Legend Biotech Corp annual report, Q4 FY2021

Legend Biotech Corporation: FY2021 Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 20-F, not a standalone fourth-quarter filing. Financial statements were prepared under IFRS as issued by the IASB. Legend Biotech is a Cayman Islands clinical-stage biopharmaceutical company focused on CAR-T and other cell therapies. Its lead program, cilta-cel, was developed with Janssen and was approved by the FDA as CARVYKTI™ on February 28, 2022, after the reporting period.

Business Context

Legend had 1,071 employees at year-end, with operations in the United States, China and Europe.
Cilta-cel targets BCMA for multiple myeloma. Other programs include LB1901 for T-cell lymphoma and earlier-stage autologous and allogeneic cell therapies for hematologic cancers, solid tumors and HIV.
The Janssen agreement provides for equal sharing of development, production and commercialization costs and profits or losses outside Greater China; Legend bears or retains 70% in Greater China.
Revenue remains primarily collaboration- and milestone-based; the company had not generated product-sales revenue through December 31, 2021.

Financial Performance and Position

Metric	2021	2020	Change
Revenue	$89.8 million	$75.7 million	+$14.1 million, approximately 18.6%
Research and development expense	$313.3 million	$232.2 million	+$81.2 million, approximately 35.0%
Administrative expense	$46.9 million	$23.1 million	+$23.8 million
Selling and distribution expense	$102.5 million	$49.6 million	+$52.9 million
Loss before tax	$386.2 million	$307.6 million	Loss increased $78.6 million
Net loss	$386.2 million	$303.5 million	Loss increased $82.7 million
Basic and diluted loss per share	$1.37	$1.28	Loss per share increased
Net cash used in operating activities	$198.5 million	$223.0 million	Cash use decreased $24.5 million
Net cash used in investing activities	$195.0 million	$24.2 million	Cash use increased $170.8 million
Net cash from financing activities	$626.7 million	$618.9 million	+$7.8 million

Revenue included $81.5 million of Janssen joint steering committee service revenue, $4.9 million of license revenue and $3.4 million of licensing and royalty revenue from the Probio transaction. The company remained deeply loss-making, with accumulated losses of approximately $817.0 million. A meaningful operating margin is not available because revenue is not derived from commercial product sales and operating expenses substantially exceeded revenue.

At December 31, 2021, cash and cash equivalents were $688.9 million, time deposits were $168.2 million, and financial assets measured at amortized cost were $29.9 million. Total assets were $1.118 billion, total liabilities were $647.2 million and equity was $471.2 million. Current liabilities were $280.3 million against current assets of $948.8 million.

Interest-bearing borrowings were $120.5 million, consisting primarily of Janssen funding advances with principal of $119.7 million and accrued interest of approximately $0.8 million. These advances bear interest at LIBOR plus 2.5% and are generally recoupable from Legend’s share of future collaboration profits or certain milestone payments rather than through ordinary scheduled repayment.

Cash Flow, Funding and Capital Commitments

Operating cash use was $198.5 million, despite the reported revenue, reflecting ongoing development, commercial preparation and corporate costs.
Investing cash use was $195.0 million, including $43.9 million for property, plant and equipment, $3.2 million for intangible assets, $29.8 million for financial assets measured at amortized cost and substantial movements in time deposits.
Capital expenditures were $47.7 million, compared with $52.6 million in 2020. Year-end capital commitments were $25.9 million, primarily for construction in progress.
Financing included $323.4 million of net proceeds from the December 2021 ADS offering and $300.0 million from the May 2021 private placement, partially offset by lease payments.
Management stated that existing cash and cash equivalents were expected to fund operating expenses and capital expenditure requirements for at least the next 12 months, but additional capital is expected to be needed for cilta-cel commercialization, clinical development, manufacturing expansion and continuing operations.

Material Changes Versus 2020

Revenue increased approximately 19%, driven primarily by three additional Janssen milestones and the Probio patent licensing transaction.
R&D spending increased approximately 35% as cilta-cel and other pipeline programs advanced.
Selling and distribution expense more than doubled as Legend prepared for the U.S. launch of CARVYKTI™.
Administrative expense more than doubled as the company expanded its public-company, commercial and operating infrastructure.
Operating cash use improved from $223.0 million to $198.5 million, while investing cash use increased materially because of increased time-deposit activity, capital spending and investments.
Capital structure expanded through the May private placement and December ADS offering. The company issued 42.4 million ordinary shares during 2021, increasing shares outstanding to 308.5 million.
A $6.2 million non-cash fair-value loss was recognized on the warrant liability issued in the May 2021 private placement. The warrant liability was $87.9 million at year-end, with warrants exercisable for up to 10.0 million ordinary shares at $20 per share.
The $80.0 million non-cash fair-value loss on Series A preferred shares recorded in 2020 did not recur because those shares converted into ordinary shares upon the 2020 IPO.

Clinical, Commercial and Regulatory Outlook

CARVYKTI™ received FDA approval after year-end for adults with relapsed or refractory multiple myeloma after four or more prior lines of therapy. The product requires a Risk Evaluation and Mitigation Strategy and certified treatment centers.
In CARTITUDE-1, 97 patients showed a 98% overall response rate, an 83% stringent complete response rate, a 61% two-year progression-free survival rate and a 74% two-year overall survival rate at a median follow-up of 21.7 months.
In CARTITUDE-2, reported overall response rates were 95% in both Cohort A and Cohort B, but the cohorts were small and early-stage; one death in Cohort A was attributed by the investigator to COVID-19 and assessed as treatment-related.
CARTITUDE-4 was a Phase 3 trial in approximately 400 patients with Revlimid-refractory disease, and CARTITUDE-5 was a Phase 3 trial targeting approximately 650 newly diagnosed patients not planned for transplant.
Legend planned to seek additional approvals and indications in Europe, China and Japan and to expand cilta-cel into earlier treatment lines. The China NDA timeline was extended to generate additional data using the current manufacturing process.
Management expects higher expenses as it builds sales, market-access, treatment-center, manufacturing and distribution capabilities in the United States, Europe and China.

Key Risks, Contingencies and Unusual Items

Commercial execution and supply: Legend has limited commercial experience, and the filing states that current supply-chain constraints limit the amount of CARVYKTI™ it can manufacture. Autologous cell therapy also requires complex vein-to-vein logistics and chain-of-identity controls.
Clinical and safety risk: CAR-T therapies carry risks including cytokine release syndrome, neurotoxicity, cytopenias, infections and other serious or fatal adverse events. In CARTITUDE-1, CRS occurred in 95% of patients and neurotoxicity in 21%.
Financial risk: The company expects continued operating losses and additional financing needs. Future equity financing may dilute shareholders, while debt or collaborations may impose restrictive terms or require relinquishing rights.
Janssen concentration: A substantial portion of historical revenue came from Janssen milestones and collaboration services. Failure to achieve milestones, reduced partner support or termination of the agreement could materially affect funding and operations.
China-related regulatory and operating risk: Risks include evolving rules on human genetic resources, data security, cross-border data transfers, foreign exchange, clinical trials and foreign investment. Some PRC subsidiaries also have restrictions on transferring net assets to the parent.
Investigation involving GenScript: GenScript and former executive and chairman Fangliang Zhang were subject to a PRC customs investigation. Legend reported no charges against itself and stated it was not notified that it was a target, but pre-IPO transactions handled by GenScript were not comprehensively reviewed and potential exposure remains uncertain.
Legal contingency: A former employee demanded approximately $3.0 million in an arbitration alleging discrimination and wrongful termination. Management disputed the claims, and no provision was recorded because the outcome and potential loss could not be estimated.
Audit and listing risk: The filing discusses the inability of the PCAOB at that time to inspect the company’s China-based auditor and the potential consequences under the Holding Foreign Companies Accountable Act, including possible trading restrictions or delisting if inspection requirements are not met.
Controlled-company structure: GenScript owned approximately 56.6% of ordinary shares at year-end, allowing significant influence over shareholder matters. Legend relies on controlled-company exemptions from certain Nasdaq governance requirements.
Accounting judgment: Revenue recognition depends heavily on judgments regarding performance obligations and the probability of achieving Janssen milestones. Future contractual milestones totaled $1.1 billion at year-end, but management excluded the remaining milestones from the transaction price because achievement was considered highly uncertain.

Facts Investors Should Verify

Commercial launch volumes, net pricing, reimbursement, treatment-center activation, manufacturing yield, capacity and product revenue for CARVYKTI™ after the February 2022 approval.
Updated cash burn, operating cash flow, capital expenditures and the estimated cash runway after commercialization spending begins.
Janssen’s future milestone payments, cost-sharing obligations, collaboration profitability and the terms and repayment or recoupment status of the $119.7 million funding advances.
Results and regulatory status of CARTITUDE-4, CARTITUDE-5, CARTIFAN-1 and applications in Europe, China and Japan, including any manufacturing-related requirements.
Actual utilization of the $1.1 billion of remaining contractual milestones and the portion management no longer expects to receive.
Status and outcome of the GenScript-related PRC investigation, the nine import transactions identified as potentially non-compliant, and any related regulatory or contractual consequences.
Resolution of the former employee arbitration and any additional litigation, product-liability, manufacturing or regulatory contingencies.
Future dilution from the 10.0 million-share warrant, 9.5 million outstanding options and 2.6 million outstanding restricted stock units.
Whether the company’s auditor becomes subject to PCAOB inspection and whether any HFCA Act-related listing or trading risks remain.