nect Biopharma (CNTB) - 2021 Q4 - Annual Report

About This Annual Report This section clarifies that "The Company" refers to Connect Biopharma Holdings Limited and its direct and indirect wholly-owned subsidiaries - The Company refers to Connect Biopharma Holdings Limited and its direct and indirect wholly-owned subsidiaries, including Connect Biopharma HongKong Limited, Connect Biopharm LLC, Connect Biopharma Australia PTY LTD, Suzhou Connect Biopharma Co., Ltd., Connect Biopharma (Shanghai) Co., Ltd., Connect Biopharma (Beijing) Co., Ltd., and Connect Biopharma (Shenzhen) Co., Ltd.[7] Presentation of Financial Information This section outlines the financial reporting standards, currency, and exchange rates used in the consolidated financial statements - Consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB, not U.S. GAAP[8] - The reporting currency is Renminbi (RMB). All monetary amounts are in RMB unless otherwise indicated[8] - Translations from RMB to U.S. dollars are for convenience, using an exchange rate of RMB 6.3757 to $1.00 as of December 31, 2021[8] Cautionary Statement Regarding Forward-Looking Statements This statement warns that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The annual report includes "forward-looking statements" regarding future results, operations, business strategy, product development, and financial position[11] - These statements involve known and unknown risks, uncertainties, and important factors that may cause actual results to differ materially from projections[11][13] - Examples of forward-looking statements include those about clinical trial efficacy, timing of regulatory approvals, commercialization plans, market opportunities, and financial performance[11] Part I Part I of the annual report provides comprehensive company information, covering business operations, financial performance, governance, and significant risk factors - Part I includes detailed information on the company's identity, offer statistics, key information (including risk factors), business overview, organizational structure, property, plants and equipment, unresolved staff comments, operating and financial review and prospects, directors, senior management and employees, major shareholders and related party transactions, financial information, the offer and listing, additional information, and market risk disclosures[4][5] Item 1. Identity of Directors, Senior Management and Advisors. This item states that the information regarding the identity of directors, senior management, and advisors is "Not applicable" in this specific section, implying it is covered elsewhere in the report - Information on the identity of directors, senior management, and advisors is explicitly stated as "Not applicable" in this item[16] Item 2. Offer Statistics and Expected Timetable. This item states that the offer statistics and expected timetable are "Not applicable" in this specific section - Offer statistics and expected timetable are explicitly stated as "Not applicable" in this item[16] Item 3. Key Information. Item 3 presents essential company information, including capitalization, offer details, and a detailed analysis of various risk factors - Item 3 covers key information, including capitalization, indebtedness, reasons for the offer, use of proceeds, and a detailed section on risk factors[16][17] A. [Reserved] This section is reserved and contains no specific content - This section is reserved and contains no specific content[16] B. Capitalization and Indebtedness This item states that information on capitalization and indebtedness is "Not applicable" in this specific section - Information on capitalization and indebtedness is explicitly stated as "Not applicable" in this item[16] C. Reasons for the Offer and Use of Proceeds This item states that reasons for the offer and use of proceeds are "Not applicable" in this specific section - Reasons for the offer and use of proceeds are explicitly stated as "Not applicable" in this item[16] D. Risk Factors This section details various risks, including those related to operating in the PRC, the company's limited operating history, product development, reliance on third parties, commercialization, business operations, intellectual property, and ADS ownership Risks Related to Doing Business in the PRC Risks associated with operating in the PRC include political tensions with the U.S., potential government intervention, delisting threats under the HFCAA due to PCAOB inspection issues, compliance costs with new data security and privacy laws, uncertainties in legal interpretation, and restrictions on capital raising and data transfer. The company also faces potential PRC tax liabilities on global income and dividends for non-PRC investors - Rising political tensions between the U.S. and PRC, and potential government intervention, could materially and adversely affect business, financial condition, and results of operations[18][44][45] - The company's ADSs face delisting risk under the HFCAA if PCAOB cannot inspect PRC auditors for three consecutive years (potentially accelerated to two years)[18][49][50] - Compliance with new PRC data security and personal information protection laws may entail significant expenses and affect business, with uncertainties in interpretation and enforcement[18][58][60] - The company may be treated as a PRC tax resident, subjecting its global income to 25% PRC enterprise income tax and dividends/gains for non-PRC investors to withholding tax[81][82][83] - PRC regulations on offshore investment activities by PRC residents (Circular 37) may restrict the ability of PRC subsidiaries to change capital or distribute profits, and governmental control of currency conversion may limit fund remittance out of the PRC[96][97][100] Risks Related to Our Limited Operating History, Financial Position and Capital Requirements The company has a limited operating history, has incurred significant operating losses since inception (RMB 1,306.8 million in 2021), and expects continued losses. It will require substantial additional financing to fund product development, clinical trials (especially Phase 3), and commercialization efforts, with existing capital insufficient for regulatory approval. Failure to secure financing could delay or terminate programs - The company has a limited operating history and has incurred significant operating losses since inception, with net losses of RMB 1,306.8 million (USD 205.0 million) in 2021 and RMB 779.2 million (USD 119.4 million) in 2020[128][131][793] - The company expects to incur significant losses for the foreseeable future due to ongoing R&D, clinical trials, increased production capacity, regulatory approvals, and commercialization efforts[131][794] - Substantial additional financing will be required to achieve goals, as existing capital is insufficient to fund product candidates through regulatory approval and commercialization[133][134] - Raising additional capital may dilute shareholder ownership, impose restrictive covenants, or require relinquishing rights to technologies or product candidates[140][141][142] Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates Clinical drug development is a lengthy, expensive, and uncertain process, with no guarantee of successful completion or regulatory approval. Product candidates may have serious adverse events, and data from foreign trials may not be accepted by the FDA. The company is in early development stages with only three clinical candidates, and its T cell modulation approach is unproven. Delays or failures in trials, or changes in regulatory policies, could substantially harm the business - Clinical drug development is lengthy, expensive, and uncertain; failure can occur at any stage, and preclinical/early-stage results may not predict later success[144][145] - Delays or difficulties in patient enrollment, as experienced with CBP-307 and CBP-174 due to COVID-19, can materially adversely affect R&D efforts[155][158][160] - Product candidates may be associated with serious adverse events or undesirable side effects, which could delay or halt clinical development, prevent regulatory approval, or limit commercial potential[161][162][163] - The FDA or comparable foreign regulatory authorities may not accept data from trials conducted in foreign locations, potentially requiring additional costly and time-consuming trials[166][167] - The company is in early development with only three clinical candidates (CBP-201, CBP-307, CBP-174), and its T cell modulation discovery approach is unproven, posing risks to commercial value and potential obsolescence[176][177][181] - Regulatory approval processes are lengthy, time-consuming, and unpredictable, with no guarantee of approval, and disruptions at regulatory agencies (e.g., due to COVID-19) could cause further delays[189][190][197] Risks Related to Our Reliance on Third Parties The company heavily relies on third parties, including CROs and manufacturers, for preclinical studies, clinical trials, and commercial manufacturing. This reliance increases risks such as failure to meet contractual duties, non-compliance with regulations (GCP, cGMP), supply chain disruptions (e.g., due to COVID-19 or geopolitical conflicts), and potential misappropriation of trade secrets. Difficulties in establishing or maintaining collaborations also pose risks - The company relies on third parties (clinical investigators, CROs) to conduct preclinical studies and clinical trials, and failure to comply with regulations (GCPs) or meet deadlines could harm development[204][205][206] - Reliance on third-party manufacturers for product candidates increases risks of insufficient quantities, unacceptable costs, and supply chain disruptions (e.g., due to COVID-19)[211][212][213] - Dependence on third parties necessitates sharing trade secrets, increasing the risk of misappropriation or unauthorized disclosure[216][217] - Geopolitical events, such as the Russia-Ukraine conflict, may impact CROs' ability to conduct trials in affected regions, hindering completion and data acquisition[208][151] - Future collaborations, licenses, or similar arrangements may not be successful or on favorable terms, potentially requiring relinquishment of valuable rights or loss of control over product development[218][219][220] Risks Related to Commercialization of Our Product Candidates Even if approved, product candidates face significant post-marketing regulatory requirements, including ongoing review, safety monitoring, and potential restrictions. Commercial success depends on market acceptance by physicians, patients, and payors, with no guarantee of adequate coverage or reimbursement. The company lacks internal marketing and sales capabilities, requiring significant investment or third-party collaborations. Operating in foreign markets introduces additional regulatory burdens and risks - Approved product candidates will be subject to ongoing regulatory review, significant post-marketing requirements, and potential limitations on use, warnings, or risk management strategies (REMS)[226][227] - Failure to comply with post-approval requirements can lead to sanctions, including product recalls, withdrawal of approvals, fines, and criminal penalties[229] - Commercial success depends on market acceptance by physicians, patients, and healthcare payors, which is influenced by efficacy, safety, convenience, cost-effectiveness, and reimbursement policies[233][234][236] - Obtaining and maintaining adequate reimbursement from governmental authorities and health insurers is crucial, but uncertain, and increasing cost-containment efforts may limit pricing and coverage[237][238][241] - The company currently lacks marketing and sales organizations and will need to invest significantly or collaborate with third parties to commercialize products, facing risks in building and managing such capabilities[252][253] - Operating in foreign markets, including the PRC, subjects the company to additional regulatory burdens, reduced intellectual property protection, and economic/political risks[254][256][257] Risks Related to Our Business Operations and Industry The company faces significant risks from epidemic diseases like COVID-19, which have caused and may continue to cause disruptions to clinical trials, supply chains, and financial markets. Operating results may fluctuate due to various factors, making future predictions difficult. Dependence on key management and scientific personnel, and challenges in managing growth and expanding operations, also pose risks. The company is exposed to liabilities under anti-corruption laws and healthcare fraud and abuse regulations. Information technology systems are vulnerable to cyberattacks and security breaches, which could disrupt operations and compromise sensitive data - The COVID-19 pandemic has caused and may continue to cause disruptions to clinical trials (e.g., enrollment delays for CBP-307 and CBP-174), supply chains, and financial markets[258][259][262] - Operating results may fluctuate significantly due to factors like R&D costs, regulatory approvals, market acceptance, manufacturing costs, and competition, making future predictions difficult[269][270][271] - The company's success depends on retaining highly qualified management and scientific personnel, and difficulties in attracting or retaining such individuals could harm the business[272][273][276] - Managing growth and expanding operations, including constructing facilities in the PRC, presents challenges such as obtaining permits and meeting timelines, potentially leading to penalties or loss of incentives[277][278] - The company is subject to the FCPA and Chinese anti-corruption laws, and violations could result in material adverse effects on business or reputation[287][288] - Compliance with various foreign, federal, and state healthcare laws and regulations (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, GDPR, CCPA) is complex and failure to comply could lead to significant liabilities, fines, and operational restrictions[290][291][293] - Information technology systems are vulnerable to cyberattacks, security breaches, and system failures, which could disrupt product development, compromise sensitive information, and lead to significant legal and financial exposure[321][322][323] Risks Related to Intellectual Property The company's success relies on obtaining, maintaining, protecting, and enforcing intellectual property (patents, trade secrets, trademarks). The patent application process is uncertain, expensive, and subject to challenges, potentially leading to invalidation or narrow scope. Reliance on third-party licensors for patent prosecution and enforcement introduces risks. Changes in patent laws (e.g., in PRC or US) could diminish patent value. Failure to protect trade secrets or claims of wrongful use of third-party confidential information could harm the business - Success depends on obtaining, maintaining, protecting, and enforcing intellectual property (patents, trade secrets, trademarks) for product candidates and technologies[348][349][605] - The patent application process is subject to numerous risks and uncertainties, including potential challenges, invalidation, or narrow scope of patents, and the inability to prevent competitors from commercializing similar products[351][363][366] - Reliance on third parties for filing, prosecuting, and maintaining licensed patents introduces risks of insufficient control, non-compliance, or disputes that could compromise patent rights[370][371] - Changes in patent laws (e.g., in the U.S. or PRC) or their interpretation could diminish the value of patents and impair the ability to protect product candidates[364][365][408] - Failure to protect the confidentiality of trade secrets, or claims of wrongful use/disclosure of third-party confidential information by employees, could harm the business and competitive position[417][419][420] - Compulsory standards for remuneration to inventors under PRC laws could impose considerable costs[416] Risks Related to Ownership of Our ADSs The trading price of ADSs is highly volatile due to various factors, including clinical trial results, regulatory developments, and market conditions. Unstable market and economic conditions, including geopolitical events, can adversely affect the business and ADS price. Failure to meet Nasdaq listing requirements could lead to delisting. Concentrated ownership by executive officers, directors, and principal shareholders allows them to control significant matters. The company does not intend to pay dividends, and investment return depends on ADS price appreciation. Sales of substantial numbers of ADSs by existing shareholders could cause price declines. As an emerging growth company and foreign private issuer, the company has reduced disclosure requirements and different corporate governance practices, which may make ADSs less attractive or afford less protection to shareholders. Holders of ADSs have limited rights and may not be entitled to a jury trial. Material weaknesses in internal control over financial reporting could impair financial statement accuracy. Anti-takeover provisions and exclusive forum provisions could limit shareholder opportunities and legal recourse - The trading price of ADSs is highly volatile due to factors like clinical trial results, regulatory approvals, market conditions, and competitor actions, potentially leading to substantial losses for purchasers[431] - Unstable market and economic conditions, including geopolitical events (e.g., Russia-Ukraine conflict), can adversely affect the business, financial condition, and ADS price[434][435] - Failure to meet Nasdaq continued listing requirements could result in delisting, negatively impacting ADS price and liquidity[436] - Concentrated ownership by executive officers, directors, and principal shareholders (approximately 78.8% of outstanding shares) allows them to control or significantly influence matters submitted to shareholders[437][438] - The company does not intend to pay dividends, so investment return depends solely on ADS price appreciation[439][441] - Sales of a substantial number of ADSs or ordinary shares by existing shareholders could significantly reduce the market price[442][443] - As an emerging growth company and foreign private issuer, the company benefits from reduced disclosure requirements and may follow home country corporate governance practices, which could limit information available to shareholders and afford less protection[444][445][448] - Holders of ADSs have fewer rights than shareholders, must act through the depositary, and may not be entitled to a jury trial for claims under the deposit agreement[461][471][472] - Material weaknesses in internal control over financial reporting (lack of sufficient personnel, ineffective closing policies) could impair the ability to produce accurate and timely financial statements[479][481][1123] - Anti-takeover provisions in the memorandum and articles of association could discourage third-party acquisitions, limiting shareholder opportunities to sell shares at a premium[485][486] - Exclusive forum provisions in the articles of association designate Cayman Islands courts and U.S. federal courts as exclusive forums for disputes, potentially limiting shareholders' ability to choose a favorable judicial forum[487][488][489] Implications of Being an Emerging Growth Company and a Foreign Private Issuer This section details the implications of the company's status as an "emerging growth company" under the JOBS Act and a "foreign private issuer" under the Exchange Act. These statuses allow for exemptions from various reporting and disclosure requirements, such as auditor attestation, executive compensation disclosures, and quarterly reports, which may make the ADSs less attractive to some investors and affect market volatility - As an "emerging growth company" under the JOBS Act, the company is exempt from certain reporting requirements, including auditor attestation for internal controls and some executive compensation disclosures[30][32] - As a "foreign private issuer," the company is exempt from specific Exchange Act provisions applicable to U.S. domestic public companies, such as proxy solicitation rules, insider trading reports, and quarterly reports on Form 10-Q[34] - These exemptions may make the company's ADSs less attractive to some investors, potentially leading to a less active trading market and increased price volatility[32] Item 4. Information on the Company. Item 4 provides comprehensive information about the company, including its history and development, a detailed business overview of its product candidates and strategy, its organizational structure, and details regarding its property, plants, and equipment - Item 4 covers the company's history, business overview, organizational structure, and property, plants, and equipment[4] A. History and Development of the Company This section details the company's incorporation, reorganization, restructuring, and initial public offering (IPO), including the cash raised and restricted net assets of PRC subsidiaries - Connect Biopharma Holdings Limited was incorporated in November 2015 in the Cayman Islands, with its business initially conducted by Suzhou Connect Biopharma Co., Ltd. (Connect SZ), incorporated in May 2012[494] - The company underwent a reorganization in January 2016 and a restructuring in October 2018, resulting in Connect Biopharma Holdings Limited becoming the ultimate parent of all its subsidiaries[499][500] - The company completed its initial public offering (IPO) on March 23, 2021, raising a total cash consideration of USD 219.9 million[500] - As of December 31, 2021, restricted net assets of PRC subsidiaries, including paid-in capital and statutory reserve funds, amounted to RMB 288.9 million (USD 45.3 million)[496] B. Business Overview This section provides an overview of Connect Biopharma as a clinical-stage biopharmaceutical company, its lead product candidates (CBP-201, CBP-307, CBP-174), their development status, global operations, and the highly regulated pharmaceutical industry landscape - Connect Biopharma is a global clinical-stage biopharmaceutical company developing therapies for T cell-driven inflammatory diseases, utilizing functional cellular assays for drug discovery[501][504][516] - Lead product candidates include CBP-201 (anti-IL-4Ra antibody for atopic dermatitis, asthma, CRSwNP), CBP-307 (S1P1 modulator for inflammatory bowel disease), and CBP-174 (H3R antagonist for chronic itch)[501][503][505] - CBP-201 met primary and key secondary endpoints in a Phase 2b trial for moderate-to-severe AD, with plans for a global Phase 3 program in H2 2022[501][505][529] - CBP-307 is in a global Phase 2 trial for ulcerative colitis (top-line results expected Q2 2022); a Phase 2 trial for Crohn's disease ended prematurely due to COVID-19 enrollment challenges[503][555][577] - CBP-174, licensed from Arena Pharmaceuticals, is a peripherally acting H3R antagonist for chronic itch, with Phase 1 top-line results expected in H1 2022[507][584] - The company operates globally with R&D and clinical activities in the US, PRC, Europe, and Australia, aiming to retain significant commercial rights while considering high-value partnerships[508][511] - The pharmaceutical industry is highly regulated in the US, PRC, and Europe, with extensive requirements for drug development, approval, manufacturing, marketing, and post-approval surveillance[618][619][676] - The PRC regulatory framework is undergoing significant changes, including expedited programs for innovative drugs and acceptance of foreign clinical data, but also includes strict data security and human genetic resources regulations[677][686][691] C. Organizational Structure This section describes the company's structure as a holding company with six wholly-owned subsidiaries engaged in pharmaceutical R&D across multiple geographies - The company is a holding company with six wholly-owned subsidiaries primarily engaged in pharmaceutical R&D across the PRC, U.S., and Australia[781][782] - Connect Biopharma HongKong Limited is a direct subsidiary, which then holds Connect Biopharm LLC (U.S.) and Connect Biopharma Australia PTY LTD[781][782] - Suzhou Connect Biopharma Co., Ltd. holds Connect Biopharma (Shanghai) Co., Ltd., Connect Biopharma (Beijing) Co., Ltd., and Connect Biopharma (Shenzhen) Co., Ltd.[781][782] D. Property, Plants and Equipment This section details the company's leased office and laboratory spaces, as well as the acquisition of land use rights in Taicang, PRC, for future development - The company leases 25,476 sq ft of office and laboratory space in Taicang, PRC, and 3,600 sq ft of office space in San Diego, California[783] - In May 2021, the company acquired 70,400 square meters of state-owned land use rights in Taicang, PRC, for 50 years, for future R&D, manufacturing, and office facilities[784] - As of December 31, 2021, RMB 22.3 million (USD 3.5 million) was paid for land use rights and RMB 7.0 million (USD 1.1 million) for related construction costs, but the project is on hold pending permits[784] Item 4A. Unresolved Staff Comments. This item states that there are no unresolved staff comments - There are no unresolved staff comments[787] Item 5. Operating and Financial Review and Prospects. Item 5 provides a detailed operating and financial review, including an overview of the company's business, key factors affecting results (such as the impact of COVID-19 on clinical trials), and a breakdown of key components of operations (revenue, R&D, administrative expenses, other income/losses, finance income/cost, fair value loss of financial instruments, and income taxes). It also covers liquidity and capital resources, highlighting significant losses and the need for future financing, and discusses critical accounting policies and estimates - The company is a clinical-stage biopharmaceutical company focused on T cell-driven inflammatory diseases, with lead product candidates CBP-201 and CBP-307[790] - The company has incurred significant losses and negative operating cash flows from operations since inception, with a net loss of RMB 1,306.8 million (USD 205.0 million) in 2021 and an accumulated deficit of RMB 2.4 billion (USD 373.0 million)[792][793] - The COVID-19 pandemic has impacted clinical trials, causing premature termination of a Phase 2 trial for CBP-307 in China and slow enrollment for CBP-307 and CBP-174 in Australia[797] - The company expects to continue incurring significant expenses and operating losses, requiring substantial additional funding for late-stage clinical trials and commercialization[794][795][796] - Key components of operating results include R&D expenses (increased significantly in 2021 due to clinical trials), administrative expenses (increased due to public company infrastructure), other income (government grants), and fair value losses on financial instruments[800][803][807] A. Operating Results This section details the company's net losses, research and development expenses, administrative expenses, and fair value losses on financial instruments for 2020 and 2021 Net Loss (2020-2021) | Year Ended December 31, | 2020 (RMB'000) | 2021 (RMB'000) | 2021 (USD'000) | | :---------------------- | :------------- | :------------- | :------------- | | Net Loss | (779,225) | (1,306,824) | (204,969) | Research and Development Expenses (2020-2021) | Year Ended December 31, | 2020 (RMB'000) | 2021 (RMB'000) | 2021 (USD'000) | | :---------------------- | :------------- | :------------- | :------------- | | R&D Expenses | (150,932) | (518,021) | (81,249) | - The increase in R&D expenses was primarily due to a RMB 323.6 million increase in third-party clinical trial costs for advancing lead product candidates (CBP-201 and CBP-307) into later clinical trial phases[819] Administrative Expenses (2020-2021) | Year Ended December 31, | 2020 (RMB'000) | 2021 (RMB'000) | 2021 (USD'000) | | :---------------------- | :------------- | :------------- | :------------- | | Administrative Expenses | (47,720) | (122,445) | (19,205) | - Administrative expenses increased due to a RMB 43.1 million increase in payroll and related expenses for additional headcount and a RMB 26.6 million increase in professional fees for public company infrastructure[820] Fair Value Loss of Financial Instruments with Preferred Rights (2020-2021) | Year Ended December 31, | 2020 (RMB'000) | 2021 (RMB'000) | 2021 (USD'000) | | :---------------------- | :------------- | :------------- | :------------- | | Fair Value Loss | (579,286) | (674,269) | (105,756) | - The increase in fair value loss was primarily related to the issuance of Series C Preferred Shares in 2020 and higher fair value of preferred shares in 2021 prior to the IPO[825] B. Liquidity and Capital Resources This section discusses the company's liquidity, capital resources, accumulated losses, cash flows from operations, principal funding sources, capital commitments, and cash transfers between entities - The company has incurred significant losses and negative cash flows from operations since inception, with an accumulated loss of RMB 2.4 billion (USD 373.0 million) as of December 31, 2021[842] Cash and Cash Equivalents (2020-2021) | As of December 31, | 2020 (RMB'000) | 2021 (RMB'000) | 2021 (USD'000) | | :----------------- | :------------- | :------------- | :------------- | | Cash & Equivalents | 1,010,076 | 1,706,880 | 267,716 | - Principal funding sources include equity financing, such as the USD 219.9 million IPO completed in March 2021[843] - Net cash used in operating activities was RMB 544.9 million (USD 85.5 million) in 2021, compared to RMB 167.2 million in 2020[847][849][850] Capital Commitments (2020-2021) | Item | 2020 (RMB'000) | 2021 (RMB'000) | | :---------------------------------- | :------------- | :------------- | | Equipment and intangible assets | 23,243 | 146,878 | - Capital commitments as of December 31, 2021, were RMB 146.9 million (USD 23.0 million), primarily for the Taicang campus construction, which is currently on hold[858] - Cash transfers from the holding company to operating subsidiaries totaled RMB 672.5 million (USD 105.5 million) in 2021, with no distributions from PRC entities to offshore entities[845][863] C. Research, Development, Patents and Licenses, etc. This section cross-references information on research, development, patents, and licenses to other relevant sections of the report - Information on research, development, patents, and licenses is cross-referenced to "Item 4. Information on the Company—B. Business Overview" and "Item 5. Operating and Financial Review and Prospects—A. Operating Results."[864] D. Trend Information This section cross-references trend information to the operating results section of the report - Trend information is cross-referenced to "Item 5. Operating and Financial Review and Prospects—A. Operating Results."[865] E. Critical Accounting Estimates This section details the critical accounting estimates and judgments required for preparing consolidated financial statements under IFRS, including R&D expenses, fair value of financial instruments, and share-based compensation - Consolidated financial statements are prepared in accordance with IFRS, requiring significant accounting estimates and judgments[827] - Critical accounting estimates include research and development expenses, fair value of financial instruments with preferred rights, and recognition of share-based compensation expenses[828][832][833] - R&D expenditures are expensed as incurred, as they have not met criteria for asset recognition[828][831] - Fair value of financial instruments with preferred rights is determined using valuation techniques like OPM or hybrid methods, involving assumptions on discount rate, volatility, and risk-free rates[832] - Share-based compensation expenses are determined using a Binomial Option Pricing model, requiring estimates for grant date share price, volatility, risk-free interest rate, and dividend yield[833][834] Item 6. Directors, Senior Management and Employees. Item 6 provides details on the company's executive officers and directors, their compensation, board practices, employee numbers, and share ownership. It lists key management personnel, outlines their employment agreements and severance terms, and describes the non-employee director compensation program. The section also covers the company's equity incentive plans (2021 Stock Incentive Plan, 2019 Stock Incentive Plan, 2021 Employee Share Purchase Plan) and corporate governance practices, including board composition and committee responsibilities - The company's executive officers include Zheng Wei (CEO), Wubin Pan (President & Chairman), Selwyn Ho (CBO), Steven Chan (CFO), and Chin Lee (CMO)[871] - Aggregate compensation for directors and executive officers in 2021 was approximately USD 7.3 million, with USD 0.1 million set aside for pension/retirement benefits[883] - A non-employee director compensation program was adopted in January 2022, providing cash retainers and annual option grants[885][886] - The company has three equity incentive plans: 2021 Stock Incentive Plan, 2019 Stock Incentive Plan, and 2021 Employee Share Purchase Plan, with 3,748,389 options outstanding as of December 31, 2021[911][919][926] - The board of directors has seven members, with Dr. Pan as Chairman and Dr. Xanthopoulos as Lead Independent Director. All directors except Dr. Pan and Dr. Wei are considered independent[941][943] - As a foreign private issuer, the company follows some Cayman Islands home country corporate governance practices, differing from Nasdaq rules in areas like independent director majority and committee composition[946][949][1133] A. Directors and Senior Management This section lists the company's executive officers and directors, including their ages and positions, highlighting key leadership roles and recent appointments Executive Officers and Directors | Name | Age | Position | | :------------------------ | :-- | :------------------------------------- | | Zheng Wei, Ph.D. | 58 | Chief Executive Officer and Director | | Wubin Pan, Ph.D. | 57 | President and Chairman of the Board | | Selwyn Ho, MB BS | 51 | Chief Business Officer | | Steven Chan | 50 | Chief Financial Officer | | Chin Lee, M.D. | 52 | Chief Medical Officer | | Kleanthis G. Xanthopoulos | 63 | Lead Independent Director | | Derek DiRocco, Ph.D. | 41 | Director | | Kan Chen, Ph.D. | 40 | Director | | Jean Liu | 53 | Director | | Karen J. Wilson | N/A | Director | - Dr. Zheng Wei (CEO) and Dr. Wubin Pan (President & Chairman) are co-founders with extensive experience in drug discovery and biopharmaceutical leadership[869][870] - Steven Chan joined as CFO in November 2021, and Dr. Chin Lee joined as CMO in March 2022[874][875] B. Compensation This section details the aggregate compensation for directors and executive officers, outlines the non-employee director compensation program, and describes the company's equity incentive plans - Aggregate compensation for current directors and executive officers for 2021 was approximately USD 7.3 million, with USD 0.1 million for pension/retirement benefits[883] Non-Employee Director Annual Compensation (Effective Jan 1, 2022) | Role | Annual Retainer | Annual Option Award (shares) | | :------------------------ | :-------------- | :--------------------------- | | Non-employee Director | $35,000 | 21,269 | | Lead Independent Director | $17,500 | 7,090 | | Audit Committee Chair | $15,000 | — | | Audit Committee Member | $7,500 | — | | Compensation Committee Chair | $10,000 | — | | Compensation Committee Member | $7,500 | — | | Nominating Committee Chair | $10,000 | — | | Nominating Committee Member | $7,500 | — | - As of December 31, 2021, 1,890,232 ordinary share options were outstanding for executive officers and directors, with an additional 800,800 options approved in 2022[887] - Employment agreements for executive officers include severance packages (e.g., 12 months base salary for Dr. Pan and Dr. Wei) and accelerated equity vesting under specific termination or change-in-control events[892][895][901] - The 2021 Stock Incentive Plan reserves 6,000,000 ordinary shares (plus shares from the 2019 Plan) for awards, with annual increases[912] - The 2021 Employee Share Purchase Plan initially reserves 600,000 ordinary shares, with annual increases, allowing employees to purchase shares at a discount[928][933] C. Board Practices This section describes the board of directors' composition, election, risk oversight, and committee structures, noting differences in corporate governance practices as a foreign private issuer - The board of directors must consist of at least three members, elected by board resolution or ordinary resolution of shareholders, and serve until removed by shareholders[939][961] - The board oversees risk management, with the audit committee focusing on financial risk, the nominating committee on corporate governance, and the compensation committee on compensation-related risks[945] - As a foreign private issuer, the company is permitted to follow Cayman Islands corporate governance practices, which differ from Nasdaq rules regarding the majority of independent directors, compensation committee independence, and regularly scheduled independent director meetings[946][949][1133] - The audit committee comprises Ms. Wilson (Chairman), Ms. Liu, and Dr. Xanthopoulos, all deemed independent and financially literate, with Ms. Wilson as an "audit committee financial expert"[952][1128] - The compensation committee consists of Dr. Xanthopoulos (Chairman), Dr. DiRocco, and Ms. Wilson, all meeting heightened independence standards[955] - The nominating and corporate governance committee consists of Ms. Liu (Chairman), Dr. Wei, and Dr. Chen[957] D. Employees This section provides a breakdown of the company's full-time employees by function and geography for 2020 and 2021, noting satisfactory labor relations Full-time Employees by Function (2020-2021) | Function | 2021 | 2020 | | :------------------------ | :--- | :--- | | Research and development | 69 | 38 | | General and administrative | 39 | 15 | | Total | 108 | 53 | Full-time Employees by Geography (2020-2021) | Geography | 2021 | 2020 | | :---------------- | :--- | :--- | | PRC and Hong Kong | 82 | 49 | | United States | 25 | 3 | | Other | 1 | 1 | | Total | 108 | 53 | - The company has never experienced labor-related work stoppages or strikes and maintains satisfactory relations with its employees[966] E. Share Ownership This section cross-references information on share ownership of directors and officers and equity incentive plans to other relevant sections of the report - Information on share ownership of directors and officers is cross-referenced to "Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders."[967] - Information on equity incentive plans is cross-referenced to "Item 6.B. Director, Senior Management and Employees—Compensation—Incentive Programs."[967] Item 7. Major Shareholders and Related Party Transactions. Item 7 details the beneficial ownership of ordinary shares by major shareholders (5% or more) and executive officers/directors as of March 1, 2022. It also describes material related party transactions, including preferred share private placements, the Shareholders Agreement, arrangements with executive officers and directors, and contract research organization (CRO) services - Item 7 covers major shareholders, related party transactions, and interests of experts and counsel[4] A. Major Shareholders This section lists major shareholders with 5% or more beneficial ownership and the collective ownership of all directors and executive officers as of March 1, 2022 Major Shareholders (as of March 1, 2022) | Name | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | | :----------------------------------------------------------------- | :---------------------------------- | :-------------------------------------- | | Entities affiliated with RA Capital Management | 6,991,003 | 12.7% | | BioFortune Inc. | 5,948,929 | 10.8% | | Shanghai Minhui Enterprise Management Consulting Partnership (Limited Partnership) | 5,306,149 | 9.6% | | Entities affiliated with Qiming Venture Partners | 4,840,898 | 8.8% | | Advantech Capital II Connect Partnership L.P. | 4,762,185 | 8.6% | | FMR LLC | 3,417,564 | 6.2% | | Zheng Wei, Ph.D. | 6,070,761 | 11.0% | | Wubin Pan, Ph.D. | 6,135,908 | 11.1% | | All directors and executive officers as a group (ten persons) | 12,444,553 | 22.6% | - The percentage of ordinary shares beneficially owned is computed on the basis of 55,076,319 ordinary shares outstanding as of December 31, 2021[971] - Dr. Wubin Pan is the sole shareholder of BioFortune Inc. and may be deemed to have voting and investment power over its shares[973] B. Related Party Transactions This section describes material related party transactions, including preferred share financings, the Shareholders Agreement, share repurchases, consulting services, and CRO services - The company completed Series Pre-A, A, B, and C preferred share financings, which converted to ordinary shares upon IPO[981][982][1334] - The Shareholders Agreement, which terminated at IPO (except for registration rights), granted specific rights to holders and designated current directors[987][988][989] - In March 2021, the company repurchased 20,765 ordinary shares from Dr. Zheng Wei for RMB 2.5 million (USD 0.4 million) to cover employee withholding taxes related to share-based awards[990] - Consulting services were provided by Artemis Catalyst Ltd., owned by Selwyn Ho (CBO), totaling USD 0.3 million in 2021, before his full-time employment commenced in January 2021[992] - The company engaged in CRO services with entities affiliated with former directors, totaling RMB 9.5 million in 2020[994][995] C. Interests of Experts and Counsel This item states that information on the interests of experts and counsel is "Not applicable" - Information on the interests of experts and counsel is explicitly stated as "Not applicable"[997] Item 8. Financial Information. Item 8 directs readers to Item 18 for audited consolidated financial statements and discusses the company's litigation status and dividend policy. The company has no material litigation and does not anticipate paying dividends in the foreseeable future, intending to retain earnings for business development - Audited consolidated financial statements are filed as part of Item 18[998] - The company is not currently a party to any material legal proceedings[998] - The company has never declared or paid any cash dividend and does not anticipate doing so in the foreseeable future, intending to retain future earnings for business development[999][1000] A. Consolidated Statements and Other Financial Information This section directs to Item 18 for financial statements and confirms no material litigation or plans for dividend payments - Audited consolidated financial statements are available in Item 18[998] - The company is not involved in any material litigation[998] - The company has no plans to pay dividends, retaining earnings for business development[999] B. Significant Changes This item states that no significant changes have occurred since the date of the financial statements included in this annual report - No significant changes have occurred since the date of the financial statements included in this annual report[1002] Item 9. The Offer and Listing. Item 9 provides details on the company's offer and listing, including the commencement of trading of its ADSs on the Nasdaq Global Market on March 19, 2021. It also states that there is no information applicable to plan of distribution, selling shareholders, dilution, or expenses of the issuer in this section - The company's ADSs commenced trading on the Nasdaq Global Market on March 19, 2021, with no prior public market[1002] A. Offer and Listing Details This section confirms that ADSs commenced trading on the Nasdaq Global Market on March 19, 2021 - ADSs commenced trading on the Nasdaq Global Market on March 19, 2021[1002] B. Plan of Distribution This item states that information on the plan of distribution is "Not applicable" - Plan of distribution is explicitly stated as "Not applicable"[1002] C. Markets This section confirms the company's ADSs are listed on Nasdaq under the symbol "CNTB" - The company's ADSs are listed on Nasdaq under the symbol "CNTB"[1004] D. Selling Shareholders This item states that information on selling shareholders is "Not applicable" - Information on selling shareholders is explicitly stated as "Not applicable"[1004] E. Dilution This item states that information on dilution is "Not applicable" - Information on dilution is explicitly stated as "Not applicable"[1004] F. Expenses of the Issuer This item states that information on expenses of the issuer is "Not applicable" - Information on expenses of the issuer is explicitly stated as "Not applicable"[1004] Item 10. Additional Information. Item 10 provides additional information on the company's share capital, memorandum and articles of association (including corporate governance differences from US law), material contracts, exchange controls in the PRC, taxation (Cayman Islands, PRC, US federal income tax), and documents on display. It details the rights of shareholders, the process for mergers, and the implications of being an exempted company under Cayman Islands law - Item 10 covers share capital, memorandum and articles of association, material contracts, exchange controls, taxation, dividends, expert statements, and documents on display[5] A. Share Capital This item states that information on share capital is "Not applicable" in this specific section - Information on share capital is explicitly stated as "Not applicable" in this item[1004] B. Memorandum and Articles of Association This section details the company's governing documents, shareholder rights, meeting requirements, share transfer policies, and the implications of being an exempted company under Cayman Islands law - The company's affairs are governed by its amended and restated memorandum and articles of association and the Companies Act of the Cayman Islands[1005] - Ordinary shares are issued in registered form, each carrying one vote, and dividends are declared by the board of directors[1006][1007][1008] - Shareholder general meetings require at least ten calendar days' advance notice and a quorum of one or more shareholders holding at least one-third of all votes[1011] - The board of directors has discretion to decline share transfers under specific conditions, such as incomplete payment or lack of proper documentation[1014] - The company is an exempted company under Cayman Islands law, which provides exemptions from certain filing requirements (e.g., annual return of shareholders) and does not require annual general meetings[1022][1023] - Cayman Islands corporate law differs from U.S. corporate law regarding mergers, shareholder suits, and director fiduciary duties, potentially offering less protection to shareholders in some areas[1024][1031][1034] C. Material Contracts This item states that the company has not been a party to any material contract in the last two years, other than those disclosed or in the ordinary course of business - The company has not been a party to any material contract in the last two years, other than those disclosed in the annual report or entered into in the ordinary course of business[1046] D. Exchange Controls This section details PRC government controls on currency convertibility and fund remittances, including dividend restrictions, statutory reserve requirements, and SAFE registration for offshore investment activities - PRC government imposes controls on the convertibility of RMB into non-PRC currencies and the remittance of funds out of the PRC, requiring approval or registration for foreign exchange transactions[1048][1049][1051] - PRC subsidiaries are restricted in their ability to pay dividends to offshore entities, requiring them to pay dividends only out of accumulated after-tax profits, set aside 10% for statutory reserve funds (until 50% of registered capital), and complete foreign exchange control procedures, with a 10% withholding tax[1052] - The company has not transferred cash out of its PRC entities, thus experiencing no foreign exchange control issues to date[1051][1053] - PRC residents' offshore investment activities are subject to SAFE registration requirements (Circular 37), and non-compliance could restrict foreign exchange activities of onshore companies[1055][1057] E. Taxation This section covers taxation implications for the company in the Cayman Islands and PRC, and for U.S. Holders of ADSs or ordinary shares, including potential PFIC classification and mitigation elections - The company is incorporated in the Cayman Islands and is exempt from Cayman Islands income tax[1060] - If deemed a PRC tax resident enterprise, the company's worldwide income could be subject to a 25% PRC enterprise income tax, and dividends/gains for non-PRC investors could face 10% (or 20% for individuals) withholding tax[1063][1065] - U.S. Holders of ADSs or ordinary shares are subject to U.S. federal income tax on dividends and dispositions, with dividends potentially taxed at lower capital gains rates if certain conditions are met[1078][1079][1081] - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. Holders, including special rules for "excess distributions" and recognized gains[1084][1085][1087] - U.S. Holders may make a "mark-to-market" election for marketable stock (like ADSs on Nasdaq) or a "qualified electing fund (QEF)" election to mitigate PFIC rules, but these have specific requirements and implications[1090][1093