Legend Biotech Corporation: FY2020 Form 20-F Summary
Business context and reporting period
Legend Biotech is a Cayman Islands clinical-stage biopharmaceutical company developing autologous and allogeneic CAR-T cell therapies. The filing covers the fiscal year ended December 31, 2020, prepared under IFRS. The company had no products approved for commercial sale and generated no product-sales revenue. Its lead candidate, cilta-cel, is being developed with Janssen for relapsed or refractory multiple myeloma.
Financial performance and position
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $75.7 million | $57.3 million | +32.2% |
| Research and development expense | $232.2 million | $161.9 million | +43.4% |
| Administrative expense | $23.1 million | $6.8 million | +242.8% |
| Selling and distribution expense | $49.6 million | $25.6 million | +93.5% |
| Loss for the year | $303.5 million | $133.0 million | Loss increased $170.5 million |
| Basic and diluted loss per share | $1.28 | $0.66 | Loss per share increased |
| Net cash used in operating activities | $223.0 million | $83.1 million | Cash use increased |
| Capital expenditures | $52.6 million | $46.8 million | Increased |
Revenue primarily represented Janssen collaboration revenue, including license revenue and joint steering committee services; the filing states that no revenue was generated from commercial product sales. Revenue was concentrated in a single customer, Janssen, which accounted for substantially all revenue and trade receivables.
The FY2020 loss included a non-cash $80.0 million fair-value loss on convertible redeemable preferred shares, which converted into ordinary shares in connection with the IPO. Other income and gains were $6.1 million, and the company recorded a $4.1 million income-tax credit. A meaningful operating margin is not applicable because the company remains pre-commercial and loss-making.
At December 31, 2020, cash and cash equivalents were $455.7 million, time deposits were $50.0 million, and cash, cash equivalents and time deposits totaled approximately $506.0 million. Working capital was $431.7 million, total assets were $721.0 million, and total liabilities were $440.8 million. Ordinary shareholders’ equity was $280.3 million, compared with a $122.9 million deficit at December 31, 2019.
The company reported no indebtedness at December 31, 2020. Lease liabilities totaled $3.4 million. Contract liabilities related primarily to deferred Janssen collaboration revenue totaled $330.1 million, including $55.0 million classified as current.
Cash flow, funding and material changes
- Operating cash use increased to $223.0 million from $83.1 million, reflecting substantially higher research and development spending and working-capital movements.
- Investing cash use was $24.2 million, including approximately $49.8 million for property, plant, equipment and intangible assets, partly offset by movements in short-term deposits.
- Financing cash inflow was $618.9 million, principally from $450.1 million of IPO proceeds, $160.5 million from Series A preference shares, $12.0 million from a Genscript private placement and $1.5 million from option exercises.
- Net cash increased by $371.7 million during 2020.
- The company had approximately $33.6 million of capital commitments, primarily for construction in progress, and total contractual obligations of approximately $37.2 million, including leases.
- Management stated that existing cash and cash equivalents were expected to fund operating expenses and capital expenditures for at least the next 12 months, but additional capital will be required to complete development and commercialization of cilta-cel and other candidates.
Clinical, strategic and operating outlook
- Cilta-cel’s CARTITUDE-1 trial in the United States and Japan reported a 97% overall response rate in 97 U.S. patients as of September 1, 2020; 12-month progression-free survival and overall survival were 77% and 89%, respectively.
- Safety risks remained material: cytokine release syndrome occurred in 95% of CARTITUDE-1 patients, neurotoxicity in 21%, and 14 deaths occurred during the trial, including six attributed to related adverse events.
- The FDA cleared the IND for LB1901, an anti-CD4 CAR-T candidate for relapsed or refractory T-cell lymphoma, in December 2020; a Phase 1 trial was expected to begin in 2021.
- The company expected to pursue regulatory submissions for cilta-cel in the United States, Europe, China and Japan during 2021. Janssen completed the rolling FDA BLA submission in the quarter ended March 31, 2021, after the reporting period.
- The Janssen agreement provides for equal sharing of development, production and commercialization costs and profits or losses outside Greater China. In Greater China, Legend bears and retains 70% of costs and pre-tax profits or losses.
- As of December 31, 2020, Legend had received $460.0 million from Janssen, including $110.0 million of milestone payments recognized through that date. A further $75.0 million milestone was achieved and received in January 2021.
- COVID-19 had a limited overall impact on 2020 operations, but slowed investigator-initiated studies and reduced enrollment rates in CARTIFAN-1. Manufacturing continued in the United States and China, while future pandemic effects remained uncertain.
Key risks, contingencies and unusual items
- The company expects continuing losses and has never generated commercial product revenue. Future funding needs may result in equity dilution, debt obligations or unfavorable licensing arrangements.
- Clinical, regulatory and manufacturing risks are substantial, including possible failure to demonstrate safety or efficacy, obtain approvals, scale autologous cell manufacturing, or achieve acceptable costs and margins.
- The company relies heavily on Janssen for cilta-cel development, manufacturing and commercialization. Failure to achieve milestones or termination of the agreement could materially reduce revenue and funding.
- Genscript controlled approximately 63.9% of ordinary shares at December 31, 2020, making Legend a controlled company. Related-party service, lease and procurement arrangements remain material considerations.
- A PRC Customs Anti-Smuggling Department investigation involving Genscript and former chairman and chief executive officer Fangliang Zhang could expose Legend to future proceedings, penalties or operating restrictions. The company reported no charges against Legend as of March 31, 2021, but noted that pre-IPO transactions handled by Genscript had not been comprehensively reviewed.
- Operations in China face risks related to human genetic resources, data transfer, foreign-exchange controls, regulatory changes, labor compliance, foreign investment restrictions and China-U.S. relations.
- Previously identified internal-control material weaknesses were deemed remediated as of December 31, 2020. However, the independent auditor did not audit internal control over financial reporting, and the company remains exposed to future control deficiencies.
- The filing states that the company’s auditor, Ernst & Young Hua Ming LLP, is based in China and was not subject to PCAOB inspection at the time of filing, creating potential U.S. listing and audit-access risks.
Facts investors should verify
- Progress and regulatory outcomes for the cilta-cel BLA and planned submissions in Europe, China and Japan.
- Updated CARTITUDE-1, CARTIFAN-1, CARTITUDE-2 and CARTITUDE-4 efficacy, durability, manufacturing success rates and safety data.
- The timing and amount of future Janssen milestones, cost-sharing obligations and any potential royalties or commercial profits.
- Cash-burn trends, remaining runway, capital commitments and the timing of any additional financing.
- Resolution and scope of the PRC investigation involving Genscript and any implications for Legend’s pre-IPO transactions or operations.
- Whether internal-control remediation remains effective and whether PCAOB inspection or U.S. listing requirements create additional compliance risks.