtained statutory financial statements for BeiGene
Guangzhou
through Chinese attorneys. In 2018, BeiGene Guangzhou
reported
no revenue but lost ¥480 mln ($69.8 mln).
The shell company was established in July 2017 but had no
activity until
2018, when it was made the 100% owner of a company then called
Huajian
Pharmaceutical, the only BeiGene subsidiary that is licensed to
buy and sell
drugs. All of BeiGene’s sales of the Celgene drugs go through an
exclusive
Chinese distributor, and until it acquired Huajian, BeiGene had
no legitimate
way to buy the drugs back. In China’s highly regulated
environment,
companies need a special distribution license to buy and sell
drugs. Huajian
provided that.
* * *
Before it was even acquired, BPG seems to have bought around
$25
mln in Celgene drugs--without paying, a conclusion we draw from
the
company’s statutory accounts. BeiGene then bought the company
and
appears to have extended an intercompany loan to allow BPG to
pay
the bill—without anyone having to report debt. Evidence comes
both
from interviews and from the company accounts.
Accounts show that, at the end of 2018, BPG had an outstanding
loan of
¥205 mln. BPG’s immediate parent company, BeiGene Guangzhou,
extended a loan of ¥200 mln, likely to BPG. This loan is not
disclosed
by BeiGene Ltd. in its U.S. or Hong Kong reports. Meanwhile,
BPG
reports ¥175 mln ($25.4 mln) of “other non-current assets.”
Based on
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our interviews with BPG staff and with the Chinese distributor
of
Celgene drugs, we think the “other non-current assets” are
Celgene
product and that BPG may have chosen to characterize the
inventory as
“non-current” to reflect the fact that the company has no means
of
disposing of it in the near future.
Accounts show that, at the end of 2018, BPG had an outstanding
loan of
¥205 mln. BPG’s immediate parent company, BeiGene Guangzhou,
extended a loan of ¥200 mln, likely to BPG. This loan is not
disclosed
by BeiGene Ltd. in its U.S. or Hong Kong reports. Meanwhile,
BPG
reports ¥175 mln ($25.4 mln) of “other non-current assets.”
Based on
our interviews with BPG staff and with the Chinese distributor
of
Celgene drugs, we think the “other non-current assets” are
Celgene
product and that BPG may have chosen to characterize the
inventory as
“non-current” to reflect the fact that the company has no means
of
disposing of it in the near future.
Given that the Celgene drugs are 1) perishable and 2) falling
rapidly in
price, holding inventory does not make commercial sense.
BeiGene
could have passed off this transaction to auditors as an
"Other
Non-Current Asset" of $25.2 mln and folded it into the year’s
$40.2
mln increase, which it described as “primarily related to
prepayments
for acquiring long-term assets” (page 131, Hong Kong 2018
Annual
Report, page 104, 2018 10-K).
BPG changed its name three times in six months, and we believe
this
maneuver may have been undertaken to trick auditors into
thinking
that the purchaser of Celgene product is different from the
company
BeiGene acquired. Until February 26, 2018, BPG was called
Guangdong Jianbang Pharmaceutical.2 Jianbang then changed its
name
to Huajian Pharmaceuticals.3 It then again changed names on July
12 to
Beiji Shenzhou,4 which in Chinese is a homonym for the current
name,
BeiGene Pharmaceuticals Guangzhou; in Chinese script, only
one
character differs. That name difference could have allowed
the
company to register the loan without discovery by auditors.
* * *
BeiGene’s acquisition of Celgene Shanghai also seems to have
been
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a way to round trip sales of Celgene drugs. We believe that
BeiGene
may have used the acquisition as a smokescreen to buy $17.7 mln
of
Celgene drugs and pretend they were sold to external
customers
Those drugs, we believe, based on our interviews, ended up
in
BeiGene’s Suzhou subsidiary. BeiGene used a local auditor for
that
company, BeiGene Suzhou: Zhonghui Certifed Public
Accountants
LLP, separate from E&Y Hua Ming, which audits the group.5
Given
the material size of BeiGene Suzhou, this is irregular.
BeiGene is now claiming huge sales of the Celgene drugs. But
on
acquisition, BeiGene valued the distribution rights it obtained
from
Celgene at a mere $7.5 mln over 10 years.
BeiGene acquired Celgene Shanghai for $28.1 mln, of which just
$4.5
mln was paid in cash and the rest in a discount on share
purchases by
Celgene. ‣ In its Hong Kong listing documents, BeiGene claims
that it
“subsequently” paid Celgene $17.7 million for
inventory--something
Celgene never mentioned. The sale document for this acquisition
was
never made public. ‣ The disclosure is vague as to where the
inventory
was at the time. The company implies that it acquired inventory
in the
Shanghai company. But we know Celgene Shanghai did not have
inventory. If the purchase was made from Celgene or from the
Chinese
distributor, it would probably have been booked as a sale.
We think BeiGene must have lied about acquiring $25 mln in
cash
from the subsidiary. We reviewed Celgene Shanghai’s 2016-18
financial statements, and the company did not and could not
have
had that cash. Why lie about it? Because that lie could have
papered
over the inventory purchase—the balance sheet would show no
change, so it would have looked like BeiGene acquired cash and
used
the cash for inventory. Actually, BeiGene could easily dip into
its
R&D or clinical trials budget to buy the drugs.
The inventory ended up in BeiGene’s Suzhou subsidiary, according
to
the accounts and our interviews. Recorded inventory in
BeiGene
Suzhou at the end of 2018 was $15.9 mln. As BeiGene reported in
the
2018 10K “The Company’s inventory balance of $16,242 and
$10,930
as of December 31, 2018 and 2017, respectively, consisted
entirely of
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finished goods product purchased from Celgene for distribution
in the
PRC.” (Page F29 2018 10k) Based on our interviews, we have a
high
degree of confidence that the inventory held by BeiGene Suzhou
is
Celgene product. That means it has to have been repurchased from
the
Chinese distributor within China.
* * *
All of this round tripping is made possible by a massive
commercial
relationship that BeiGene has failed to mention to its
investors. Due
to Chinese regulations, BeiGene’s commercial operations are
almost
entirely outsourced to a large, stateowned pharmaceutical
distributor
called China Resources Pharmaceutical Co. (CRP). Chinese
industry
news reports say that, following BeiGene’s acquisition of
Celgene
China operations on August 31, 2017, BeiGene awarded
distribution
rights to CRP on November 10, 2017.7 All BeiGene sales of
Celgene
products are through CRP, according to CRP executives. This
means
that all of BeiGene’s revenues from Celgene drugs should be
booked
when BeiGene sells them to CRP offshore. There is no good reason
for
BeiGene then to re-acquire $49 mln in inventory of Celgene
drugs
within China.
* * *
When a company fakes its sales, margins are often the tell.
During the
period when BeiGene took over sales and drugs entered
China’s
reimbursement lists, negotiated prices for Celgene products have
fallen
between 37% and 63%, yet the company claims margins fell by only
8
points. We estimate, based on the sales mix reported by the
company
and discounted prices we have confirmed in the market margins
should
have fallen by 21 points. This provides further confirmation
that
BeiGene’s sales reports are implausible.
(Emphasis added).
43. On this news, shares of BeiGene fell $19.95 per share, or
14.19%, over
the following two trading sessions, closing at $120.61 on
September 6, 2019.
PLAINTIFF’S CLASS ACTION ALLEGATIONS
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44. Plaintiff brings this action as a class action pursuant to
Federal Rule of
Civil Procedure 23(a) and (b)(3) on behalf of a Class,
consisting of all those who
purchased or otherwise acquired Realogy securities during the
Class Period (the
“Class”); and were damaged upon the revelation of the alleged
corrective disclosure.
Excluded from the Class are Defendants herein, the officers and
directors of the
Company, at all relevant times, members of their immediate
families and their legal
representatives, heirs, successors or assigns and any entity in
which Defendants have
or had a controlling interest.
45. The members of the Class are so numerous that joinder of all
members
is impracticable. Throughout the Class Period, BeiGene
securities were actively
traded on the NASDAQ. While the exact number of Class members is
unknown to
Plaintiff at this time and can be ascertained only through
appropriate discovery,
Plaintiff believes that there are hundreds or thousands of
members in the proposed
Class. Record owners and other members of the Class may be
identified from
records maintained by BeiGene or its transfer agent and may be
notified of the
pendency of this action by mail, using the form of notice
similar to that customarily
used in securities class actions.
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- 24 -
46. Plaintiff’s claims are typical of the claims of the members
of the Class
as all members of the Class are similarly affected by
Defendants’ wrongful conduct
in violation of federal law that is complained of herein.
47. Plaintiff will fairly and adequately protect the interests
of the members
of the Class and has retained counsel competent and experienced
in class and
securities litigation. Plaintiff has no interests antagonistic
to or in conflict with those
of the Class.
48. Common questions of law and fact exist as to all members of
the Class
and predominate over any questions solely affecting individual
members of the
Class. Among the questions of law and fact common to the Class
are:
a. whether the federal securities laws were violated by
Defendants’
acts as alleged herein;
b. whether statements made by Defendants to the investing
public
during the Class Period misrepresented material facts about the
business,
operations and management of BeiGene;
c. whether the Individual Defendants caused BeiGene to issue
false
and misleading financial statements during the Class Period;
d. whether Defendants acted knowingly or recklessly in
issuing
false and misleading financial statements;
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e. whether the prices of BeiGene securities during the Class
Period
were artificially inflated because of the Defendants’ conduct
complained of
herein; and
f. whether the members of the Class have sustained damages
and,
if so, what is the proper measure of damages.
49. A class action is superior to all other available methods
for the fair and
efficient adjudication of this controversy since joinder of all
members is
impracticable. Furthermore, as the damages suffered by
individual Class members
may be relatively small, the expense and burden of individual
litigation make it
impossible for members of the Class to redress individually the
wrongs done to
them. There will be no difficulty in the management of this
action as a class action.
50. Plaintiff will rely, in part, upon the presumption of
reliance established
by the fraud-on-the-market doctrine in that:
a. Defendants made public misrepresentations or failed to
disclose
material facts during the Class Period;
b. the omissions and misrepresentations were material;
c. BeiGene securities are traded in an efficient market;
d. the Company’s shares were liquid and traded with moderate
to
heavy volume during the Class Period;
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- 26 -
e. the Company traded on the NASDAQ;
f. the misrepresentations and omissions alleged would tend
to
induce a reasonable investor to misjudge the value of the
Company’s
securities; and
g. Plaintiff and members of the Class purchased, acquired
and/or
sold BeiGene securities between the time the Defendants failed
to disclose or
misrepresented material facts and the time the true facts were
disclosed,
without knowledge of the omitted or misrepresented facts.
51. Based upon the foregoing, Plaintiff and the members of the
Class are
entitled to a presumption of reliance upon the integrity of the
market.
52. Alternatively, Plaintiff and the members of the Class are
entitled to the
presumption of reliance established by the Supreme Court in
Affiliated Ute Citizens
of the State of Utah v. United States, 406 U.S. 128, 92 S. Ct.
2430 (1972), as
Defendants omitted material information in their Class Period
statements in
violation of a duty to disclose such information, as detailed
above.
FIRST CAUSE OF ACTION
Violation of Section 10(b) of The Exchange Act Against and Rule
10b-5
Promulgated Thereunder Against All Defendants
53. Plaintiff repeats and realleges each and every allegation
contained
above as if fully set forth herein.
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- 27 -
54. This cause of action is asserted against all Defendants.
55. During the Class Period, Defendants carried out a plan,
scheme and
course of conduct which was intended to, and throughout the
Class Period, did: (1)
deceive the investing public, including Plaintiff and other
Class members, as alleged
herein; and (2) cause Plaintiff and other members of the Class
to purchase and/or sell
BeiGene’s securities at artificially inflated and distorted
prices. In furtherance of this
unlawful scheme, plan and course of conduct, Defendants,
individually and as a
group, took the actions set forth herein.
56. Defendants, individually and in concert, directly and
indirectly, by the
use, means or instrumentalities of interstate commerce and/or of
the mails, engaged
and participated in a continuous course of conduct to conceal
adverse material
information about the business, operations and future prospects
of BeiGene as
specified herein.
57. Defendants employed devices, schemes and artifices to
defraud, while
in possession of material adverse non-public information and
engaged in acts,
practices, and a course of conduct as alleged herein in an
effort to assure investors of
BeiGene’s value and performance and continued substantial
growth, which included
the making of, or the participation in the making of, untrue
statements of material
facts and omitting to state material facts necessary in order to
make the statements
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- 28 -
made about BeiGene and its business operations and financial
condition in light of
the circumstances under which they were made, not misleading, as
set forth more
particularly herein, and engaged in transactions, practices and
a course of business
that operated as a fraud and deceit upon the purchasers BeiGene
securities during the
Class Period.
58. Each of the Defendants’ primary liability, and controlling
person
liability, arises from the following: (a) Defendants were
high-level executives,
directors, and/or agents at the Company during the Class Period
and members of the
Company’s management team or had control thereof; (b) by virtue
of their
responsibilities and activities as senior officers and/or
directors of the Company,
were privy to and participated in the creation, development and
reporting of the
Company’s plans, projections and/or reports; (c) Defendants
enjoyed significant
personal contact and familiarity with the other members of the
Company’s
management team, internal reports and other data and information
about the
Company’s, operations, and (d) Defendants were aware of the
Company’s
dissemination of information to the investing public which they
knew or recklessly
disregarded was materially false and misleading.
59. Defendants had actual knowledge of the misrepresentations
and
omissions of material facts set forth herein, or acted with
reckless disregard for the
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- 29 -
truth in that they failed to ascertain and to disclose such
facts, even though such facts
were available to them. Such Defendants’ material
misrepresentations and/or
omissions were done knowingly or recklessly and for the purpose
and effect of
concealing BeiGene’s financial condition from the investing
public and supporting
the artificially inflated price of its securities. As
demonstrated by Defendants’ false
and misleading statements during the Class Period, Defendants,
if they did not have
actual knowledge of the misrepresentations and omissions
alleged, were reckless in
failing to obtain such knowledge by failing to take steps
necessary to discover
whether those statements were false or misleading.
60. As a result of the dissemination of the materially false and
misleading
information and failure to disclose material facts, as set forth
above, the market price
for BeiGene’s securities was artificially inflated during the
Class Period.
61. In ignorance of the fact that market prices of BeiGene’s
publicly-traded
securities were artificially inflated or distorted, and relying
directly or indirectly on
the false and misleading statements made by Defendants, or upon
the integrity of the
market in which the Company’s securities trade, and/or on the
absence of material
adverse information that was known to or recklessly disregarded
by Defendants but
not disclosed in public statements by Defendants during the
Class Period, Plaintiff
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- 30 -
and the other members of the Class acquired BeiGene’s securities
during the Class
Period at artificially high prices and were damaged thereby.
62. At the time of said misrepresentations and omissions,
Plaintiff and
other members of the Class were ignorant of their falsity, and
believed them to be
true. Had Plaintiff and the other members of the Class and the
marketplace known
the truth regarding BeiGene’s financial results and condition,
which were not
disclosed by Defendants, Plaintiff and other members of the
Class would not have
purchased or otherwise acquired BeiGene securities, or, if they
had acquired such
securities during the Class Period, they would not have done so
at the artificially
inflated prices or distorted prices at which they did.
63. By virtue of the foregoing, the Defendants have violated
Section 10(b)
of the Exchange Act, and Rule 10b-5 promulgated thereunder.
64. As a direct and proximate result of the Defendants’ wrongful
conduct,
Plaintiff and the other members of the Class suffered damages in
connection with
their respective purchases and sales of the Company’s securities
during the Class
Period.
65. This action was filed within two years of discovery of the
fraud and
within five years of Plaintiff’s purchases of securities giving
rise to the cause of
action.
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- 31 -
SECOND CAUSE OF ACTION
Violation of Section 20(a) of The Exchange Act
Against the Individual Defendants
66. Plaintiff repeats and realleges each and every allegation
contained
above as if fully set forth herein.
67. This second cause of action is asserted against each of the
Individual
Defendants.
68. The Individual Defendants acted as controlling persons of
BeiGene
within the meaning of Section 20(a) of the Exchange Act as
alleged herein. By virtue
of their high-level positions, agency, and their ownership and
contractual rights,
participation in and/or awareness of the Company’s operations
and/or intimate
knowledge of aspects of the Company’s dissemination of
information to the
investing public, the Individual Defendants had the power to
influence and control,
and did influence and control, directly or indirectly, the
decision-making of the
Company, including the content and dissemination of the various
statements that
Plaintiff contend are false and misleading. The Individual
Defendants were provided
with or had unlimited access to copies of the Company’s reports,
press releases,
public filings and other statements alleged by Plaintiff to be
misleading prior to
and/or shortly after these statements were issued, and had the
ability to prevent the
issuance of the statements or to cause the statements to be
corrected.
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- 32 -
69. In particular, each of these Defendants had direct and
supervisory
involvement in the day-to-day operations of the Company and,
therefore, is
presumed to have had the power to control or influence the
particular transactions
giving rise to the securities violations as alleged herein, and
exercised the same.
70. As set forth above, BeiGene and the Individual Defendants
each
violated Section 10(b) and Rule 10b-5 by their acts and
omissions as alleged in this
Complaint.
71. By virtue of their positions as controlling persons, the
Individual
Defendants are liable pursuant to Section 20(a) of the Exchange
Act as they culpably
participated in the fraud alleged herein. As a direct and
proximate result of
Defendants’ wrongful conduct, Plaintiff and other members of the
Class suffered
damages in connection with their purchases of the Company’s
common stock during
the Class Period.
72. This action was filed within two years of discovery of the
fraud and
within five years of Plaintiff’s purchases of securities giving
rise to the cause of
action.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as
follows:
a. Determining that this action is a proper class action,
designating
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- 33 -
Plaintiff as class representative under Rule 23 of the Federal
Rules of Civil
Procedure and Plaintiff’s counsel as Class Counsel;
b. Awarding compensatory damages in favor of Plaintiff and the
other
Class members against all defendants, jointly and severally, for
all damages
sustained as a result of Defendants’ wrongdoing, in an amount to
be proven at trial,
including interest thereon;
c. Awarding Plaintiff and the Class their reasonable costs and
expenses
incurred in this action, including counsel fees and expert fees;
and
d. Awarding such other and further relief as the Court may deem
just and
proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: July 11, 2019 Respectfully submitted,
THE ROSEN LAW FIRM, P.A.
/s/ Laurence M. Rosen
Laurence M. Rosen, Esq.
609 W. South Orange Avenue, Suite 2P
South Orange, NJ 07079
Tel: (973) 313-1887
Fax: (973) 833-0399
Email: [email protected]
Counsel for Plaintiff