Legend Biotech Corporation — FY2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 20-F, not a quarterly filing for 2022 Q4. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars.
Business context
Legend Biotech is a Cayman Islands holding company focused on discovery, development, manufacturing and commercialization of oncology cell therapies. Its lead product, ciltacabtagene autoleucel, or cilta-cel, is commercialized with Janssen under the CARVYKTI brand. CARVYKTI received U.S. FDA approval in February 2022, conditional European Commission authorization in May 2022 and Japanese approval in September 2022. The company had approximately 1,390 employees and 330.1 million ordinary shares outstanding at year-end.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $117.0 million | $68.8 million | +70.0% |
| License revenue | $50.0 million | $65.4 million | -23.5% |
| Collaboration revenue | $66.7 million | None | New in 2022 |
| Collaboration cost of revenue | $65.4 million | None | New in 2022 |
| Research and development expense | $335.6 million | $313.3 million | +7.1% |
| Administrative expense | $80.6 million | $47.0 million | +71.7% |
| Selling and distribution expense | $93.4 million | $102.5 million | -8.9% |
| Loss before tax | $445.7 million | $407.2 million | +9.5% |
| Net loss | $446.3 million | $403.6 million | +10.6% |
| Basic and diluted loss per share | $1.40 | $1.43 | Improved on a per-share basis |
Collaboration revenue represented the company’s share of CARVYKTI net trade sales outside Greater China. Reported net trade sales for CARVYKTI were $133.4 million in 2022. After collaboration cost of revenue, reported revenue less collaboration cost of revenue was approximately $51.6 million, or approximately 44% of total revenue; this is not presented as a formal gross margin in the filing and is not comparable to a conventional product gross margin.
- Net cash used in operating activities was $201.3 million, compared with $198.5 million in 2021.
- Net cash used in investing activities was $77.1 million, compared with $195.0 million in 2021.
- Net cash provided by financing activities was $378.0 million, primarily from a July 2022 follow-on offering.
- Cash and cash equivalents were $786.0 million at December 31, 2022, compared with $688.9 million at year-end 2021.
- Time deposits were $54.0 million and financial assets at fair value through profit or loss were $185.6 million.
- Total liabilities were $586.7 million and total equity was $744.3 million. The reported gearing ratio increased to 44% from 32%.
- Janssen collaboration advances had a principal balance of $250.0 million plus $10.9 million of accrued interest. The advances have no specific maturity date and may generally be recouped from Legend’s share of future collaboration profits or certain milestone payments.
- Capital expenditures were $70.3 million, compared with $44.5 million in 2021. Contractual lease and capital commitments totaled $49.9 million at year-end.
Material changes versus FY2021
- CARVYKTI commercialization began, adding $66.7 million of collaboration revenue and $65.4 million of collaboration cost of revenue.
- License revenue declined by $15.4 million because of the timing and nature of Janssen milestones.
- Research and development spending increased by $22.3 million, reflecting earlier-line cilta-cel development, pipeline expansion and two U.S. IND filings.
- Administrative expense rose by $33.7 million, primarily from separation of information technology infrastructure from GenScript, cybersecurity and privacy enhancements, and manufacturing-related IT infrastructure.
- Finance costs increased to $10.8 million from $0.9 million, mainly because of interest on Janssen-funded advances.
- A $20.9 million fair-value gain on the warrant liability partially offset losses; the warrant liability was $67.0 million at year-end.
- Operating cash burn remained broadly stable, while financing cash inflow declined from $626.7 million to $378.0 million.
- Cash, cash equivalents and time deposits increased overall, supported by the July 2022 public offering, although the company continued to report substantial operating losses.
Guidance, outlook, risks and unusual items
Management expects significant operating losses and expenses to continue as it advances cilta-cel, develops earlier-stage programs, expands manufacturing capacity in the United States, Europe and China, and builds commercialization infrastructure. 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 financing will be required to complete development and commercialization activities and support continuing operations.
- CARVYKTI supply is constrained by manufacturing and supply-chain limitations. The company is expanding facilities and evaluating contract manufacturing organizations, but has not yet established full commercial-scale capacity.
- The Janssen collaboration is economically significant: costs and profits or losses are generally shared equally outside Greater China, while Legend bears or retains 70% in Greater China. Janssen may terminate without cause on notice or terminate for certain safety events or uncured breaches.
- Remaining potential Janssen milestones totaled $1.05 billion at year-end, but management considered achievement highly uncertain and excluded them from the transaction price. The company also does not expect to receive $280 million of the remaining contractual milestones because of development-plan changes.
- CARTITUDE-4 subsequently met its primary progression-free-survival endpoint at an interim analysis announced January 27, 2023. This is a post-year-end development and is not a FY2022 financial result.
- The company faces clinical, regulatory, manufacturing, product-liability, pricing and reimbursement risks, including serious adverse events associated with CAR-T therapies such as cytokine release syndrome and neurotoxicity.
- Material risks remain related to evolving PRC rules concerning cybersecurity, data privacy, human genetic resources, foreign investment, cross-border data transfers, currency controls and overseas securities offerings.
- The company’s 2021 financial statements were restated because of a material weakness involving review and monitoring of complex agreements, particularly the Janssen Agreement.
- As of December 31, 2022, management and the auditor identified two material weaknesses in internal control over financial reporting: controls over complex arrangements and ineffective IT general controls involving user access and change management. Ernst & Young LLP issued an unqualified opinion on the financial statements but an adverse opinion on internal control effectiveness.
- Management reported an employment arbitration claim seeking approximately $3.0 million; no provision was recorded because the outcome and reasonably possible loss could not be estimated.
- The company does not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether CARVYKTI sales growth, supply availability and manufacturing expansion support meaningful improvement in collaboration profitability.
- The reconciliation between $133.4 million of CARVYKTI net trade sales, $66.7 million of reported collaboration revenue and the company’s 50% cost and profit-sharing economics outside Greater China.
- The timing and probability of future Janssen milestones, the treatment of the $260.9 million recorded collaboration funding liability and the replacement of LIBOR-based interest provisions.
- Whether operating cash burn declines as commercial revenue scales, and how long the reported cash and liquid-investment balances will fund operations and capital expenditures.
- Completion and effectiveness testing of remediation for both material weaknesses, including whether further restatements or reporting delays arise.
- Regulatory approval and launch progress for cilta-cel in China and additional indications, including the implications of the CARTITUDE-4 result.
- CAR-T safety data, post-marketing commitments, reimbursement access and potential product-liability exposure.
- Exposure to PRC regulatory actions, data-transfer restrictions, human genetic-resource requirements and potential changes affecting the company’s ADS listing or future financing.
- Potential dilution from outstanding options, RSUs and the warrant exercisable for up to 10.0 million ordinary shares.