the rosen law firm, p.a. laurence rosen, esq. united … · 2019. 9. 23. · the rosen law firm,...

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


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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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.



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.



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


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.



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



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.



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



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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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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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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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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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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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

- 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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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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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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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

the rosen law firm, p.a. laurence rosen, esq. united … · 2019. 9. 23. · the rosen law firm,...

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