UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
OR
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Date of event requiring this shell company report
Commission file number: 001-39307
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer
Telephone: (737 ) 317-5050
(Name, telephone, email and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Ordinary shares, par value $0.0001 per share* | Nasdaq Global Select Market | |||||||||||||
*Not for trading, but only in connection with the registration of the American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes x No
Note-checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated Filer | o | ||||||||||||
| Non-Accelerated Filer | o | Emerging Growth Company | ||||||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP | o | x | Other | o | |||||||||||||||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 o Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
LEGEND BIOTECH CORPORATION
FORM 20-F ANNUAL REPORT
TABLE OF CONTENTS
| Page | ||||||||
i
CERTAIN INFORMATION
In this Annual Report on Form 20-F (this “Annual Report”), unless otherwise indicated or the context otherwise requires, “Legend Biotech” refers to Legend Biotech Corporation, a Cayman Islands holding company, “PRC subsidiaries” refer to Legend Biotech’s subsidiaries incorporated in the PRC (as defined below) and “we,” “us,” “our,” and the “Company” refer to Legend Biotech and its consolidated subsidiaries. References to “GenScript” or “Genscript” refer to Genscript Biotech Corporation, our largest shareholder.
Our fiscal year end is December 31. References to a particular “fiscal year” are to our fiscal year ended December 31 of that calendar year. Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. None of our financial statements were prepared in accordance with generally accepted accounting principles in the United States.
This Annual Report contains translations of Renminbi ("RMB") amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make no representation that the RMB or U.S. dollar amounts referred to in this Annual Report could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. Unless otherwise noted, translations of RMB amounts into U.S. dollars in this Annual Report are made based on an exchange rate of RMB 7.08 to $1.00, which is the exchange rate as of December 31, 2023 as published by the People’s Bank of China.
Various amounts and percentages set out in this document have been rounded and, accordingly, may account for apparent discrepancies in the tables appearing herein. Unless otherwise indicated or the context otherwise requires, references in this Annual Report to:
•“ADSs” are to the American depositary shares, each of which represents two of our ordinary shares;
•“ADRs” are to the American depositary receipts that evidence the ADSs;
•“China” or “PRC” refers to the People’s Republic of China, and solely in the context of describing PRC rules, laws, regulations and other legal and tax matters, excludes rules, laws, regulations and other legal and tax matters of the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan, however, the legal and operational risks discussed by the Company with respect to operating in the PRC throughout this filing also apply to Hong Kong and Macau; “Greater China” does not exclude the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan;
•“Ordinary shares” are to ordinary shares of our company, par value $0.0001 per share;
•“Renminbi” or “RMB” refers to the legal currency of the PRC;
•“Series A Preference Shares” are to the Series A preference shares, par value $0.0001 per share; and
•“US$,” “U.S. dollars,” “$,” or “dollars” are to the legal currency of the United States.
For our organization structure as of the date of this annual report, see “Item 4. Information on the Company—C. Organizational Structure.”
1
MARKET, INDUSTRY AND OTHER DATA
This Annual Report contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates, including data regarding the estimated size of such markets and the incidence of certain medical conditions. We obtained the industry, market and similar data set forth in this Annual Report from our internal estimates and research and from academic and industry research, publications, surveys and studies conducted by third parties, including governmental agencies. In some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties are reliable, we have not separately verified this data. Further, while we believe that our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.
TRADEMARKS AND SERVICE MARKS
“Legend Biotech,” the Legend logo and other trademarks or service marks of the Company appearing in this Annual Report are the property of the Company. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual Report are without the ®, ™ and other similar symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. CARVYKTI is a registered trademark in the United States of Johnson & Johnson. Other trade names, trademarks and service marks of other companies appearing in this Annual Report are the property of their respective holders. We do not intend our use or display of other companies’ trademarks, service marks or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other person.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of present and historical facts and conditions are forward-looking statements. Such forward-looking statements reflect our current expectations and views of future events, but are not assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our operational results and other future conditions. The forward-looking statements appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
Forward-looking statements can be identified by words or phrases, such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements relating to:
•the ability to effectively manufacture, market and sell CARVYKTI;
•the market opportunity for and potential for commercial success of CARVYKTI;
•potential effects of treatment with CARVYKTI and resulting regulatory investigations or label updates;
•the ability of our clinical trials to demonstrate acceptable safety and efficacy of our product candidates, and other positive results;
•the timing, progress and results of preclinical studies and clinical trials for product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
•the timing, scope and likelihood of regulatory filings and approvals, including final regulatory approval of our product candidates;
•our ability to achieve specified milestones under our collaboration with Janssen Biotech, Inc., a Johnson & Johnson company ("Janssen") for cilta-cel or under other collaboration and license agreements we have entered into;
1
•our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical trials;
•our manufacturing, commercialization, and marketing capabilities and strategy;
•our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
•the need to hire additional personnel and our ability to attract, retain and motivate such personnel;
•the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;
•our expectations regarding the approval and use of our product candidates as first, second or subsequent lines of therapy or in combination with other drugs;
•our competitive position and the success of competing therapies that are or may become available;
•our estimates of the number of patients that we will enroll in our clinical trials;
•the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;
•our ability to obtain and maintain regulatory approval of our product candidates;
•our plans relating to the further development of our product candidates, including additional indications we may pursue;
•our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
•our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;
•our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
•the pricing and reimbursement of the product candidates we may develop, if approved;
•information about the prices and availability of labor, transportation and raw materials, including as a result of inflation, and our ability to obtain them in a timely manner;
•our exposure to and the potential impact of risks inherent in our foreign operations, including currency fluctuations, exchange controls and pricing restrictions;
•the rate and degree of market acceptance and clinical utility of our product candidates we may develop;
•the effectiveness of our key information technology systems, networks, processes or related controls or those of our service providers;
•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•our financial performance;
•our ability to consistently maintain effective internal control over financial reporting;
•changes in tax laws and the resolution of tax contingencies resulting in additional tax liabilities;
•the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;
•the impact of United States or foreign laws and regulations on the Company’s operations, including the impact of tariffs; and
•the effect of epidemics and pandemics, rising inflation rates, geopolitical tensions, the failure and instability of financial institutions, or other world events' disruptions on our business, including, without limitation, our ability to manage the demand, supply and operational challenges associated with the actual or perceived effects of such disruptions.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Many
1
important factors, including those listed under “Risk Factors” in this Annual Report as well as other known and unknown risks and uncertainties, may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In addition, even if our results of operations, financial condition and liquidity are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. You should read thoroughly this Annual Report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this Annual Report relate only to events or information as of the date on which the statements are made. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 20-F and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Annual Report and the documents that we refer to and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements.
2
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
Our Holding Company Structure and China Operations
Legend Biotech is a Cayman Islands holding company and not a Chinese operating company. We operate through our operating subsidiaries located primarily in the United States, PRC and European Union (the "EU"). Our operations in the PRC, in addition to our business presence elsewhere in the world, are enabled by our subsidiaries based therein. Investors in our ADSs do not hold equity securities of our operating subsidiaries but hold equity securities of a Cayman Islands holding company. See “Item 4—Information On The Company—C. Organizational Structure Chart” for an illustration of our corporate structure.
We face various legal and operational risks and uncertainties associated with having a portion of our operations in China and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals or filing requirements on offerings conducted outside of the PRC and investment by individuals or entities outside of the PRC (“non-PRC investors”) in issuers with operations in China, anti-monopoly regulatory actions and oversight on cybersecurity, data privacy and genetic information. If we fail to comply with relevant regulatory requirements, it may negatively impact our ability to conduct certain business, access investments by non-PRC investors or list on stock exchanges outside of the PRC. If we fail to comply with these regulatory requirements applicable to our offerings and investments outside the PRC, the PRC could take action against the assets of our PRC subsidiaries, which could materially and adversely affect our operations in the PRC. As a result, these risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline.
Our operations in China are governed by PRC laws and regulations. The PRC governmental authorities may take measures having influence on our operations where we are not or might not be compliant with PRC laws or regulations, which could result in a material adverse change in our operation and/or the value of our ADSs. Also, the PRC governmental authorities have recently indicated an intent to exert more oversight and control over offerings that are conducted outside of the PRC and/or investment by non-PRC investors in issuers with operations in China. Any such action could result in actions taken against the assets of our PRC subsidiaries, which could materially and adversely affect our operations in the PRC, and could significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline. In addition, the implementation of industry-wide regulations directly targeting our operations could cause the value of our securities to significantly decline. Therefore, our shareholders and our business face potential uncertainty from actions taken by the PRC governmental authorities affecting our business in the PRC.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to a significant degree of interpretation by PRC regulatory agencies and courts. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. Therefore, it is possible that our existing operations may be found not to be in full compliance with relevant laws and regulations in the future.
Recently, the PRC government has indicated an intent to exert more oversight and control over offerings that are conducted outside of the PRC and/or investment by non-PRC investors in issuers with operations in China, and initiated a series of regulatory actions and made a number of public statements, including cracking down on illegal activities in the securities market, enhancing supervision over companies with operations in China to be listed outside of the PRC, adopting
3
new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. As a result, risks to our business arise from, among other things, the complex and evolving PRC legal system, frequent changes in laws, regulations and government policies, uncertainties, difficulties or delays in obtaining regulatory approvals or completing filing procedures for listing on a non-PRC stock exchange or conducting certain business activities and increasing oversight on cybersecurity and data privacy related to the PRC government’s recently issued statements and instituted regulatory actions and could result in actions taken against the assets of our PRC subsidiaries, which could materially and adversely affect our operations in the PRC, and could significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline.
For a detailed description of the risks associated with our operations in China, see “—D. Risk Factors—Risks Related to Doing Business in China.”
Permissions Required from the PRC Authorities for Our Operations
Each of our PRC subsidiaries is required to obtain, and has obtained, a business license issued by local counterparts of the State Administration for Market Regulation (the "SAMR"). As of the date of this Annual Report and to our knowledge, our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for their business operations in China. However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by government authorities, we cannot assure you that we have obtained all the permits or licenses required for conducting our business in the PRC.
In connection with our previous issuance of securities to investors in stock markets outside the PRC, under current PRC laws, regulations and regulatory rules, as of the date of this Annual Report, we and our PRC subsidiaries, (i) are not required to obtain permissions from the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China (the "CAC"), and (iii) to our knowledge, we have not received or been denied such requisite permissions by any PRC authority. However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted outside the PRC and/or investment by non-PRC investors in issuers with operations in China.
We have been closely monitoring regulatory developments in China regarding any necessary permissions or approvals from the CSRC, the CAC or other PRC regulatory authorities for our operations in China. However, there are uncertainties as to the related interpretation and implementation of regulatory requirements, and the biopharmaceutical industry in the PRC is highly regulated and such regulations are subject to change. Therefore, it is uncertain whether we or our PRC subsidiaries will be required to obtain additional approvals, licenses, or permits, or complete additional filing procedures in connection with our business operations pursuant to the evolving PRC laws and regulations, and whether we would be able to obtain and renew such approvals, licenses, or permits, or complete such filing procedures in a timely manner or at all. Any failure by us or our PRC subsidiaries, even inadvertently, to maintain compliance with applicable PRC laws and regulations, or obtain and maintain required licenses and permits, in a timely manner or at all, may subject us or our PRC subsidiaries to administrative penalties, and the suspension or termination of our business activities in the PRC. See “—D. Risk Factors—Risks Related to Doing Business in China.”
Dividends and other distributions
As of the date of this Annual Report, we have not previously declared or paid any cash dividend or dividend in kind, and we have no plan to declare or pay any dividends in the near future on our ordinary shares or ADSs. We currently intend to apply any future earnings to fund the clinical development of cilta-cel, fund the construction and expansion of our manufacturing facilities, fund the commercialization of CARVYKTI and fund the development of our pipeline programs, as well as for working capital and other general corporate purposes.
Legend Biotech is a holding company with no operations of its own. We conduct our operations through our subsidiaries, including our PRC subsidiaries. If the PRC government deems that any of our business operations carried out by our PRC subsidiaries should be restricted or prohibited from non-PRC investment in the future, we may be required to stop our business operations in the PRC and we could be subject to material penalties or be forced to relinquish our interests in the affected operations. Such events could result in a material change in our operations and a material change in the value of our securities, including causing the value of such securities to significantly decline. As we have incurred net losses and negative cash flow from operations historically, none of our subsidiaries have declared or paid any dividends or distributions to Legend Biotech or any investors as of the date of this Annual Report. Instead, we have primarily relied on upfront and milestone payments and interest-bearing borrowings from Janssen under our collaboration and license agreement (the "Janssen Agreement"), proceeds from public offerings and private placements of equity securities, and
4
capital contributions from GenScript to fund business operations of our operating subsidiaries. All the net cash proceeds we receive from financial activities are first deposited in the bank account of Legend Biotech. The funds deposited into Legend Biotech’s accounts are then transferred through Legend Biotech’s applicable subsidiaries to each operating subsidiary to meet its working capital needs primarily through capital contributions or intercompany loans. For the year ended December 31, 2022, Legend Biotech transferred $430.0 million through such capital contributions or intercompany loans. For the year ended December 31, 2023, approximately $1.27 billion was transferred into Legend Biotech Ireland Limited, Legend Biotech's wholly-owned subsidiary, making it a full treasury center for Legend Biotech.
According to the Foreign Investment Law of the PRC and its implementing rules, which jointly established the legal framework for the administration of non-PRC-invested companies, a non-PRC investor may, in accordance with other applicable laws, freely transfer into or out of China its contributions, profits, capital earnings, income from asset disposal, intellectual property rights, royalties acquired, compensation or indemnity legally obtained, and income from liquidation, made or derived within the territory of RMB or any non-PRC currency, and any entity or individual shall not illegally restrict such transfer in terms of the currency, amount and frequency. According to the Company Law of the PRC and other PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its accumulated after-tax profits, if any, each year to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Where the statutory reserve fund is insufficient to cover any loss the PRC subsidiary incurred in the previous financial year, its current financial year’s accumulated after-tax profits shall first be used to cover the loss before any statutory reserve fund is drawn therefrom. Such statutory reserve funds and the accumulated after-tax profits that are used for covering the loss cannot be distributed to us as dividends. At their discretion, our PRC subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to a discretionary reserve fund. See “—D. Risk Factors—Risks Related to Doing Business in China—Our business may be significantly affected by the newly enacted Foreign Investment Law and the “negative list”.
RMB is not freely convertible into other currencies. As result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to use their potential future RMB revenues to pay dividends to us. The PRC government imposes controls on the convertibility of RMB into non-PRC currencies and, in certain cases, the remittance of currency out of China. Shortages in availability of non-PRC currency may then restrict the ability of our PRC subsidiaries to remit sufficient non-PRC currency to our offshore entities for our offshore entities to pay dividends or make other payments or otherwise to satisfy our non-PRC-currency-denominated obligations. The RMB is currently convertible under the “current account,” which includes dividends, trade and service-related non-PRC exchange transactions, but not under the “capital account,” which includes non-PRC direct investment and non-PRC currency debt, including loans we may secure for our onshore subsidiaries. Currently, our PRC subsidiaries may purchase non-PRC currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the State Administration of Foreign Exchange of China (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase non-PRC currencies in the future for current account transactions. The PRC government may continue to strengthen its capital controls, and additional restrictions and substantial vetting processes may be instituted by SAFE for cross-border transactions falling under both the current account and the capital account. Any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in RMB to fund our business activities outside of China or pay dividends in non-PRC currencies to holders of our securities. Non-PRC exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain non-PRC currency through debt or equity financing for our subsidiaries. In addition, ADS holders may potentially be subject to PRC taxes on dividends paid by us in the event we are deemed a Chinese resident enterprise for Chinese tax purposes. See “—D. Risk Factors—Risks Related to Doing Business in China—Dividends we receive from our subsidiaries located in the PRC may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay our shareholders” and “Item 10. Additional Information—E. Taxation—PRC Taxation” for further information.
A.[Reserved]
B.Capitalization and Indebtedness
Not Applicable.
C.Reasons for the Offer and Use of Proceeds
Not Applicable.
5
D.Risk Factors
Our business and our industry are subject to significant risks. You should carefully consider all of the information set forth in this Annual Report and in our other filings with the SEC, including the following risk factors, in evaluating our business. If any of the following risks actually occur, our business, financial condition, operating results, and growth prospects would likely be materially and adversely affected. This Annual Report also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.”
Risk Factors Summary
The following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities. The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. We encourage you to read the full risk factor discussion carefully.
Our revenue and expenses are difficult to predict, have varied significantly in the past and will continue to fluctuate significantly in the future due to numerous risks and uncertainties, many of which are beyond our control. As a result, we may not be profitable on a quarterly or annual basis. Our business, results of operations and financial condition could be materially and adversely affected by any of the following material risks:
Risks Related to the Commercialization of CARVYKTI and Our Other Product Candidates
•We are substantially dependent on the commercial success of CARVYKTI. If we are unable to successfully commercialize CARVYKTI or experience significant delays in doing so, our business will be materially harmed.
•We have limited experience as a commercial company and the manufacture, marketing and sale of CARVYKTI or future products may be unsuccessful or have less success than anticipated.
•The commercial success of CARVYKTI, and of any future products, will depend upon the degree of market acceptance by physicians, third-party payors and others in the medical community.
•If the market opportunities for our product or any future products are smaller than we believe they are, and if we are not able to successfully identify patients and achieve significant market share, our revenues may be adversely affected and our business may suffer.
•Adverse side effects or other safety risks associated with CARVYKTI or any future products could limit the commercial profile of an approved label or result in significant negative consequences following marketing approval.
•We may not be able to successfully create our own manufacturing infrastructure for supply of our requirements of products for use in clinical trials and for commercial sale.
•We have limited sales experience and limited capabilities for marketing and market access. We expect to continue to invest significant financial and management resources to establish necessary capabilities and infrastructure to support our commercial needs. If we are unable to establish these commercial capabilities, we may be unable to generate sufficient revenue to sustain our business.
•We operate in a rapidly changing industry and face significant competition.
•Potential product liability risks.
Risks Related to Our Business
•Our ability to become and remain profitable may never be achieved due to the uncertainty of developing and commercializing complex therapies, and we may never achieve or maintain profitability.
•Our limited operating history, which has focused on research and development, makes it difficult to assess our future prospects.
•Our need for additional funding to complete the development of our product candidates, which may not be available on acceptable terms, if at all.
6
•Our inability to obtain or manufacture raw materials or key starting materials necessary for product manufacture, such as lentiviral vectors, would adversely affect the clinical development and commercialization of these products, which could, in turn, adversely affect our sales and profitability.
Risks Related to the Development of Our Product Candidates
•The uncertainties of the biopharmaceutical development process for novel and emergent treatment, including the uncertainty of outcomes of clinical trials, and the potential failure of product candidates to show safety or efficacy.
•Potential failure to obtain or maintain regulatory approvals for our product candidates.
•Our primary research and development efforts are focused on cell therapies, including chimeric antigen receptor T cell (“CAR-T”) therapies and chimeric antigen receptor natural killer cell (“CAR-NK”) therapies, which are emerging treatments that face significant challenges and hurdles.
•Our product candidates require significant preclinical study and clinical trials, which can be difficult to design and implement.
•Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, cause us to abandon product candidates, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval.
•Our dependence on enrollment of patients in clinical trials for development of our product candidates.
•Risks associated with investigator-initiated clinical trials and studies that we do not fully control.
•Certain product opportunities may face limited market opportunities.
•Costs and difficulties in the manufacture of complex cell therapies.
Risks Related to Our Business Operations
•Economic, political, regulatory and other risks associated with international operations.
•Potential difficulties in growing operations and attracting and retaining key personnel.
•Risks associated with potential acquisitions or strategic collaborations.
•Dependence on information technology systems.
•Any failure to comply with various governmental laws and regulations may adversely affect our business.
•Risks associated with any failure to implement and maintain effective internal controls over financial reporting.
Risks Related to our Dependence on Third Parties
•Our dependence on third parties, such as Janssen, for development, manufacturing and commercialization of our product candidates.
•Our reliance on third parties to conduct our preclinical and clinical trials and the potential that such third parties may not perform satisfactorily.
•The availability of reagents, specialized equipment and other specialty materials.
Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters
•The risks and costs associated with complying with a rigorous, complex and evolving regulatory framework, including clinical trial regulations, pre-marketing regulatory requirements, pricing, reimbursement and cost-containment regulations, and ongoing regulation of approved products.
•The effect of price controls in certain jurisdictions on our revenue and commercialization.
Risks Related to Our Intellectual Property
•Our ability to obtain, maintain, defend and enforce intellectual property rights in our products and disparities and uncertainties in intellectual property rights throughout the world.
7
•Risks related to third party intellectual property rights, including the significant cost and complexity associated with intellectual property proceedings.
Risks Related to Doing Business in China
•Risks related to doing business in China, including the impact of extensive Chinese regulation on the pharmaceutical industry.
•The heightened level of government involvement in the Chinese economy and uncertainties regarding legal protections in the PRC legal system.
•PRC governmental authorities may take measures having influence on our operations, which could result in a material change in our operations and significantly and adversely impact the value of our ADSs.
•PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries.
•The PRC government may exert more control over offerings conducted outside the PRC and/or investment by non-PRC investors in issuers with operations in China, which could materially and adversely affect our operations in the PRC, and could significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline. For example, the approval of, or filing or other procedures with, the CSRC or other governmental authority may be required in connection with issuing our equity securities outside of the PRC under Chinese law, and, if required, we cannot predict whether we will be able, or how long it will take us, to obtain such approval or complete such filing or other procedures.
•PRC regulations relating to offshore investment activities by PRC residents and enterprises may increase our administrative burden and restrict our non-PRC and cross-border investment activity.
•Monetary, economic, political, environmental, social, and trade disputes between the U.S. and China.
•The heightened level of actions by the U.S. government in targeting Chinese companies and, in the biotech industry, the U.S. government seeking to implement heightened supply chain security for sourcing from China and limitations on the transfer of technology to recipients within China.
Risks Related to Our Organizational Structure
•Our organizational structure may create significant conflicts of interest.
•The impact of GenScript’s significant control over us as our largest shareholder.
•The more limited protections afforded to shareholders as a result of our status as a foreign private issuer.
Risks Related to Our Securities
•Risks associated with owning our ADSs, including volatility in our trading price due to our business and financial performance, potential tax consequences and risks from dilution of our ADSs and ordinary shares if we issue additional ADSs or other securities.
8
Risks Related to Commercialization of CARVYKTI and Our Other Product Candidates
We are substantially dependent on the commercial success of CARVYKTI. If we are unable to successfully commercialize CARVYKTI or experience significant delays in doing so, our business will be materially harmed.
We have only recently begun to commercialize cilta-cel and sell under the name CARVYKTI pursuant to the Janssen Agreement. Net trade sales for CARVYKTI for the year ended December 31, 2023 were approximately $500.0 million. Our ability to offset our losses and sustain our business, will be largely dependent upon sales of CARVYKTI . Our success as a company is substantially dependent on our ability to continue to generate revenue from the sales of CARVYKTI, which will depend on many factors, including but not limited to, our ability to:
•achieve and maintain full approval of CARVYKTI in the United States and in other jurisdictions;
•execute our sales and marketing strategies for CARVYKTI;
•maintain and manage the necessary sales, marketing and other capabilities and infrastructure that are required to continue and successfully commercialize CARVYKTI;
•achieve, maintain and grow market acceptance of, and demand for, CARVYKTI;
•establish or demonstrate in the medical community the safety and efficacy of CARVYKTI and its potential advantages over and side effects compared to existing and future products;
•secure payor approval of CARVYKTI on acceptable terms;
•offer CARVYKTI at competitive prices as compared to alternative options, and our ability to achieve a suitable profit margin on our sales of CARVYKTI;
•adapt to additional changes to the label for CARVYKTI that could place restrictions on how we market and sell CARVYKTI, including as a result of adverse events that may be observed in other studies;
•obtain adequate and timely supply of CARVYKTI, which may in the future be adversely affected by factors relating to our manufacturing capabilities, global pandemics, epidemics or endemics, geopolitical tension, global supply chain disruptions, failure of financial institutions, rising inflation and other world events;
•comply with applicable legal and regulatory requirements;
•maintain the necessary state pharmaceutical distribution licenses and permits required for the sale of CARVYKTI and a pharmacovigilance system satisfying applicable legal and regulatory requirements;
•maintain arrangements with specialty pharmacies to dispense CARVYKTI to customers and to provide related patient and administrative support services;
•enforce intellectual property rights in and to CARVYKTI; and
•avoid third-party patent interference or intellectual property infringement claims.
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we may not be able to generate material and continuing revenue from sales of CARVYKTI, which may materially impact the success of our business.
We may not be able to successfully establish manufacturing capabilities and infrastructure to supply our requirements of CARVYKTI and our product candidates for use in clinical trials and for commercial sale, and we may encounter difficulties successfully manufacturing CARVYKTI and our product candidates.
As part of our collaboration with Janssen, we have established a manufacturing facility in the United States which currently produces commercial supply of CARVYKTI for the U.S. and European markets, and we anticipate using this facility to supply other countries if we obtain approvals in such countries. We are in the process of establishing manufacturing capabilities in Belgium for commercial supply in the EU and U.S. markets, and possibly additional markets. We also have manufacturing facilities in the United States, Belgium and China which are currently supplying cilta-cel for our clinical trials.
9
We will be conducting the manufacturing of cilta-cel globally, which requires that we expand the capacities at these sites as we begin commercialization in the applicable geographic regions following our receipt of marketing authorizations.
Our manufacturing and commercialization strategy is based on establishing a fully integrated vein-to-vein product delivery cycle. Over time, we expect to establish regional or zonal manufacturing hubs to service major markets to meet projected commercial needs. However, we are still in the process of constructing manufacturing facilities and pursuing the engagement of third-party contract manufacturing organizations ("CMOs") that will allow us to meet commercial sale quantities.
Our long-term plan is to establish additional manufacturing capacity in the United States, China and in Europe. The implementation of this plan is subject to many risks. For example, the establishment of a cell-therapy manufacturing facility is a complex endeavor requiring knowledgeable individuals. Expanding our internal manufacturing infrastructure will rely upon finding personnel with an appropriate background and training to staff and operate the facility. Should we be unable to find these individuals, we may need to rely on external contractors or train additional personnel to fill the needed roles. There are a small number of individuals with experience in cell therapy and the competition for these individuals is high.
We expect that operating our own commercial cell manufacturing facilities will provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term cost margins. However, we have limited experience as a company in designing and operating a commercial manufacturing facility and may never be successful in effectively implementing our manufacturing capability. We may establish additional manufacturing sites as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly. Even if we are successful, our manufacturing operations could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures and numerous other factors, or we may not be successful in establishing sufficient capacity to produce CARVYKTI or any future products in sufficient quantities to meet the requirements for the contemplated launch or to meet potential future demand, all of which could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
Moreover, manufacturers of cell therapy products often encounter difficulties in production, particularly in scaling out and validating initial production, and ensuring that the product meets required specifications. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. We cannot make any assurances that these problems will not occur in the future, or that we will be able to resolve or address problems that occur in a timely manner or with available funds.
Additionally, since the T cells used as starting material for our product and product candidates have a limited window of stability following procurement from a patient, we must establish and employ complex logistical operations, including collecting and shipping, as part of our manufacturing processes. Logistical and shipment delays and problems caused by us, our agents, and other factors not in our control, such as weather, could prevent or delay the delivery of product to patients. If our manufacturing processes fail to perform satisfactorily, we may suffer reputational, operational, and business harm. We also are required to maintain a complex chain of identity and chain of custody with respect to patient material as it moves through the manufacturing process. Failure to maintain chain of identity and chain of custody could result in adverse patient outcomes, loss of product or regulatory action.
In addition, any significant disruption in the supply chain for starting materials necessary for our manufacturing processes could adversely affect our commercialization efforts. We source key materials from third party suppliers. There are a small number of suppliers for certain key materials that are used to manufacture our product and product candidates. We must compete with other market participants for the limited supply of such materials, which may result in increased costs. Moreover, supply chain constraints with respect to such starting materials may impact the execution of our commercialization efforts. Any such supply chain constraints would necessarily limit the commercial benefits that could be achieved from a broader distribution.
We have not yet established manufacturing capacity at full commercial scale and may underestimate the cost and time required to do so, or overestimate cost reductions from economies of scale that can be realized with our manufacturing processes. We may ultimately be unable to manage the cost of goods for our products and product candidates to levels that will allow for a margin in line with our expectations and return on investment in connection with commercialization.
10
To address market demand for CARVYKTI, we and our collaboration partner Janssen have engaged and are continuing to engage and pursue the use of CMOs in order to supplement our clinical and commercial manufacturing capabilities and infrastructure. For example, in April 2023 we and Janssen entered into a Master Technology Transfer, Manufacturing and Clinical Supply Services Agreement for BCMA CAR-T Product with Novartis Pharmaceuticals Corporation (the “Novartis Clinical Supply Agreement”), to initiate technology transfer activities necessary for Novartis to manufacture cilta-cel for clinical development to supplement our manufacturing capabilities. We may be unable to enter into additional agreements with CMOs on acceptable terms or at all. Any planned use of CMOs with which we and Janssen have engaged or may engage could be delayed as we transfer our manufacturing technology to these CMOs, as these CMOs file for and await regulatory approval to manufacture CARVYKTI, and as these CMOs gain experience with our manufacturing technology and supply requirements. Furthermore, for any CMOs with which we and Janssen have engaged or may engage, production by these CMOs will be subject to the same risks and uncertainties as our manufacture of CARVYKTI. We may have less control over supply when compared with the facilities operated by us and Janssen, and the overall cost of goods for CARVYKTI may be higher as a result of such CMO engagements.
Finally, to the extent supplies of CARVYKTI are limited, we will face bioethical challenges in allocating a limited supply of CARVYKTI to a significant patient need. Because such determinations are highly complex and involve a large number of factors, such allocation decisions may be questioned by third parties.
We have limited experience as a commercial company and the manufacturing, marketing and sale of CARVYKTI or future products may be unsuccessful or have less success than anticipated.
Having received FDA approval for CARVYKTI on February 28, 2022 and conditional approval from the European Commission on May 25, 2022, we remain at the early stages of commercializing CARVYKTI in the United States and Europe, with our collaborator Janssen, for the treatment of adults with relapsed or refractory multiple myeloma ("MM") who have received four or more prior lines of therapy (for commercialization in the United States), or three or more lines of therapy (for commercialization in Europe), in each case, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. While CARVYKTI has received marketing authorizations from a limited number of additional jurisdictions, it has not yet been commercially marketed outside the United States and Europe.
As CARVYKTI is our first approved product and the remainder of our product candidates are in clinical or preclinical development, we have limited experience as a commercial company and there is limited information about our ability to overcome many of the challenges encountered by companies commercializing products in the biopharmaceutical industry. To execute our business plan, in addition to successfully manufacturing marketing and selling of CARVYKTI, we, either individually or with a collaboration partner, will need to successfully:
•establish and maintain relationships with qualified treatment centers who will be treating the patients who receive our product and any future products;
•obtain adequate pricing and reimbursement for CARVYKTI and any future products in each of the jurisdictions in which we plan to commercialize approved products;
•gain regulatory acceptance for the development and commercialization of the other product candidates in our pipeline; and
•manage spending as costs and expenses increase due to clinical trials, marketing approvals, and commercialization for any additional indications of CARVYKTI, and for any future products.
If we are not successful in accomplishing these objectives, we may not be able to develop product candidates, successfully commercialize CARVYKTI or any future products, raise capital, expand our business, or continue our operations.
The commercial success of CARVYKTI, and of any future products, will depend upon the degree of market acceptance by physicians, third-party payors and others in the medical community.
The commercial success of CARVYKTI and of any future products will depend in part on the medical community, patients, and third-party or governmental payors accepting new treatments for our targeted indications in general, and CARVYKTI and any future products in particular, as medically useful, cost-effective, and safe. CARVYKTI and any other products that we may bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate
11
significant product revenue and may not become profitable. The degree of market acceptance of CARVYKTI and of any future products will depend on a number of factors, including:
•the potential efficacy and potential advantages over alternative treatments;
•the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
•the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
•the strength of marketing and distribution support and timing of market introduction of competitive products;
•the pricing of our product and of any future products;
•publicity concerning our product, any future products, or competing products and treatments; and
•sufficient third-party insurance coverage or reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until after it is launched. Our efforts, and the efforts of any of our collaborators, to educate the medical community and payors on the benefits of our products may require significant resources and may never be successful. These efforts may require more resources than are required by the conventional technologies marketed by certain of our competitors. Any of these factors may cause CARVYKTI, or any future products, to be unsuccessful or less successful than anticipated.
If the market opportunities for CARVYKTI or any future products are smaller than we believe they are, and if we are not able to successfully identify patients and achieve significant market share, our revenues may be adversely affected and our business may suffer.
Our projections regarding the number of people who have the potential to benefit from treatment with CARVYKTI or any future products are based on estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of the diseases that our product candidates target. The number of patients may turn out to be lower or more difficult to identify than expected.
Even if we obtain significant market share for a product within an approved indication, because the potential target populations for CARVYKTI and for the product candidates in our pipeline are small, we may never achieve profitability without obtaining marketing approval for additional indications. In the field of cancer, the United States Food & Drug Administration (the "FDA") often approves new therapies initially only for use in patients with relapsed or advanced disease. For example, the FDA’s approval for CARVYKTI indicates that the product is for the treatment of adults with relapsed or refractory multiple myeloma who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. While we expect to seek approval for CARVYKTI in earlier lines of MM treatment and potentially as a first line therapy, there is no guarantee that we will be successful doing so.
Any of these factors may negatively affect our ability to generate revenues from sales of CARVYKTI and any future products and our ability to achieve and maintain profitability. As a consequence, our business may suffer.
Although we are continuing to build out our commercial capabilities, we have no prior sales or distribution centers and limited capabilities for marketing and market access. We expect to invest significant financial and management resources to establish these capabilities and infrastructure to support commercial operations. If we are unable to establish these commercial capabilities and infrastructure or to enter into agreements with third parties to market and sell our product or any future products, we may be unable to generate sufficient revenue to sustain our business.
Although we are continuing to build out our field team as part of our first commercial launch in the United States, we have no prior sales or distribution experience and limited capabilities for marketing and market access. To successfully commercialize CARVYKTI and any other products that may result from our development programs, we will need to develop these capabilities and further expand our infrastructure to support commercial operations in the United States, Europe and other regions, either on our own or with others. Commercializing autologous CAR-T therapies such as CARVYKTI is resource-intensive and will require substantial investment in commercial capabilities. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without a
12
significant internal team or the support of a third party to perform these functions, including marketing and sales functions, we may be unable to compete successfully against these more established companies.
We currently expect to rely heavily on third parties—primarily, our collaboration partner, Janssen—to launch and market CARVYKTI. If Janssen does not commit sufficient resources to successfully commercialize CARVYKTI , we may be unable to generate sufficient product revenue to sustain our business.
We operate in a rapidly changing industry and face significant competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new biopharmaceutical products is highly competitive and subject to rapid and significant technological advancements. We face competition from major multi-national pharmaceutical companies, biotechnology companies and specialty pharmaceutical companies with respect to our current and future product candidates that we may develop and commercialize. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of cancer. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Potential competitors also include academic institutions, government agencies and other public and private research organizations. Due to their promising clinical therapeutic effect in clinical exploratory trials, engineered T cell therapies, redirected T cell therapies in general and antibody-drug conjugates are being pursued by multiple biotechnology and pharmaceutical companies. Our competitors may succeed in developing, acquiring or licensing technologies and products that are more effective, more effectively marketed and sold or less costly than any product candidates that we may develop, which could render our product candidates noncompetitive and obsolete.
Our potential CAR-T cell therapy competitors include:
•companies developing cell therapies targeting BCMA for the treatment of MM, including Allogene Therapeutics, Inc., Arcellx, Inc., Autolus Therapeutics plc, bluebird bio, Inc., Bristol-Myers Squibb, Co., Caribou Biosciences, Inc., CARsgen Therapeutics Holdings Limited, Celyad Oncology, Gracell Biotechnologies, Innovent Biologics, IASO Biotechnology, Poseida Therapeutics Inc., Novartis AG and Sana Biotechnology, Inc.;
•academic medical centers pursuing independent development of BCMA CAR-T technologies; and
•additional companies developing BCMA-targeted therapies for the treatment of MM, including Amgen, Inc., Regeneron Pharmaceuticals, Inc., GSK plc, Bristol-Myers Squibb Co., Johnson & Johnson (the parent company of Janssen, our collaboration partner for cilta-cel), AbbVie and Pfizer Inc.
Other than CARVYKTI, our product candidates are in early stages of development. Our competitors with development-stage programs may obtain marketing approval from the FDA, the National Medical Products Association (the "NMPA"), the European Commission, Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) or other comparable regulatory authorities for their product candidates more rapidly than we do with respect to our development-stage product candidates, and they could establish a strong market position for either a product or a specific indication before we are able to enter the market.
Many of our competitors, either alone or with their strategic collaborators, have substantially greater financial, technical and human resources than we do. Accordingly, our competitors may be more successful than we are in obtaining approval for treatments and achieving widespread market acceptance, which may render our treatments obsolete or noncompetitive. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity—including with respect to CARVYKTI—could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive or better reimbursed than any products that we may commercialize.
13
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and an even greater risk related to any commercialized products. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•reduced resources of our management to pursue our business strategy;
•decreased demand for any product candidates or products that we may develop;
•injury to our reputation and significant negative media attention;
•withdrawal of clinical trial participants;
•initiation of investigations by regulators;
•product recalls, withdrawals or labeling, marketing or promotional restrictions;
•significant costs to defend the resulting litigation;
•substantial monetary awards paid to clinical trial participants or patients;
•loss of revenue; and
•the inability to commercialize any products that we may develop.
We currently hold $10 million in product liability insurance coverage in the aggregate, with a per incident limit of $10 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we commercialize CARVYKTI, expand our clinical trials or if we commercialize additional product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Our Business
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We have historically incurred substantial net losses, including net losses of $518.3 million and $446.3 million for the years ended December 31, 2023 and 2022, respectively. At December 31, 2023, we had an accumulated deficit of $1,484.7 million. We expect our net losses to continue as a result of:
•our ongoing and planned research and development of cilta-cel for the treatment of relapsed and lenalidomide-refractory multiple myeloma ("RRMM");
•our investment in manufacturing capabilities, including investments in our facilities in the United States, Europe and China;
•our ongoing and planned clinical development for our other product candidates;
•our ongoing and planned research and development activities;
•our discovery and development of additional product candidates and further expansion of our clinical product pipeline;
•regulatory or marketing approvals for any product candidates that successfully complete clinical trials;
•scaling up internal and external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;
•establishing sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain regulatory or marketing approval;
•developing, maintaining, expanding and protecting our intellectual property portfolio;
•acquiring or in-licensing other product candidates and technologies;
•hiring additional clinical, quality control and manufacturing personnel;
14
•adding clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts;
•expanding our operations globally; and
•incurring additional legal, accounting, investor relations and other expenses associated with operating as a public company.
These net losses have had, and will continue to have, a negative impact on our working capital, total assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with our development and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would harm our business, financial condition, results of operations and cash flows.
Further, the net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance quarter-to-quarter and year-to-year, due to factors including the timing of product clearance, approval, commercial ramp, clinical trials, any litigation that we may file or that may be filed against us, the execution of collaboration, licensing or other agreements and the timing of any payments we make or receive under them. Our prior losses and expected future losses have had and will continue to have an adverse effect on our working capital, our ability to fund the development of our product candidates and our ability to achieve and maintain profitability and the performance of our common shares and may in the future raise substantial doubt about our ability to continue as a going concern.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Other than with respect to CARVYKTI’s FDA-approved indication, we are primarily a clinical-stage biopharmaceutical company with a limited operating history. As an organization, we have demonstrated limited ability to successfully complete late-stage clinical trials, obtain regulatory approvals, and manufacture our product candidates at commercial scale or arrange for a third party to do so on our behalf, conduct sales and marketing activities necessary for successful commercialization, or obtain reimbursement in the countries of sale. We may encounter unforeseen expenses, difficulties, complications, and delays in achieving our business objectives. Our short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. If we do not address these risks successfully or are unable to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities, then our business will be materially harmed.
We will need additional funding to complete the development of our product candidates, which may not be available on acceptable terms, if at all.
We will require substantial additional funding to meet our financial needs and to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to delay, reduce or altogether cease our product development programs or commercialization efforts.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. However, we will need to raise additional capital to complete the development and commercialization of cilta-cel and our other product candidates and in connection with our continuing operations and other planned activities. Our future capital requirements will depend on many factors, including:
•the costs and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for CARVYKTI and any other of our product candidates for which we receive marketing approval;
•the progress, results and costs of laboratory testing, manufacturing, and preclinical and clinical development for our current product candidates;
•the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;
•the development requirements of other product candidates that we may pursue;
•the timing and amounts of any milestone or royalty payments we may be required to make under future license agreements;
15
•the costs of building out our infrastructure, including hiring additional clinical, quality control and manufacturing personnel;
•the costs, timing and outcome of regulatory review of our product candidates;
•the amount of revenue we receive pursuant to the Janssen Agreement and the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•the costs of operating as a public company; and
•the extent to which we acquire or in-license other product candidates and technologies.
In addition to cilta-cel, identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. To date, sales of CARVYKTI through our collaboration with Janssen have been limited. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish some rights to our technologies or our product candidates on terms that are not favorable to us. Any additional capital-raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether cease our research and development programs or future commercialization efforts.
Our operating results may be adversely affected by inflation.
As we commercialize CARVYKTI, our business may feel more of an impact from inflation. Among other things, competition for labor is becoming more acute, and we expect to experience increased labor costs as we hire employees to support our CARVYKTI commercialization efforts. In addition, inflation and higher energy costs may drive increased raw material and transportation costs. There is no assurance that we will be able to fully offset any cost increases through cost reduction programs or setting higher prices for our product or future products. If we generally are not able to set our pricing to sufficiently offset these increased costs or if increased costs and prolonged inflation continue, it could materially and adversely affect our business, operating results and profitability. In addition, volatility in certain commodity markets could significantly affect our production cost.
Risks Related to the Development of Our Product Candidates
With the exception of CARVYKTI, which was approved by the FDA on February 28, 2022 and has received marketing authorizations from a limited number of additional jurisdictions, all of our product candidates are in clinical development or in preclinical development. If we are unable to continue to advance CARVYKTI and to advance our other product candidates through clinical development, obtain regulatory approval and ultimately successfully commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
While our first product, CARVYKTI, was approved by the FDA on February 28, 2022 for the treatment of adults with RRMM who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody and has received marketing authorizations from a limited number of additional jurisdictions, our success depends, in part, on our ability to continue to advance the development of CARVYKTI in earlier lines of MM treatment. In collaboration with Janssen, we have completed a Phase 1b/2 trial in RRMM patients in United States and Japan (CARTITUDE-1) and are currently conducting a Phase 2 trial of cilta-cel in RRMM patients in China (CARTIFAN-1). In November 2019, we and Janssen began enrolling an aggregate of approximately 157 patients in a Phase 2 multicohort trial of cilta-cel in the United States, EU, Israel and Saudi Arabia (CARTITUDE-2) in patients with MM in various clinical settings such as in early relapse patients or as a front-line therapy. In addition, the Phase 3 CARTITUDE-4 clinical trial, enrolling approximately 400 patients including sites in the United States, EU, Australia, Japan and Israel was initiated in June 2020. This clinical trial is comparing treatment with
16
cilta-cel to treatment of standard triplet therapy in Revlimid-refractory MM. On January 27, 2023 we announced that CARTITUDE-4 met its primary endpoint of showing a statistically significant improvement in progression-free survival (PFS) compared to standard therapy at the study’s first pre-specified interim analysis. The study has been unblinded following the recommendation of an independent data monitoring committee. Applications seeking expanded labeling consistent with the CARTITUDE-4 findings are under review by FDA and the CAT, although advisory committee meetings occurring in the first half of 2024 could recommend against approval of expanded labeling, and even if favorable recommendations are made, regulatory authorities may decide against approval for these applications. We also initiated the Phase 3 CARTITUDE-5 clinical trial during August 2021, targeting enrollment at approximately 650 patients, including sites in the United States, EU, Canada, Australia, Korea and Japan. This clinical trial is comparing treatment with cilta-cel to treatment of standard triplet therapy in newly diagnosed MM patients for whom hematopoietic stem cell transplant is not planned as an initial therapy. Furthermore, a Phase 3 CARTITUDE-6 clinical trial was initiated in October 2023, targeting enrollment at approximately 750 patients, including sites in EU, Australia, Korea, and Israel. This clinical trial will compare treatment with cilta-cel to treatment of autologous stem cell transplant (ASCT) in newly diagnosed MM patients. There is no assurance that these or any other future clinical trials for cilta-cel will be successful or will generate further positive clinical data, and we may not receive additional marketing approval from the FDA or other regulatory agencies for cilta-cel.
In addition to cilta-cel, we have a broad portfolio of earlier-stage autologous CAR-T product candidates targeting various cancers, including Non-Hodgkins Lymphoma (NHL), acute lymphoblastic leukemia (ALL), gastric cancer, esophageal cancer, pancreatic cancer, colorectal cancer, hepatocellular carcinoma, small cell lung cancer, and non-small cell lung cancer. We are also developing allogeneic gamma delta CAR-T and allogeneic CAR-NK product candidates targeting BCMA for MM, which are currently in investigator-initiated Phase 1 clinical trials in China. Additionally, we are developing an autologous CAR-T product candidate targeting GPC3 for non-small cell lung cancer (NSCLC) and an autologous CAR-T product candidate targeting GCC for colorectal cancer that are in preclinical development. There is no assurance that these or any other future clinical trials of our product candidates will be successful or will generate positive clinical data, and we may not receive marketing approval from the FDA or other regulatory agencies, for any of our product candidates. There can be no assurance that the FDA will permit the Investigational New Drug ("IND") applications for our product candidates to go into effect in a timely manner or at all. Without an IND, we will not be permitted to conduct clinical trials in the United States.
Biopharmaceutical development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. Failure to obtain regulatory approval for our product candidates will prevent us from commercializing and marketing those product candidates. The success in the development of our product candidates will depend on many factors, including:
•completing preclinical studies and receiving regulatory authorizations to conduct clinical trials for our preclinical-stage program product candidates;
•obtaining positive results in our clinical trials to demonstrate efficacy, safety and durability of effect of our product candidates;
•receiving approvals for commercialization of our product candidates from regulatory authorities;
•manufacturing our product candidates at an acceptable quality and cost; and
•maintaining and growing an organization of scientists, medical professionals and business people who can develop and commercialize our products and technology.
Many of these factors are beyond our control, including the time needed to adequately complete clinical testing and the regulatory submission process. It is possible that none of our product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval. If we do not achieve one or more of these factors in a timely manner or at all, or any other factors impacting the successful development of biopharmaceutical products, we could experience significant delays or an inability to successfully develop our product candidates, which would materially harm our business.
Our proprietary, next-generation cell preparation technologies, our modular approach for CAR-T, gamma delta CAR-T and CAR-NK and our manufacturing platform for our product candidates, represent emerging approaches to cancer treatment that face significant challenges and hurdles.
We have concentrated our primary research and development efforts on our CAR-T, gamma delta CAR-T and CAR-NK cell therapies using our expertise in tumor biology and cell programming, and our future success is highly dependent
17
on the successful development and manufacture of our product candidates. With the exception of our first product, CARVYKTI, which was approved by the FDA on February 28, 2022 for the treatment of adults with RRMM who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody and which has received marketing authorizations from a limited number of additional jurisdictions, we do not currently have any approved products, nor do we have any commercialized products. As with other targeted therapies, off-tumor or off-target activity could delay development or require us to reengineer or abandon a particular product candidate. Because cell therapies represent a relatively new field of cellular immunotherapy and cancer treatment generally, developing and commercializing our product candidates subjects us to a number of risks and challenges, including:
•obtaining regulatory approval for our product candidates, as the FDA, the NMPA, the European Commission, the PMDA and other regulatory authorities have limited experience with cell therapies for cancer;
•developing and deploying consistent and reliable processes for engineering a cells ex vivo and infusing the engineered cells into the patient;
•conditioning patients with chemotherapy in conjunction with delivering each of our products, which may increase the risk of adverse side effects of our product candidates;
•sourcing clinical and commercial supplies of the materials used to manufacture CARVYKTI and our product candidates;
•developing programming modules with the desired properties, while avoiding adverse reactions;
•creating and obtaining a sufficient supply of viral vectors capable of delivering multiple programming modules;
•developing a reliable and consistent vector and cell manufacturing process;
•establishing manufacturing capacity suitable for the manufacture of our product candidates in line with expanding enrollment in our clinical studies and our projected commercial requirements;
•achieving cost efficiencies in the scale-up of our manufacturing capacity;
•developing protocols for the safe administration of our product candidates;
•educating medical personnel regarding our cell technologies and the potential side effect profile of each of our product candidates, such as potential adverse side effects related to cytokine release syndrome ("CRS");
•establishing integrated solutions in collaboration with specialty treatment centers in order to reduce the burdens and complex logistics commonly associated with the administration of T cell therapies;
•establishing sales and marketing capabilities to successfully launch and commercialize CARVYKTI and any other of our product candidates if and when we obtain any required regulatory approvals, and risks associated with gaining market acceptance of a novel therapy if we receive approval; and
•the availability of coverage and adequate reimbursement from third-party payors for our novel and personalized therapies in connection with commercialization of any approved product candidates.
We may not be able to successfully develop our product candidates, our technology or our other product candidates in a manner that will yield products that are safe, effective, scalable or profitable.
Additionally, because our technology involves the genetic modification of patient cells ex vivo, we are subject to additional regulatory challenges and risks, including:
•regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. To date, only six CAR-T cell therapy products that involve the genetic modification of patient cells have been approved in the United States and the European Union, and five have been approved in China;
•genetically modified products in the event of improper insertion of a gene sequence into a patient’s chromosome could lead to lymphoma, leukemia or other cancers, or other aberrantly functioning cells;
•although our viral vectors are not able to replicate, there is a risk with the use of retroviral or lentiviral vectors that they could lead to new or reactivated pathogenic strains of virus or other infectious diseases; and
18
•the FDA and the European Commission have recommended a 15-year follow-up observation period for all patients who receive treatment using gene therapies, and we may need to adopt such an observation period for our product candidates.
Moreover, public perception and awareness of cell therapy safety issues may adversely influence the willingness of subjects to participate in clinical trials of our product candidates or of physicians to prescribe approved products. Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Treatment centers may not be willing or able to devote the personnel and establish other infrastructure required for the administration of cell therapies. Physicians may not be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.
Our future success is highly dependent on the regulatory approval of cilta-cel and our other pipeline programs. All of our product candidates require significant preclinical study and clinical trial before we can seek regulatory approval for and launch a product commercially.
Our business is substantially dependent on our ability to further advance the development of CARVYKTI, obtain regulatory approval for cilta-cel in other jurisdictions and for additional indications, obtain regulatory approval of our other product candidates, and successfully commercialize CARVYKTI and, if approved, our other product candidates. We cannot commercialize product candidates in the United States without first obtaining regulatory approval for the product from the FDA; similarly, we cannot commercialize product candidates in countries outside the United States without obtaining regulatory approval from comparable regulatory authorities in relevant jurisdictions, such as the NMPA in China, the European Commission, on the basis of the technical / scientific opinion issued by the European Medicines Agency ("EMA"), in the European Union and the PMDA in Japan. Before obtaining regulatory approvals for the commercial sale of any product candidate for a particular indication, we must demonstrate with substantial evidence gathered in preclinical and clinical studies that the product candidate is safe and effective for that indication and that the manufacturing facilities, processes and controls comply with regulatory requirements with respect to such product candidate. Prior to seeking approval for any of our product candidates, we will need to confer with the FDA, the NMPA, the EMA, the PMDA and other regulatory authorities regarding the design of our clinical trials and the type and amount of clinical data necessary to seek and gain approval for our product candidates.
The time required to obtain marketing approval by the FDA, the NMPA, the European Commission, the PMDA and other regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of preclinical and clinical data necessary to gain approval may change during the course of a product candidate’s research and development and may vary among jurisdictions. It is possible that none of our existing clinical- or preclinical-stage product candidates or any future product candidates will ever obtain regulatory approval.
Our product candidates could fail to receive marketing regulatory approval from the FDA, the NMPA, the European Commission, the PMDA or other regulatory authorities for many reasons, including:
•disagreement with the design, protocol or conduct of our clinical trials;
•failure to demonstrate that a product candidate is safe and effective for its proposed indication;
•failure of clinical trials to meet the level of statistical significance required for approval;
•failure to demonstrate that a product candidate’s clinical and other benefits outweigh its risks;
•disagreement with our interpretation of data from preclinical studies or clinical trials;
•insufficiency of data collected from clinical trials of our product candidates to support the submission and filing of a Biologics License Application ("BLA") or other submission or to obtain regulatory approval;
•failure to obtain approval of the manufacturing processes of our facilities, including an inability for regulatory authorities to conduct any required inspections of our facilities, whether due to geopolitical conflict, such as the ongoing Russia-Ukraine conflict and Israel-Hamas conflict, or travel restrictions;
•changes in the approval policies or regulations that render our preclinical and clinical data insufficient for approval; or
•lack of adequate funding to complete a clinical trial in a manner that is satisfactory to the applicable regulatory authority.
19
The FDA, the NMPA, the EMA, the PMDA or a comparable regulatory authority may require more information, such as additional preclinical or clinical data to support approval, including data that would require us to perform additional preclinical studies, clinical trials, or both, or modify our manufacturing processes, which may delay or prevent approval and our commercialization plans, or may result in our deciding to abandon a development program. If we change our manufacturing processes, we may be required to conduct additional clinical trials or other studies, which also could delay or prevent approval of our product candidates. If we obtain approval, regulatory authorities may approve any of our product candidates for fewer indications than we request (including failing to approve the most commercially promising indications), may impose warnings and restrictions on prescription and distribution, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-marketing commitments, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
While cilta-cel has received orphan drug designation and breakthrough therapy designation from the FDA, has been granted access to the Priority Medicines ("PRIME") scheme from the EMA, and received confirmation that the product is eligible for accelerated assessment, our development strategy may also include the use of additional expedited pathways, such as through the accelerated or contingent approval pathway. Depending on results of the preclinical and clinical trials in our other product candidates, we may also pursue such status for those candidates. There is no certainty that our product candidates will qualify for breakthrough therapy, orphan drug designation, or obtain or maintain access to the PRIME scheme, nor can we assume that the clinical data obtained from trials of our product candidates will be sufficient to qualify for any expedited approval program.
Even if a product candidate were to successfully obtain marketing approval from the FDA, the NMPA, the European Commission, the PMDA or other comparable regulatory authorities in other jurisdictions, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for one of our product candidates in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding to continue the development of that product or generate revenue attributable to that product candidate. Also, any regulatory approval of our current or future product candidates, once obtained, may be withdrawn.
We may not be successful in our efforts to build a pipeline of product candidates.
A key element of our strategy is to use our expertise in tumor biology and cell programming and our proprietary and modular cell programming technologies to develop what we believe are safer and more effective CAR-T and CAR-NK cell therapies. Our focus is on the development of a pipeline of cell therapy product candidates for the treatment of cancers and the progression of these product candidates through clinical development. In addition to developing additional product candidates, we intend to develop platform technologies, including manufacturing technologies, armoring strategies and next-generation CAR product candidates. However, we may not be able to develop product candidates that are safe and effective, or which compare favorably with other commercially available alternatives. Even if we are successful in continuing to build our pipeline and developing next-generation product candidates or expanding into solid tumor indications, the potential product candidates that we identify may not be suitable for clinical development, including as a result of lack of safety, lack of tolerability, lack of anti-tumor activity, or other characteristics that indicate that they are unlikely to be products that will receive marketing approval, achieve market acceptance or obtain reimbursements from third-party payors. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:
•our platform may not be successful in identifying additional product candidates;
•we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
•our product candidates may not succeed in preclinical or clinical testing;
•a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
•competitors may develop alternatives that render our product candidates obsolete or less attractive;
•product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
•the market for a product candidate may change during our development program so that the continued development of that product candidate is no longer reasonable;
20
•a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
•a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, discover, develop or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
Even if we receive FDA or other regulatory approval to market our product candidates, whether for the treatment of cancers or other diseases, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Further, because of our limited financial and managerial resources, we are required to focus our research programs on certain product candidates and on specific diseases. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights.
If we do not successfully develop and commercialize product candidates or collaborate with others to do so, we will not be able to obtain product revenue in future periods, which could significantly harm our financial position and adversely affect the trading price of our ADSs.
Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these product candidates on a timely basis or at all, which would have an adverse effect on our business.
Some of our product candidates are still in the preclinical development stage, and the risk of failure of preclinical programs is high. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies to obtain regulatory clearance to initiate human clinical trials, including based on IND applications in the United States and clinical trial applications ("CTAs"), in China and the EU. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA, the NMPA, the PMDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit IND applications or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of IND applications or similar applications will result in the FDA, the NMPA, the PMDA or other regulatory authorities allowing clinical trials to begin.
Clinical trials are difficult to design and implement, involve uncertain outcomes and may not be successful.
Human clinical trials are difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The design of a clinical trial can determine whether its results will support approval of a product candidate and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. As an organization, we have limited experience designing clinical trials and may be unable to design and execute clinical trials that support regulatory approvals. There is a high failure rate for biologic products proceeding through clinical trials, which may be higher for our product candidates because they are based on new technology and engineered on a patient-by-patient basis. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.
Success in preclinical studies or clinical trials may not be indicative of results in future clinical trials.
Results from preclinical studies are not necessarily predictive of future clinical trial results, and interim results of a clinical trial are not necessarily indicative of final results. While we have received positive data from previously completed and ongoing clinical trials of cilta-cel in RRMM, we are still in the process of conducting additional clinical trials in the
21
United States, Japan, several countries in the EU, Canada, Australia, Argentina, Brazil, Israel, and Korea in order to seek regulatory approvals. Our other product candidates are in earlier stages of development. For that reason, we do not know whether these candidates will be effective and safe for the intended indications in humans. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. This failure to establish sufficient efficacy and safety could cause us to abandon clinical development of our product candidates.
We depend on enrollment of patients in our clinical trials for our product candidates. If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with the protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:
•the patient eligibility criteria defined in the protocol;
•the number of patients with the disease or condition being studied;
•the understanding of risks and benefits of the product candidate in the trial;
•clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating or drugs that may be used off-label for these indications;
•the size and nature of the patient population who meet inclusion criteria;
•the proximity of patients to study sites;
•the design of the clinical trial;
•clinical trial investigators’ ability to recruit clinical trial investigators with the appropriate competencies and experience;
•competing clinical trials for similar therapies or other new therapeutics not involving T cell-based immunotherapy;
•our ability to obtain and maintain patient consents; and
•the risk that patients enrolled in clinical trials will drop out of the clinical trials before completion of their treatment.
In particular, some of our clinical trials are designed to enroll patients with characteristics that are found in a very small population. Other companies are conducting clinical trials with cell therapies in MM and for other conditions that are targeted by our research, and seek to enroll patients in their studies that may otherwise be eligible for our clinical trials, which could lead to slow recruitment and delays in our clinical programs. In addition, since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which could further reduce the number of patients who are available for our clinical trials in these clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and antibody therapy, rather than participating in our clinical trials.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of our product candidates. In addition, many of the factors that may lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We have studied our product candidates and plan to continue to study our product candidates in investigator-initiated clinical trials, which means we do not have full control over the conduct of such trials.
We are currently evaluating our product candidates in investigator-initiated clinical trials. In addition, part of our strategy is to continue to explore new opportunities for cell therapy in investigator-initiated clinical trials in China, where such trials are initiated and conducted under the oversight of the China National Health Commission (the "NHC") as a
22
medical practice technology, rather than the NMPA as a medical product. The NMPA, generally speaking, will accept, review, and reject or approve a CTA only from the manufacturer of the investigational product as the sponsor of the CTA, rather than from a physician who intends to be the investigator and sponsor of the CTA. The NMPA distinguishes the former as registrational clinical trial, and the latter as non-registrational clinical trial, and normally will not consider the data generated from investigator-initiated non-registrational clinical trials, when it reviews the application for registrational clinical trial from the manufacturer.
In the case of CAR-T therapy, however, the NMPA is aware of the large number of investigator-initiated non-registrational clinical trials in China and the United States, and certain reviewers from its Center for Drug Evaluation published two articles on its website in February 2018 and October 2018, expressing the view that (1) the mainstream regulatory oversight is to follow the pathway of registrational clinical trial, but that (2) data from investigator-initiated non-registrational clinical trials may be considered if the non-registrational clinical trials otherwise fully comply with the same requirements applicable to registrational clinical trials, in particular the requirements related to manufacturing quality control, informed consent, data integrity, data management, and all Good Clinical Practices ("GCP") requirements.
Accordingly, our strategy of continuing to explore new opportunities for cell therapy in investigator-initiated clinical trials in China exposes us to the risk that the NMPA may refuse to consider the data from the investigator-initiated clinical trials of our product candidates due to concerns that (1) this does not follow the mainstream regulatory pathway of relying on registrational clinical trial, or that (2) the non-registrational clinical trials of our product candidates may not otherwise fully comply with the same requirements applicable to registrational clinical trials, as further explained below.
Investigator-initiated clinical trials pose similar risks as those set forth elsewhere in this section relating to clinical trials initiated by us. While investigator-initiated trials may provide us with clinical data that can inform our future development strategy, we do not have full control over the protocols, administration, or conduct of the trials. As a result, we are subject to risks associated with the way investigator-initiated trials are conducted and there is no assurance the clinical data from any of our investigator-initiated clinical trials in China will be accepted by the FDA, EMA, PMDA or other comparable regulatory authorities outside of China for any of our product candidates. Third parties in such investigator-initiated clinical trials may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with clinical trial protocols or applicable regulations. Further, any data integrity issues or patient safety issues arising out of any of these trials would be beyond our control, yet could adversely affect our reputation and damage the clinical and commercial prospects for our product candidates. Additional risks include difficulties or delays in communicating with investigators or administrators, procedural delays and other timing issues, and difficulties or differences in interpreting data. Third-party investigators may design clinical trials with clinical endpoints that are more difficult to achieve, or in other ways that increase the risk of negative clinical trial results compared to clinical trials that we may design on our own, and they may elect to discontinue these trials, even if we believe they have scientific merit. As a result, our lack of control over the design, conduct and timing of, and communications with the FDA, NMPA, EMA and PMDA, other comparable regulatory authorities, and relevant Institutional Review Boards, Ethics Committees, and competent national authorities regarding investigator-initiated trials expose us to additional risks and uncertainties, many of which are outside our control, and the occurrence of which could adversely affect the prospects for our product candidates.
Furthermore, there is no assurance the clinical data from any of our investigator-initiated clinical trials in China, where the patients are predominately of Chinese descent, will produce similar results in patients of different races, ethnicities or those of non-Chinese descent. Finally, the cross-border transfer of data generated by investigator-initiated and other trials in China is regulated by PRC law. We may not be able to transfer all or part of such data to other countries, which may impede our ability to use such data to further regulatory applications and in regulatory reporting in such other countries.
The market opportunities for certain of our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small, and our projections regarding the size of the addressable market may be incorrect.
Cancer therapies are sometimes characterized as first line, second line or third line therapies, and the FDA often approves new therapies initially only for last line use. When blood cancers are detected, they are treated with first line of therapy with the intention of curing the cancer. This generally consists of chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. In addition, sometimes a bone marrow transplantation can be added to the first line therapy after the combination chemotherapy is given. If the patient’s cancer relapses, then they are given a second line or third line therapy, which can consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these, or bone marrow transplant. Generally, the higher the line of therapy, the lower the chance of a cure. With third or higher line, the goal of the therapy in the treatment of lymphoma and myeloma is to control the growth of the tumor and extend the life of the patient, as a cure is unlikely to happen. Patients are generally referred to
23
clinical trials in these situations. Similarly, a portion of our pipeline product candidates target the treatment of advanced or metastatic solid tumors that have failed prior lines of therapy. In some instances, solid tumors that are diagnosed in an early stage may be treated with surgery either alone or in combination with chemotherapy and/or radiation. However, solid tumors that become more advanced or metastatic are often more difficult to treat and current therapies are often inadequate for many patients.
While CARVYKTI has been approved by FDA and has received marketing authorizations from a limited number of additional jurisdictions as a later line therapy for patients with MM, there is no guarantee that cilta-cel will be approved for earlier lines of therapy, nor is there any guarantee that any of our other product candidates, even if approved, will be approved for earlier lines of therapy. In addition, we may have to conduct additional large randomized clinical trials prior to or post gaining approval for the earlier line of therapy.
Our projections of both the number of people who have the cancers we are targeting, as well as the size of the patient population subset of people with these cancers in a position to receive first, second, third and fourth line therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be fewer than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. Even if we obtain significant market share for our product candidates, because the potential target populations are small, we may never achieve significant revenue without obtaining regulatory approval for additional indications or as part of earlier lines of therapy.
Adverse side effects or other safety risks associated with CARVYKTI or our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, cause us to abandon product candidates, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval.
In clinical trials conducted by us and other companies involving CAR-T cells, the most prominent acute toxicities included symptoms thought to be associated with CRS, such as fever, low blood pressure and kidney dysfunction. Some patients also experienced toxicity of the central nervous system, or neurotoxicity, such as confusion, tremor, cranial nerve dysfunction, seizures, encephalopathy and speech impairment. Adverse events with the worst grades and attributed to CAR-T cells were severe and life threatening in some patients. The life threatening events were related to respiratory dysfunction and neurotoxicity. Severe and life threatening toxicities occurred mostly in the first two weeks after cell infusion and generally resolved within three weeks, but several patients died in clinical trials involving CAR-T cells, including in our clinical trials. Furthermore, other patients experienced serious adverse events at later stages in treatment follow-up, such as cytopenias, infections and neurotoxicity.
In the Phase-1 LEGEND-2 clinical trial, CRS was observed in 91.9% of patients, with grade 3 or higher CRS observed in 9.5% of patients. Total CAR-T cell neurotoxicity of any grade was observed in one patient. No grade 3 or higher neurotoxicity events were reported. At a median follow up of approximately 48 months, there were 34 reported deaths during the Phase 1 LEGEND-2 clinical trial: 28 due to disease progression, one due to CRS and tumor lysis syndrome, one due to pulmonary embolism and potential acute coronary syndrome, one due to respiratory failure associated with subsequent therapy, one due to esophageal carcinoma, and two due to infection. In the Phase 1b/2 CARTITUDE-1 clinical trial, CRS was reported in 95% of patients, with grade 3 or higher CRS observed in 5% of patients. Total CAR-T cell neurotoxicity of any grade was observed in 21.6% of patients, with grade 3 or higher neurotoxicity observed in 12.3% of patients. At a median follow up of approximately 33 months, there were 35 reported deaths during the Phase 1b/2 CARTITUDE-1 trial: 17 due to disease progression, six due to treatment-related adverse events as assessed by the investigator, and 12 due to adverse events unrelated to treatment.
Our clinical trials include cancer patients who are very sick and whose health is deteriorating, and we expect that additional clinical trials of our other product candidates will include similar patients with deteriorating health. It is possible that some of these patients may experience similar adverse side effects as were observed in our current clinical trials and in clinical trials conducted by other companies and academic institutions involving CAR-T cells, and that additional patients may die during our clinical trials for various reasons, including as a result of receiving our product candidates, because the patient’s disease is too advanced, or because the patient experiences medical problems that may not be related to our product candidate. Even if the deaths are not related to our product candidate, the deaths could affect perceptions regarding the safety of our product candidate.
Patient deaths and severe side effects caused by our product candidates, or by products or product candidates of other companies that are thought to have similarities with our product candidates, could result in the delay, suspension,
24
clinical hold or termination of clinical trials by us, Institutional Review Boards, Ethics Committees, the FDA, the NMPA, the PMDA or other regulatory authorities for a number of reasons. If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenue from any of these product candidates would be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent market acceptance of the product candidate at issue. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
Additionally, for CARVYKTI or any other of our product candidates that receives marketing approval, if we or others later identify undesirable side effects caused by that product or product candidate, including during any long-term follow-up observation period recommended or required for patients who receive treatment using the product or product candidate or during additional clinical trials or required Risk Evaluation and Mitigation Strategy ("REMs"), a number of potentially significant negative consequences could result, including:
•regulatory authorities may withdraw approvals of such product or product candidate;
•regulatory authorities may require additional warnings on the label;
•if a REMs is not already required for such product or product candidate, we may be required to create a REMs or similar risk management plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers and/or other elements to assure safe use;
•we could be sued and held liable for harm caused to patients; and
•our reputation may suffer.
For example, in December 2023, the FDA approved a label update for CARVYKTI to include additional efficacy and safety information from longer-term follow-up (median duration of 28 months) of the CARTITUDE-1 study.
In this CARVYKTI label update, the following sentence was added to the Boxed Warning of the U.S. Prescribing Information: “Secondary hematological malignancies, including myelodysplastic syndrome and acute myeloid leukemia, have occurred following treatment with CARVYKTI.” In addition, in November 2023, the FDA announced that it was investigating a serious safety signal of T-cell malignancies identified in patients who received treatment with BCMA-directed or CD19-directed autologous CAR-T cell immunotherapies. The FDA considered this information to be ‘new safety information’ and that it is applicable to all currently approved BCMA-directed and CD19-directed genetically modified autologous CAR-T cell immunotherapies, including CARVYKTI. In January 2024, the FDA announced that it has determined that new safety information should be included in the labeling of all BCMA- and CD19-directed genetically modified autologous CAR-T cell immunotherapies, including CARVYKTI.
Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular product or product candidate, if approved, and could significantly harm our business, results of operations and prospects.
If the clinical trials of any of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, the NMPA, the EMA, the PMDA or other comparable regulatory authorities, or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
We may not commercialize, market, promote or sell any product candidate without obtaining marketing approval from the FDA, the NMPA, the European Commission, the PMDA or other comparable regulatory authority, and we may never receive such approvals for our product candidates in development. It is impossible to predict accurately when or if any of these product candidates will prove effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each proposed indication. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of clinical development.
25
We may experience numerous unforeseen events prior to, during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any of our product candidates, including:
•the FDA, the NMPA, the EMA, the PMDA or other comparable regulatory authority may disagree as to the number, design or implementation of our clinical trials, or may not interpret the results from clinical trials as we do;
•regulators or institutional review boards or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we may not reach agreement on acceptable terms with prospective clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;
•clinical trials of our product candidates may produce negative or inconclusive results;
•we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
•the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate or we may fail to recruit eligible patients to participate in a trial;
•our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
•regulators may issue a clinical hold, or regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
•the cost of clinical trials of our product candidates may be greater than we anticipate;
•the FDA, the NMPA, the PMDA or other comparable regulatory authorities may fail to approve our manufacturing processes or facilities;
•the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;
•our product candidates may have undesirable side effects or other unexpected characteristics, particularly given their novel, first-in-human application, such as cytokine-induced toxicity and T cell aplasia, causing us or our investigators, regulators or institutional review boards to suspend or terminate the clinical trials; and
•the approval policies or regulations of the FDA, the NMPA, the EMA, the PMDA or other comparable regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
To the extent that the results of the trials are not satisfactory for the FDA, the NMPA, the European Commission, the PMDA or regulatory authorities in other countries or jurisdictions to approve the BLA, marketing authorization application, new drug application ("NDA"), or other comparable applications, the commercialization of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
CARVYKTI and our product candidates are biologics and their manufacture is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our product candidates for commercialization and clinical trials could be delayed or stopped.
We have developed a robust process for manufacturing CAR-T cells with desired quality, and we have improved the viral transduction process to help eliminate processing inconsistencies. We believe that our current processes are suitable for full-scale commercialization. While we have established a process which we believe is scalable for full-scale commercial production, each manufacturing process must be validated through the performance of process validation runs to guarantee that the facility, personnel, equipment, and process work as designed. We have not yet manufactured or processed most of our product candidates on a commercial scale and may not be able to do so for any of our product candidates.
We, like other manufacturers of biologic products, may encounter difficulties in production, particularly in scaling up or out, validating the production process, and assuring high reliability of the manufacturing process. These problems
26
include delays or breakdowns in logistics and shipping, difficulties with production costs and yields, quality control, and product testing, operator error, lack of availability of qualified personnel, as well as failure to comply with strictly enforced federal, state and foreign regulations.
Furthermore, if microbial, viral or other contaminations are discovered in our supply of products or product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any of these or other issues relating to our manufacturing will not occur in the future. Any delay or interruption in the supply of commercial product could delay our commercialization program, result in regulatory scrutiny, damage our reputation and impede our profitability. Any delay or interruption in the fulfillment of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials at additional expense or terminate clinical trials completely.
The manufacture and delivery of autologous CAR-T cell therapies to patients involves complex, integrated processes, including harvesting T cells from patients, programming the T cells ex vivo, multiplying the CAR-T cells to obtain the desired dose, and ultimately infusing the CAR-T cells back into a patient’s body. As a result of the complexities, the cost to manufacture biologics in general, and our CAR-T cell product candidates in particular, is generally higher than traditional small molecule chemical compounds, and the manufacturing process is more variable and is more difficult and costly to reproduce. In addition, our manufacturing process is susceptible to product loss or failure due to logistical issues associated with the collection of white blood cells from the patient, shipping such patient material to the manufacturing site, storing and processing such patient material, shipping the patient material with the CAR-T cells back to the patient, and infusing the patient with the final product. Other manufacturing issues include the differences in patient starting materials, inconsistency in cell growth, variability in product characteristics, interruptions in the manufacturing process, equipment or reagent failure, improper installation or operation of equipment, and vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. If we lose, destroy or otherwise impair the patient materials at any point in the vein-to-vein supply chain, the manufacturing process for that patient may need to be restarted and the resulting delay may adversely affect that patient’s outcome due to the risk of disease progression. In addition, because our products and product candidates are manufactured for each particular patient, we are required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed through preclinical to late stage clinical trials toward approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.
Our manufacturing facilities also require commissioning and validation activities to demonstrate that they operate as designed, and are subject to government inspections by the FDA, the NMPA, the EMA, the PMDA and other comparable regulatory authorities. If we are unable to reliably produce products to specifications acceptable to the regulatory authorities, we may not obtain or maintain the approvals we need to manufacture our products. Further, our facilities may fail to pass government inspections prior to or after the commercial launch of our product candidates, which would cause significant delays and additional costs required to remediate any deficiencies identified by the regulatory authorities. Any of these challenges could interrupt the supply of commercial product, impair commercialization efforts, cause us to fail to meet expectations for product sales, delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
Furthermore, for any CMOs with which we and Janssen have engaged or may engage, production by these CMOs will be subject to the same risks and uncertainties we encounter with respect to our manufacturing facilities and our manufacture of CARVYKTI.
The process for treating cancer patients using T cell therapy is subject to human and systemic risks.
The “vein-to-vein” cycle for treating cancer patients using autologous T cell therapy typically takes approximately four to six weeks and involves a large number of steps and human participants. First, the patient’s lymphocytes are isolated by apheresis at the clinical site and shipped to the manufacturing site. Under current good manufacturing practices ("cGMP") conditions at the manufacturing site, the patient’s lymphocytes are thawed and washed, and then enriched for
27
CD3-positive T cells using specialized reagents. After overnight culture and T cell activation, the T cells are transduced using lentiviral vector transduction technology to introduce the CAR genetic construct into the enriched T cell population. At the completion of T cell transduction, the T cells are expanded for several days, harvested, formulated into the final drug product and then cryopreserved for delivery to patients. In both the United States and China, samples of the final product are subjected to several release tests which must fulfill specified criteria for the product to be released for infusion. These include sterility, identity, purity, potency and other tests. We are subject to stringent regulatory and quality standards in the course of a T cell therapy treatment process. We cannot assure you that our quality control and assurance efforts will be successful or that the risk of human or systemic errors in these processes can be eliminated.
Prior treatments can alter the cancer and negatively impact chances for achieving clinical activity with our CAR-T cells.
Patients with hematological cancers typically receive highly toxic chemotherapy as their initial treatments. Such treatments can impact the viability of the T cells collected from the patient and may contribute to highly variable responses to CAR-T cell therapies. Patients could also have received prior therapies that target the same target antigen on the cancer cells as our intended programmed CAR-T cell product or product candidates, which could result in these patients having cancer cells with low or no expression of the target. As a result, our CAR-T cell product candidates may not recognize the cancer cell and may fail to achieve clinical activity. Our lead product candidate, cilta-cel (which was approved by the FDA and the European Commission under the trademark CARVYKTI), faces this challenge. For example, MM patients could have received a BCMA-targeting antibody drug conjugate BCMA-ADC, like GSK2857916, BCMA targeting T cell engagers, like AMG-420 (Amgen) and CC-93269 (Bristol-Myers Squibb), or similar products or product candidates prior to receiving cilta-cel. If any of our product candidates do not achieve a sufficient level of clinical activity, we may discontinue the development of that product candidate, which could have an adverse effect on the value of our ADSs.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or have a greater likelihood of success.
Because we have limited financial and management resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay the pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
Risks Related to Our Business Operations
As a company with substantial operations outside of the United States, our business is subject to economic, political, regulatory and other risks associated with international operations.
As a company with substantial operations in the EU and China, our business is subject to risks associated with conducting business outside the United States. Many of our suppliers and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
•economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;
•differing and changing regulatory requirements for product approvals;
•differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;
•potentially reduced protection for intellectual property rights;
•difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;
•changes in non-U.S. regulations and customs, tariffs and trade barriers;
•changes in non-U.S. currency exchange rates of the U.S. dollar, euro, RMB and currency controls;
•changes in a specific country’s or region’s political or economic environment;
28
•trade protection measures, import or export licensing requirements or other restrictive actions by governments;
•differing reimbursement regimes and price controls in certain non-U.S. markets;
•negative consequences from changes in tax laws;
•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of options and restricted share units granted under our incentive equity plans;
•workforce uncertainty in countries where labor unrest is more common than in the United States;
•litigation or administrative actions resulting from claims against us by current or former employees or consultants individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification or other violations of labor law or other alleged conduct;
•difficulties associated with staffing and managing international operations, including differing labor relations;
•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
•business interruptions resulting from geo-political actions, including war and terrorism, failure of financial institutions, health epidemics, or natural disasters including earthquakes, typhoons, floods and fires.
See “Risks Related to Doing Business in China” for additional risks related to our operations in China.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2023, we had approximately 1,800 full-time employees. As our development and commercialization plans progress and strategic plans expand and develop, and as we mature as a public company, we expect to need additional managerial, operational, financial and other personnel, including personnel to support our product development and both current and planned future commercialization efforts. Future growth will impose significant added responsibilities on members of management, including:
•identifying, recruiting, integrating, maintaining and motivating additional employees;
•managing our internal development efforts effectively, including the clinical, FDA, NMPA, EMA and PMDA review processes for our product candidates; and
•improving our operational, financial and management controls, reporting systems and procedures.
There are a small number of individuals with experience in cell therapy and the competition for these individuals is high. Our future financial performance and our ability to effectively commercialize our product candidates depends, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
If we are not able to effectively expand our organization by hiring new employees, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
In addition to expanding our organization, we are increasing the size of our facilities and building out our development and manufacturing capabilities, which requires significant capital expenditures. If these capital expenditures are higher than expected, it may adversely affect our financial condition and capital resources. In addition, if the increase in the size of our facilities is delayed, it may limit our ability to rapidly expand the size of our organization in order to meet our corporate goals.
Our future success depends on our ability to retain key members of senior management and to attract, retain and motivate qualified personnel.
Our ability to compete in the highly competitive biopharmaceutical industry depends upon our ability to attract and retain highly qualified management, research and development, clinical, financial and business development personnel. We are highly dependent on our management, scientific and medical personnel, any of whom may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our employees.
29
Recruiting and retaining qualified managerial, financial, scientific, advisory, clinical, commercialization, manufacturing, and sales and marketing personnel, will be critical to our success. The loss of the services of members of our senior management or other key employees or advisors could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing members of our senior management and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our product candidates. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers, as well as junior, mid-level and senior scientific and medical personnel. Competition to hire from this limited candidate pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high-quality personnel, our ability to pursue our growth strategy will be limited.
If we engage in future acquisitions or strategic collaborations, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.
From time to time, we may evaluate various acquisitions and strategic collaborations, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses, as we may deem appropriate to carry out our business plan. Any potential acquisition or strategic collaboration may entail numerous risks, including:
•increased operating expenses and cash requirements;
•the assumption of additional indebtedness or contingent liabilities;
•assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;
•the diversion of our management’s attention from our existing programs and initiatives in pursuing such a strategic partnership, merger or acquisition;
•retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;
•risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals;
•regulatory risks, including approvals and clearances that may be required by the Committee for Foreign Investment in the United States or antitrust authorities; and
•our inability to generate revenue from acquired technology sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
Additionally, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large onetime expenses and acquire intangible assets that could result in significant future amortization expenses. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.
Our internal information technology systems, or those of our third-party vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a significant disruption of our product development programs, expose us to regulatory investigations, give rise to significant liability, subject us to costly and protracted litigation, cause significant reputational harm and interfere with our ability to operate our business effectively.
In the ordinary course of business, we collect, store, and transmit (collectively “process”) sensitive information, including but not limited to intellectual property, proprietary business information, and personal information such as health-related data. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such sensitive information. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to our sensitive information.
30
Our internal information technology systems and those of our current and any future third-party vendors, collaborators and other contractors or consultants may be vulnerable to a variety of evolving threats, including but not limited to social-engineering attacks (including through deep fakes, which may be increasingly more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), malware, (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, earthquakes, fires, floods, terrorism, war and telecommunication, electrical failures and other similar threats. In particular, the risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. In addition, a breach or disruption of our systems could occur as a result of an intentional or unintentional action or lack of action by a person inside of our network with authorized access. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors.
While we have not experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations or a loss of, or damage to, our data or applications, or those of our third-party vendors and other collaborators, contractors and consultants, it could result in a disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information, significant delays or setbacks in our research, or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur significant liability, our competitive position could be harmed, our reputation could be damaged, and the further development and commercialization of our product candidates could be delayed. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. In addition, any such event that leads to unauthorized access, use, or disclosure of personal information, including sensitive information regarding our customers or employees, could compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. The costs related to significant security breaches or disruptions could be material and we cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
Our ability to monitor third-party vendors and other collaborators, contractors and consultants; information security practices is limited, and these third parties may not have adequate information security measures in place. If the information technology systems of these third parties become subject to disruptions or security breaches, we may be exposed to material liability and have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. While we may be entitled to damages if our third-party service providers fail to satisfy their data privacy or security-related obligations to us, any awards may be insufficient to cover our damages, or we may be unable to recover such award.
We are or may become subject to a variety of stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security, and our failure or failure of our third-party vendors, collaborators, contractors or consultants to comply with existing or future laws and regulations related to privacy or data security could lead to government enforcement actions, which could include civil or criminal fines or penalties, private litigation, other liabilities, disruptions of our business operations, reputational harm, and/or adverse publicity. Compliance or the failure to comply with such laws could increase the costs, could limit their use or adoption, and could otherwise negatively affect our operating results and business.
In the ordinary course of business, we maintain and process, and our third-party vendors, collaborators, contractors and consultants maintain and process on our behalf, personal data, and other sensitive information in connection with our commercialization and development activities and our employees. Our data processing activities may, subject us to the numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and safety security policies, contractual requirements and other obligations relating to data privacy and
31
security. Any actual or perceived failure by us, our third- party vendors, collaborators, contractors and consultants to comply with applicable data privacy and security obligations could result in government enforcement actions (e.g. investigations, fines , penalties, audits, inspections, and similar actions); litigation (including class-action claims), additional reporting requirements and oversight; bans on processing personal data; orders to destroy or not use personal data; fines; imprisonment of company officials and public censure; claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.
Further, because the interpretation and application of health-related and data protection laws, regulations, standards, and other obligations are still uncertain, and often contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules.
Regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning data protection. On April 2, 2018, the General Office of the PRC State Council promulgated the Measures for the Management of Scientific Data (the "Scientific Data Measures"), which provide a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, any scientific data involving state secret, state security, social public interests, commercial secret or personal privacy may not be open and shared; where openness is indeed needed, the purpose, user’s qualification, conditions of confidentiality and other factors shall be reviewed, and the informing scope shall be strictly controlled. Further, any researcher conducting research funded, at least in part, by the PRC government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal.
The Cyber Security Law of the PRC, which became effective in June 2017, created China’s national-level data protection for “network operators,” which may include all organizations in China that provide services over the internet or another information network. Numerous regulations, guidelines and other measures are expected to be adopted under the umbrella of the Cyber Security Law. Furthermore, the Opinions on Strictly Cracking Down on Illegal Securities Activities, which were issued by the General Office of the State Council and another authority on July 6, 2021, requires the speed-up of the revision of the provisions on strengthening the confidentiality and archives management related to overseas issuance and listing of securities, and improvement to the laws and regulations related to data security, cross-border data flow, and management of confidential information. The Data Security Law, which was promulgated by the Standing Committee of PRC National People’s Congress (the "SCNPC"), on June 10, 2021 and became effective on September 1, 2021, outlines the main system framework of data security protection. The Personal Information Protection Law promulgated by the SCNPC on August 20, 2021 and which became effective on November 1, 2021 outlines the main system framework of personal information protection and processing.
The Measures for Cyber Security Review (2021) were published by the Cyberspace Administration of China (“CAC”) and 12 other relevant PRC government authorities on December 28, 2021 and became effective on February 15, 2022. These measures provide that, among other things, (i) if a “network platform operator” that possesses personal information of more than one million users intends to go public in a country other than Greater China, it must apply for a cyber security review with the cyber security review office; and (ii) the relevant PRC governmental authorities may initiate cyber security review if they determine certain network products, services, or data processing activities affect or may affect national security.
On July 7, 2022, the CAC published the Measures on Security Assessment of Cross-border Transfer of Data, which became effective on September 1, 2022 and provides that a data processor is required to apply for security assessment for cross-border data transfer in any of the following circumstances: (i) where a data processor provides critical data abroad; (ii) where a Critical Information Infrastructure Operators or a data processor which processes personal information of more than 1,000,000 individuals provides personal information abroad; (iii) where a data processor has provided personal information in the aggregate of 100,000 individuals or sensitive personal information of 10,000 individuals abroad since January 1 of the previous year; or (iv) other circumstances prescribed by the CAC for which declaration for security assessment for cross-board transfer of data is required.
The draft Regulations for the Administration of Cyber Data Security (the "Draft Data Security Regulations"), published by the CAC on November 14, 2021 for public comments until December 13, 2021 reiterate that a data processor who processes personal information of more than one million individuals shall go through the cyber security review if it intends to be listed in a country other than Greater China, and if a data processor conducts any data processing activities that affect or may affect national security, an application for cyber security review shall also be made by such processor.
32
And the Draft Data Security Regulations require data processors processing important data or being listed outside China shall carry out data security assessment annually by itself or through a third-party data security service provider and submit assessment report to local agency of the CAC. The Draft Data Security Regulations provide a broad definition of data processing activities, including collection, storage, usage, processing, transfer, provision, publication, deletion and other activities, and the Draft Data Security Regulations also provide a broad definition of data processors as individuals and entities which autonomously determine the purpose and method during data processing activities. However, the Draft Data Security Regulations provide no further elaboration on what constitutes a situation that “affects or may affect national security” and are subject to further changes before being formally adopted and coming into effect.
As of the date of this Annual Report, the rules and implementations of the Measures for Cyber Security Review (2021) and the Measures on Security Assessment of Cross-border Transfer of Data are limited, and the Draft Data Security Regulations are still in draft forms and have not come into effect, and the PRC governmental authorities may have wide discretion in the interpretation and enforcement of these laws and regulations. It also remains uncertain whether the future regulatory changes would impose additional restrictions on companies like us. We cannot predict the impact of the Draft Data Security Regulations, if any, at this stage, and we will closely monitor and assess any development in the rulemaking process. If the enacted version of the Draft Data Security Regulations requires any clearance of cyber security review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all. If we are not able to comply with the cyber security and data privacy requirements in a timely manner, or at all, we may be subject to government enforcement actions and investigations, fines, penalties, or suspension of our non-compliant operations, among other sanctions, which could materially and adversely affect our business and results of operations. We have been making constant efforts to comply with the relevant data protection laws and regulations in the PRC and will endeavor to comply with any update in the applicable laws, regulations or guidelines as issued by any relevant regulatory authorities in the PRC. However, we cannot assure you that we are able to comply with any applicable privacy and data security laws, regulations and guidelines in a timely manner, or at all.
In addition, certain industry-specific laws and regulations affect the collection, use and transfer of personal data in China. For example, the PRC State Council promulgated Regulations on the Administration of Human Genetic Resources (effective in July 2019), which require approval/filing from the Science and Technology Administration Department of the PRC State Council where human genetic resources are involved in any international collaborative project and additional approval, filing and backup for any export or cross-border transfer of the human genetic resources samples or associated data or for providing/offering access of the information on human genetic resources to non-PRC entities and the institutions established or actually controlled thereby. We cannot assure you that we have complied or will be able to comply with all applicable human genetic resources related regulations. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices, potentially resulting in confiscation of human genetic resources samples and associated data and administrative fines. As there are still uncertainties regarding the further enacting of new laws and regulations as well as the revision, interpretation and implementation of those existing laws and regulations, we cannot assure you that we will be able to comply with such regulations in all respects, and we may be ordered to make rectification and terminate any actions that are deemed illegal by the regulatory authorities and become subject to fines and/or other sanctions. As a result, we may be required to suspend our related businesses or face other penalties which may have material adverse effect on our business, operations and financial condition.
We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws, regulations, standards and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of health-related and data protection laws, regulations, standards and other obligations are still uncertain, and often contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations may differ from country to country, and may vary based on whether testing is performed in the U.S. or in the local country and our operations or business practices may not comply with these regulations in each country.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we or our third-party vendors, collaborators, contractors and consultants fail to comply with any such laws or regulations, we may face regulatory investigations, significant fines and penalties, reputational damage or be
33
required to change our business practices, all of which could adversely affect our business, financial condition and results of operations.
In May 2018, the General Data Protection Regulation (the "EU GDPR"), took effect in the European Economic Area (the "EEA"), where we have growing operations. Further, the United Kingdom has implemented a legislation similar to the EU GDPR, the ("UK GDPR"), including the UK Data Protection Act. The EU and UK GDPR govern the collection, use, disclosure, transfer or other processing of personal data of persons who are in the EU or in the UK. Among other things, the EU and UK GDPR impose requirements regarding the security of personal data and notification of data processing obligations to the competent national data protection authorities, establish a limited range of lawful bases on which personal data can be processed, expand the definition of personal data and requires changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators. In addition, the EU and UK GDPR, impose substantial fines for breaches and violations. For example, under the EU GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million euros or 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests.
In the ordinary course of business, we may transfer personal data from the EEA, United Kingdom and other jurisdictions to the United States or other countries. The EEA, United Kingdom and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the EEA and the United Kingdom have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and United Kingdom to the United States in compliance with law, such as the EEA and United Kingdom’s standard contractual clauses, and the EU-U.S. Data Privacy Framework (which allows for transfers for relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
If there is no lawful manner for us to transfer personal data from the EEA, the United Kingdom or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the EEA and United Kingdom to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of the EEA for allegedly violating the EU GDPR’s cross-border data transfer limitations.
In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws. Each of these constantly evolving laws can be subject to varying interpretations. For example, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH"), establish specific requirements related to the privacy, transmission, and security of individually identifiable health information, that constitutes protected health information. Enforcement of HIPAA and its regulations can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources.
Further, the California Consumer Privacy Act of 2018 ("CCPA") applies to personal information of consumers, business representatives, and employees, and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights. The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA increases compliance costs and potential liability with respect to other personal data we maintain about California residents.
In addition, the California Privacy Rights Act of 2020 (“CPRA”) expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and establishing a new regulatory agency to implement and enforce the law. Other states, such as Virginia, Colorado, Utah, and Connecticut have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and
34
local levels. While these states, like the CCPA, also exempt some data processed in the context of clinical trials, these developments further complicate compliance efforts, and increase legal risk and compliance costs for us, the third parties upon whom we rely.
Many statutory requirements, both in the United States and abroad, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S. states and the District of Columbia require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to notify customers or other counterparties of a security breach. Any contractual protections we may have from our third-party service providers, contractors or consultants may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections.
We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws, regulations, standards and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of health-related and data protection laws, regulations, standards and other obligations are still uncertain, and often contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country and our operations or business practices may not comply with these regulations in each country.
Compliance with these and any other applicable data privacy and security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we or our third-party vendors, collaborators, contractors and consultants fail, or are perceived to fail, to comply with any such laws or regulations, we may face regulatory investigations, significant fines and penalties, reputational damage or be required to change our business practices, all of which could adversely affect our business, financial condition and results of operations.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our vendors and suppliers, could be subject to earthquakes, power shortages, telecommunications failures, failures of financial institutions, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We currently rely on third-party suppliers to produce and process our product candidates on a patient-by-patient basis. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.
Terrorist attacks and international hostilities and instability in any region could adversely affect our business.
Terrorist attacks, the outbreak of war, or the existence of international hostilities could damage the world economy, adversely affect the global supply chain and adversely affect both our ability to sell our products to certain regions or purchase supplies from such regions. In particular, the warfare and political turmoil in Ukraine could adversely impact our financial condition, result of operations and cash flows. In February 2022, Russian troops invaded Ukraine. Although the severity and duration of the ongoing military action are highly unpredictable, the Russia-Ukraine military conflict in Ukraine could materially disrupt our operations in Europe and/or increase their costs. In addition, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions being levied by the EU, the U.S. and other countries against Russia, Belarus and the two separatist republics in the Donetsk and Luhansk regions, with additional potential sanctions threatened and/or proposed. Russia’s military incursion and the resulting sanctions could adversely affect the global economy and
35
financial markets and thus could affect our business, operations, operating results and financial condition as well as, potentially, the price of our ordinary shares and ADSs.
In the previous fiscal years ended December 31, 2022 and December 31, 2021, we identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise if we fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our reporting obligations.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
On October 19, 2022, the Audit Committee (the “Audit Committee”) of our board of directors (“Board”), after meeting with management to consider the relevant facts and circumstances, determined that the following financial statements should no longer be relied upon:
•our audited financial statements as of and for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 (the “Affected Audited Financials”); and
•our unaudited financial statements for the interim period ended March 31, 2022 (the “Affected Unaudited Financials”).
We amended and restated (the “Restatement”) the Affected Audited Financials in Amendment No. 1 to our Annual Report on Form 20-F for the fiscal year ended December 31, 2021 and the Affected Unaudited Financials in our report on Form 6-K/A dated February 17, 2023.
As a result of the Restatement, we concluded that there was a material weakness (the "2021 Material Weakness") in our internal control over financial reporting as of December 31, 2021 relating to the lack of adequate review and monitoring of controls over complex agreements, specifically, the Janssen Agreement, and our disclosure controls and procedures were not effective.
Further, in connection with the audit of our financial statements for the fiscal year ended December 31, 2022, we concluded that there was a material weakness (the “2022 Material Weakness” and together with the 2021 Material Weakness, the “Material Weaknesses”) in our internal control over financial reporting as of December 31, 2022 relating to ineffective information technology general controls (“ITGCs”) in the area of privileged and regular user access and change management over key information technology (“IT”) systems that support our financial reporting processes. As a result, the related process-level IT dependent controls and application controls were also ineffective.
For fiscal-year ended December 31, 2023, we remediated the previously identified Material Weaknesses. Related to the 2021 Material Weakness, we implemented the following: (i) additional responsive review and monitoring controls for complex agreements, including the Janssen Agreement, which includes additional review by the Chief Financial Officer and other senior finance staff over critical accounting judgements and estimates, reporting and disclosures; (ii) expanded the capabilities of existing financial reporting personnel through specific continuous training and education in the application of IFRS standards, with a focus on complex agreements, including the Janssen Agreement; (iii) hired additional financial reporting & technical accounting personnel as well as a Corporate Controller with relevant and appropriate IFRS accounting experience, including complex agreements. We also engaged additional external resources to aid and supplement our internal resources in executing this remediation plan. Related to the 2022 Material Weakness, we implemented the following: (i) we implemented a governance, risk and compliance tool ("GRC tool"), which automated previously manual processes within our ITGC environment and was fully effective as of December 31, 2023, and which facilitates a more robust, timely, and precise execution of ITGCs, with a particular emphasis over privileged and regular user access and change management controls over key IT systems that support our financial reporting processes. (ii) strengthened our IT governance, risk, and compliance oversight by adding additional personnel in in that function; (iii) developed and implemented additional training and awareness programs addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on user access; and (iv) strengthened the ITGC review processes, including user access reviews, by adding enhanced guidance on executing ITGCs and adding additional reviews. Based upon our successful implementation of the aforementioned new and enhanced controls, including testing and validating that the controls were operating effectively for a sufficient period of time, we have concluded that the Material Weaknesses were fully remediated as of fiscal year ended December 31, 2023.
As a public company, we must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. We are subject to reporting obligations under U.S.
36
securities laws, including the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). Section 404(a) of the Sarbanes-Oxley Act ("Section 404(a)"), requires that management assess and report annually on the effectiveness of our internal controls over financial reporting and identify any material weaknesses in our internal controls over financial reporting. Pursuant to Section 404(b) of the Sarbanes-Oxley Act ("Section 404(b)"), our independent registered public accounting firm is required to issue an annual attestation report that addresses the effectiveness of our internal controls over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These stringent standards require that our Audit Committee be advised and regularly updated on management’s review of internal control over financial reporting. The presence of material weaknesses, if identified, could result in financial statement errors which, in turn, could lead to errors in our financial reports or delays in our financial reporting, which could require us to restate our operating results or result in our auditors issuing a qualified audit report. In order to maintain effective disclosure controls and procedures and internal controls over financial reporting, we must expend significant resources and provide significant management oversight. There can be no assurance that we will be effective in maintaining adequate internal controls.
If either we are unable to conclude that we have effective internal controls over financial reporting or, our independent auditors are unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls over financial reporting as required by Section 404(b), investors may lose confidence in our operating results, the price of our ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404, we may not be able to remain listed on the Nasdaq Stock Market LLC ("Nasdaq").
We have broad discretion in the use of our cash and cash equivalents and may invest or spend these in ways with which you do not agree.
Our management has broad discretion in the application of our cash and cash equivalents and could spend such cash and cash equivalents in ways that do not improve our results of operations or enhance the value of our ADSs. The failure by our management to apply these amounts effectively could result in financial losses that could have a negative impact on our business, cause the price of our ADSs to decline and delay the development of our product candidates and preclinical program. Pending the use of our cash and cash equivalents, we may invest the same in a manner that does not produce income or that loses value.
Risks Related to Our Dependence on Third Parties
We depend upon our existing collaboration partner, Janssen, and other third parties, and we may depend upon future collaborators (including any licensees and licensors) to commit to the research, development, manufacturing and marketing of our product candidates.
We have a significant collaboration with Janssen for the development and commercialization of cilta-cel. In addition, in November 2023, we entered into a License Agreement with Novartis Pharma AG (the "Novartis License Agreement"), pursuant to which we granted Novartis an exclusive worldwide license to certain of our intellectual property rights in order to develop, manufacture, commercialize and otherwise exploit certain CAR-T cell therapies targeting Delta-like ligand protein 3 (“DLL-3”), including our existing autologous CAR-T cell therapy candidate, which we refer to as “LB2102.”
We may enter into additional collaborations (including licenses and related strategic agreements) for our other product candidates or technologies in development. We cannot control the timing or quantity of resources that our existing or future collaborators will dedicate to research, preclinical and clinical development, manufacturing or marketing of our products. Our collaborators may not perform their obligations according to our expectations or standards of quality. Our collaborators could terminate our existing agreements for a number of reasons, including a material breach of agreement or an unforeseen material safety event. If the Janssen Agreement were to be terminated, we could encounter significant delays or other impairments in the commercialization of CARVYKTI and further developing cilta-cel, lose the opportunity to earn any future revenue we expected to generate under the agreement, incur unforeseen costs, and suffer damage to the reputation of our products, product candidates and as a company generally.
We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and may rely on third-party contract research organizations ("CROs"), to assist us in this process. In addition, to optimize the
37
launch and market penetration of certain of our future product candidates, we may enter into distribution and marketing agreements with pharmaceutical industry leaders. For these future potentially partnered product candidates, we would not market our products alone once they have obtained marketing authorization. The risks inherent in entry into these contracts are as follows:
•the negotiation and execution of these agreements is a long process that may not result in an agreement being signed or that can delay the development or commercialization of the product candidate concerned;
•these agreements are subject to cancellation or non-renewal by our collaborators, or may not be fully complied with by our collaborators;
•in the case of a license granted by us, we lose control of the development of the product candidate licensed;
•in such cases we would have only limited control over the means and resources allocated by our partner for the commercialization of our product; and
•collaborators may not properly obtain, maintain, enforce, or defend our intellectual property or proprietary rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation.
Furthermore, even though Janssen is required to diligently develop and commercialize cilta-cel, it is possible that Janssen will seek to prioritize other products in its portfolio over cilta-cel, including products that may treat conditions that are the same as or are similar to the conditions for which cilta-cel has either received marketing approval or for which we are conducting research for potential future marketing approvals. The development and commercialization of DLL-3 by Novartis will be subject to the same risks and uncertainties described above.
In addition, we rely on data or other information generated or reported to us by our collaborators relating to, among other things, product development, marketing or regulatory approvals and commercialization efforts. Although we believe the information from our collaborators is reliable, we are unable to independently audit or verify the accuracy or completeness of all such data or information, and any inaccuracies may adversely affect our business.
Should any of these risks materialize, or should we fail to find suitable collaborators, this could have a material adverse effect on our business, prospects, financial condition and results of operations.
The revenue generated from the Janssen Agreement has contributed and is expected to contribute a large portion of our revenue for the foreseeable future.
We have entered into the Janssen Agreement in respect of the development of cilta-cel. We received an upfront payment of $350.0 million from Janssen in 2018, and an additional $335.0 million in milestone payments through the date of this Annual Report. Janssen may not execute its obligations as planned or may refuse to honor their commitments under the Janssen Agreement. The non-performance of Janssen, early termination of the Janssen Agreement, or our inability to find new or replacement partners may negatively impact our revenue and research and development activities and funding therefore. Should any of these risks materialize, this would have an adverse effect on our business, prospects, financial condition and results of operations.
If we or our collaborators do not achieve our product development or commercialization objectives in the time frames we expect, we may not receive milestone, royalty or profit payments, and we may not be able to conduct our operations as planned.
We have received and expect to continue to receive payments from Janssen when we satisfy certain pre-specified milestones in the Janssen Agreement. We currently depend to a large degree on these milestone payments from Janssen in order to fund our operations. The milestone payments in the Janssen Agreement are generally dependent on the accomplishment of various clinical, regulatory, sales and other product development objectives. We may enter into new additional collaboration agreements that also provide for milestone payments. For example, pursuant to the Novartis License Agreement, we are eligible to receive from Novartis up to an aggregate of $1.01 billion in milestone payments upon achievement of specified clinical, regulatory and commercial milestones. The successful or timely achievement of many of these milestones is outside of our control, in part because some of these activities are being or will be conducted
38
by our collaborators. If we or our collaborators fail to achieve the applicable milestones, we will not receive such milestone payments. A failure to receive any such milestone payment may cause us to:
•delay, reduce or terminate certain research and development programs or otherwise find ways to reduce short-term expenses that may not be in our long-term best interest;
•raise funds through additional equity or convertible debt financings that could be dilutive to our shareholders;
•obtain funds through collaboration agreements that may require us to assign rights to technologies or products that we would have otherwise retained;
•sign new collaboration or license agreements that may be less favorable than those we would have obtained under different circumstances; and
•consider strategic transactions or engaging in a joint venture with a third party.
Furthermore, we and our collaborators may, from time to time, disagree about whether a particular milestone payment under an agreement has been earned. Although the Janssen Agreement, the Novartis License Agreement and applicable law provide remedies for either party’s failure to perform its obligations, there can be no assurance that we will be paid milestones to which we believe we are entitled and any related dispute with our collaborators may result in a termination of the relevant agreement or otherwise impair our collaborations.
In addition, our share of any profits generated under the Janssen Agreement or any royalties we may receive under the Novartis License Agreement or under any other collaborations we may enter into in the future are dependent on the successful product development and commercialization of our product candidates.
Our failure to receive milestone payments or generate profits or royalties and the occurrence of any of the events above may have a material adverse impact on our business, prospects, financial condition and results of operations.
We rely on Genscript to provide certain services.
We rely on a limited number of services provided by Genscript pursuant to the agreements described in “Item 7 - Major Shareholders and Related Party Transactions - Certain Relationships and Related Party Transactions—Transactions with Genscript.” We do not expect personnel and support staff who provide services to us under these agreements will have as their primary responsibility the management and administration of our business or will act exclusively for us. In addition, Genscript may prioritize its own needs ahead of the services Genscript has agreed to provide us, or Genscript employees who conduct services for us may prioritize Genscript’s interests over our interests. As a result, such individuals will not allocate all of their time and resources to us.
Any failure by Genscript to effectively manage the services that they provide to us could harm our business, financial condition and results of operations.
Additionally, we have been in the process of transitioning away from Genscript for these services to perform them internally, and we expect to continue that process. If we do not have adequate financial resources or personnel and systems in place at the time that we assume responsibilities for such services, we may not be successful in effectively or efficiently transitioning these services from Genscript, which could disrupt our business and have a material adverse effect on our financial condition and results of operations. Even if we are able to successfully transition these services, they may be more expensive or less efficient than the services we are receiving from Genscript during the transition period.
We have entered into, and may in the future enter into, collaboration agreements (including licenses and related strategic transactions) with third parties for the development and commercialization of our product candidates, which may adversely affect our ability to generate revenue.
We have entered into and may seek to enter into additional collaborations with third parties for the development and potential commercialization of our product candidates. Should we seek to collaborate with a third party with respect to a prospective development program, we may not be able to locate a suitable collaborator (including any licensee or licensor) or to enter into an agreement on commercially reasonable terms or at all. Even if we succeed in securing collaborators for the development and commercialization of our product candidates, such as the Janssen Agreement or the Novartis License
39
Agreement, we have limited control over the time and resources that our collaborators may dedicate to the development and commercialization of our product candidates. These collaborations pose a number of risks, including the following:
•collaborators may not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as budget limitations, lack of human resources or a change in strategic focus;
•collaborators may believe our intellectual property is not valid or is unenforceable or the product candidate infringes on the intellectual property rights of others;
•collaborators may dispute their responsibility to conduct development and commercialization activities pursuant to the applicable collaboration, including the payment of related costs or the division of any revenue;
•collaborators may decide to pursue a competitive product developed outside of the collaboration arrangement;
•collaborators may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals; or
•collaborators may delay the development or commercialization of our product candidates in favor of developing or commercializing another party’s product candidate.
Thus, collaborations may not lead to development, regulatory approval, or successful commercialization of product candidates in the most efficient manner or at all. Some collaboration agreements are terminable without cause on short notice. Once a collaboration agreement is signed, it may not lead to regulatory approval and commercialization of a product candidate. We also face competition in seeking out collaborators. If we are unable to secure new collaborations that achieve the collaborator’s objectives and meet our expectations, we may be unable to advance our product candidates and may not generate meaningful revenue.
We rely, and expect to continue to rely, on independent investigators and other third parties to conduct the preclinical and clinical trials for our product candidates, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with applicable regulatory requirements.
We depend and will continue to depend upon independent investigators and collaborators, such as universities, medical institutions, and strategic partners to conduct our preclinical and clinical trials. Agreements with such third parties might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, our product development activities would be delayed.
Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as good laboratory practices and good clinical practices for conducting, recording and reporting the results of preclinical and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Similar regulatory requirements apply outside the United States, including the International Council for Harmonisation of Technical Requirements for the Registration of Pharmaceuticals for Human Use (the "ICH"). We are also required to register certain ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored database within specified time frames. Failure to do so by us or third parties can result in FDA or another regulatory authority refusing to approve applications based on the clinical data, enforcement actions, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or another regulatory authority concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection by the FDA or another regulatory authority. Any such delay or rejection could prevent us from commercializing our clinical-stage product candidates or any future product candidates.
40
Cell-based therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors for access to facilities and supply of certain materials and equipment used in the manufacture of our product candidates. For example, we currently use facilities and equipment at external CMOs as well as supply sources internal to the collaboration for vector supply. Our use of CMOs increases the risk of delays in production or insufficient supplies as we transfer our manufacturing technology to these CMOs and as they gain experience with our supply requirements. In addition, we purchase equipment and reagents critical for the manufacture of our product candidates from Hemacare, Miltenyi, Leukapheresis Collection Center and other suppliers on a purchase order basis. Some of our suppliers may not have the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may not be able to obtain key materials and equipment to support clinical or commercial manufacturing.
For some of these reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.
As we continue to develop and scale our manufacturing process, we may need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business.
Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we will obtain marketing approval to commercialize any product candidate.
Our product candidates and the activities associated with their development and commercialization, including their design, research, testing, manufacture, safety, efficacy, quality control, recordkeeping, labeling, packaging, storage, approval, advertising, promotion, sale, distribution, import, export, and reporting of safety and other post-market information, are subject to comprehensive regulation, including by the FDA, the NMPA, the EMA, the PMDA and other comparable regulatory authorities in other jurisdictions, including the EU. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and may rely on third-party CROs to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. Further, in connection with marketing approval, the accompanying label for a product may limit its approved use, which could limit sales of the product.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Securing marketing approval requires the submission of
41
extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA, the NMPA, the EMA, the PMDA or other regulatory authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing approval we ultimately obtain for a product candidate may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
In addition, changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenue will be impaired.
In order to market and sell our products in the EU, Japan, China and any other international jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval elsewhere may differ substantially from that required to obtain approval from the FDA. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining approval from the FDA. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, failure to obtain approval in one jurisdiction may impact our ability to obtain approval elsewhere. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in other jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product must obtain pricing and/or reimbursement approvals before it can be sold in those jurisdictions.
Obtaining regulatory approvals outside of the United States and compliance with regulatory requirements outside of the United States could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Even if we obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products and compliance with such requirements may involve substantial resources, which could materially impair our ability to generate revenue.
42
Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulatory requirements for manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, sampling, and recordkeeping, including the potential requirements to implement a REMs program (which is a requirement for FDA’s approval of CARVYKTI) or equivalent foreign program or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive regulatory requirements of the FDA, the NMPA, the European Commission, the PMDA and other regulatory authorities, including ensuring that quality control and manufacturing procedures conform to cGMP and other comparable regulations and standards, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We or our suppliers could be subject to periodic unannounced inspections by the FDA, the NMPA, the European Commission, the PMDA or other regulatory authorities to monitor and ensure compliance with cGMP.
Accordingly, we and our suppliers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability.
Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any product candidate for which we obtain regulatory approval could be subject to post-marketing restrictions or recall or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
The FDA and other federal and state agencies, including the U.S. Department of Justice (“DOJ”) and equivalent regulatory authorities outside of the United States closely regulate compliance with all requirements governing prescription products, including requirements pertaining to marketing and promotion of products in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. The FDA, DOJ and equivalent regulatory authorities outside of the United States impose stringent restrictions on manufacturers’ communications regarding off-label use and if we do not market our products for their approved indications, or if other of our marketing claims are deemed false or misleading, we may be subject to enforcement action. Violations of such requirements may lead to investigations alleging violations of the U.S. federal Food, Drug and Cosmetic Act (the "Food, Drug and Cosmetic Act") and other statutes, including the U.S. federal False Claims Act (the "False Claims Act") and other federal, state or foreign health care fraud and abuse laws as well as state or foreign consumer protection laws.
Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our product or any future products, manufacturers or manufacturing processes, may yield various results, including:
•litigation involving patients taking our product or any future products;
•restrictions on such products, manufacturers or manufacturing processes;
•restrictions on the labeling or marketing of any such product;
•restrictions on product distribution or use;
•requirements to conduct post-marketing studies or clinical trials;
•warning or untitled letters;
•withdrawal of such products from the market;
•refusal to approve pending applications or supplements to approved applications that we submit;
•recall of such products;
•fines, restitution or disgorgement of profits or revenue;
43
•suspension, variation or withdrawal of marketing approvals;
•suspension of any ongoing clinical trials;
•damage to relationships with any potential collaborators;
•unfavorable press coverage and damage to our reputation;
•refusal to permit the import or export of such products;
•product seizure; or
•injunctions or the imposition of civil or criminal penalties.
Noncompliance by us or any future collaborator with regulatory requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with regulatory requirements regarding the protection of personal information can also lead to significant penalties and sanctions.
If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could adversely affect our business, financial condition and results of operations.
Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct or failure to comply with applicable regulatory requirements. Misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners, and vendors, could include failures to comply with regulations of the FDA, the NMPA, the EMA, the PMDA and other comparable regulatory authorities, to provide accurate information to such regulators, to comply with manufacturing standards we have established, to comply with healthcare fraud and abuse laws, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and independent contractor misconduct could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory, civil, administrative and criminal sanctions and serious harm to our reputation.
In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. It is not always possible to identify and deter employee and independent contractor misconduct, and any precautions we take to detect and prevent improper activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement of profits, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or other government supported healthcare in other jurisdictions, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with the law and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.
Our business operations and current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to substantial penalties.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current
44
and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may expose us to broadly applicable healthcare laws, including, without limitation, the U.S. federal Anti-Kickback Statute (the "Anti-Kickback Statute"), the U.S. federal False Claims Act and similar foreign regulations, that may constrain the business or financial arrangements and relationships through which we sell, market and distribute any product candidates for which we obtain marketing approval. In addition, we may be subject to physician payment transparency laws and privacy and security regulation by the U.S. federal government and by the states and foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following:
•the Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other hand. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration that are alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been violated;
•U.S. federal civil and criminal false claims laws, including the False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalty laws, which, among other things, impose penalties, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment or approval that are false or fraudulent or knowingly making, using or causing to be made or used a false record or statement material to an obligation to pay or transmit money or property to the government, or knowingly concealing or knowingly and improperly avoiding or, decreasing an obligation to pay or transmit money or property to the federal government. Pharmaceutical and other healthcare companies have been found liable under these laws for, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal healthcare programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Further, pharmaceutical manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government;
•HIPAA, which contains federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program, obtaining, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, knowingly and willfully embezzling, stealing, or otherwise without authority converting to the use of any person other than the rightful owner, or intentionally misapplying any of the moneys, funds, securities, premiums, credits, property, or other assets of a healthcare benefit program, willfully preventing, obstructing, misleading, delaying or attempting to prevent, obstruct, mislead, or delay the communication of information or records relating to a violation of a federal healthcare offense to a criminal investigator and in any matter involving a healthcare benefit program, knowingly and willfully falsifying, concealing or covering up by any trick, scheme, or device a material fact or making any materially false, fictitious, or fraudulent statements or representations, or making or using any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of, or payment for, healthcare benefits, items or services;
•HIPAA, as amended by HITECH, and their respective implementing regulations, which impose obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, and their
45
respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Additionally, HITECH, among other changes, also established four new tiers of civil monetary penalties; amends HIPAA to make business associates of covered entities directly liable for compliance with certain requirements of the federal HIPAA laws and gave state attorneys general new authority to bring civil actions for damages or injunctions on behalf of state residents in the appropriate district court of the United States for violations of the federal HIPAA laws and in the case of any successful action, the court, in its discretion, may award the costs of the action and reasonable attorney fees to the State;
•the Food, Drug and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
•the U.S. federal Physician Payments Sunshine Act, created under Section 6002 of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), and its implementing regulations, created annual reporting requirements for certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions), to report information related for certain payments and “transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare providers (such as nurse practitioners and physicians assistants) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and
•analogous state laws and regulations and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing; state and local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Further, the ACA, among other things, amended the intent requirement of the Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the ACA provided that the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Because of the breadth of these laws and the narrowness of their exceptions and safe harbors, it is possible that our business activities can be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.
Efforts to ensure that our internal operations and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, monetary fines, imprisonment, disgorgement of profits, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with the law and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and pursue our strategy. If any of the physicians or other healthcare providers or entities with whom we expect to do business, including future collaborators, are found not to be in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also affect our business.
46
Our product candidates are subject to government price controls in certain jurisdictions that may affect our revenue.
There has been heightened governmental scrutiny in the United States, China, the EU, Japan and other jurisdictions of pharmaceutical pricing practices in light of the rising cost of prescription drugs. In the United States, such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, Congressional leadership has each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly enacted legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Outside of the United States, particularly in countries within the EU, the pricing and reimbursement of certain pharmaceuticals is subject to governmental control. In these countries, pricing and reimbursement negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some EU countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. Health Technology Assessment (“HTA”), of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some of the member states of the EU (the “EU Member States”), including those representing the larger markets. The HTA process is the procedure to assess therapeutic, economic and societal impact of a given medicinal product in the national healthcare systems of the individual country. The outcome of an HTA will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EU Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product currently varies between EU Member States. On January 31, 2018, the European Commission adopted a proposal for a regulation on health technologies assessment (the “HTA Regulation”). The HTA Regulation is intended to boost cooperation among EU Member States in assessing health technologies, including new medicinal products, and providing the basis for cooperation at EU level for joint clinical assessments in these areas. In December 2021 the HTA Regulation was adopted and entered into force on January 11, 2022. It will apply from 2025. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.
Recently enacted and future legislation in the United States and other countries may affect the prices we may obtain for our product candidates and increase the difficulty and cost for us to commercialize our product candidates.
In the United States and many other countries, rising healthcare costs have been a concern for governments, patients and the health insurance sector, which resulted in a number of changes to laws and regulations, and may result in further legislative and regulatory action regarding the healthcare and health insurance systems that could affect our and our collaborator’s ability to profitably sell any products or product candidates for which we or our collaboration may obtain marketing approval, including CARVYKTI.
For example, the ACA was enacted in the United States in March 2010 with the stated goals of containing healthcare costs, improving quality and expanding access to healthcare, and includes measures to change healthcare delivery, increase the number of individuals with insurance, ensure access to certain basic healthcare services, and contain the rising cost of care. There have been legal and political challenges to certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges and the healthcare reform measures of the Biden administration will impact the ACA.
In addition, other federal health reform measures have been proposed and adopted in the United States that may impact reimbursement by Medicare or other government healthcare programs. For example, as a result of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year and, due to subsequent legislative amendments to the statute, will remain in effect until 2032 unless additional Congressional action is taken. Any reduction in reimbursement from Medicare or other government healthcare programs may result in a similar reduction in payments from private payors, or private payors may independently reduce reimbursement under their health plans.
47
Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several presidential executive orders, Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, at the federal level, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to President Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Services ("HHS") released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Implementation of the new rebate safe harbor has been delayed until January 2032. It is unclear whether the rebate rule will ultimately be withdrawn or modified prior to the January 2032 effective date. The likelihood of implementation of, or willingness to defend, any of the other reform initiatives is uncertain. In addition, the IRA includes a provision requiring the Secretary of HHS to negotiate prices with drug companies for a small number of single-source brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). The number of drugs subject to price negotiation will be 10 Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. These drugs will be selected from among the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending. The law establishes an upper limit for the negotiated price for a given drug or biologic and specifies factors the Secretary of HHS is required to consider when negotiating these upper pricing limits. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. The IRA also imposes rebates under Medicare Part B and Medicare Part D that penalize manufacturers for price increases that outpace inflation. Further in response to the Biden administration’s October 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the CMS Innovation Center which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any health reform measures in the future. Further, on December 7, 2023, the Biden administration announced an initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We cannot predict the likelihood, nature, or extent of health reform initiatives that may arise from future legislation or administrative action. We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price of pharmaceutical products. Failure by us or our collaborators to obtain or maintain adequate coverage and reimbursement for any approved products, including CARVYKTI, could materially and adversely affect the revenue or sales of such products.
In December 2021 the European Parliament adopted the HTA Regulation which, when it enters into application in 2025, will be intended to harmonize the clinical benefit assessment of HTA across the EU. If we are unable to maintain favorable pricing and reimbursement status in EU Member States for product candidates that we may successfully develop and for which we may obtain regulatory approval, any anticipated revenue from and growth prospects for those products in the EU could be negatively affected.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete
48
in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties to sell our products outside the United States, to conduct clinical trials, and/ or to obtain necessary permits, licenses, patent registrations, and other marketing approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on a variety of environmental, social and other sustainability matters. We may experience pressure to make commitments relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation and financial results may suffer. In addition, we may experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals, which could have an adverse impact on our business and financial condition.
In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be adversely impacted.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. In addition, in connection with our operations in China, we have not completed all required safety-related procedures in a timely manner, which could subject us to fines and other administrative penalties.
Although we maintain insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
49
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our technologies and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and biologics similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.
Our success depends, in large part, on our ability to obtain and maintain patent protection in the United States, China, the EU, Japan and other countries with respect to our product candidates and technology. We seek to protect our proprietary position by filing patent applications related to our technology and product candidates in the major pharmaceutical markets, including the United States, China, major countries in Europe and Japan. However, our patent portfolio for such products is currently comprised primarily of applications as our patent portfolio is developing. If we are unable to obtain or maintain patent protection with respect to our proprietary product candidates and technology or do not otherwise adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage that we may have, which could harm our business and ability to achieve profitability.
To protect our proprietary positions, we file patent applications in the United States and other countries related to our novel technologies and product candidates that are important to our business. The patent application and prosecution process is expensive, complex and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications in all potential jurisdictions at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If any current or future licensors or licensees are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair our ability to prevent competition from third parties.
Prosecution of our patent portfolio is at a very early stage. Much of our patent portfolio consists of pending priority applications that are not examined and pending applications under the Patent Cooperation Treaty (the "PCT"). Neither priority applications nor PCT applications can themselves give rise to issued patents. Rather, protection for the inventions disclosed in these applications must be further pursued by applicable deadlines via applications that are subject to examination. As applicable deadlines for the priority and PCT applications become due, we will need to decide whether and in which countries or jurisdictions to pursue patent protection for the various inventions claimed in these applications, and we will only have the opportunity to pursue and obtain patents in those jurisdictions where we pursue protection.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent applications that we own may fail to result in issued patents with claims that cover our current and future product candidates in the United States or in other foreign countries. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, a patent issues from such applications, and then only to the extent the issued claims cover the technology.
If the patents and patent applications we hold with respect to our development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our current and future product candidates, it could threaten our ability to commercialize our product candidates. Any such outcome could have a negative effect on our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the protections offered by laws of different countries vary. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Furthermore, recent changes in patent laws in the United States, may affect the scope, strength, validity and enforceability of our patent rights or the nature of proceedings that may be brought by or against us related to our patent rights. Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of
50
patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, and the U.S. Patent and Trademark Office (the "USPTO"), the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain patents or to enforce any patents that we might obtain in the future.
We may not be aware of all third-party intellectual property rights potentially relating to our current and future product candidates. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Similarly, should we own or in-license any patents or patent applications in the future, we may not be certain that we or the applicable licensor were the first to file for patent protection for the inventions claimed in such patents or patent applications. As a result, the issuance, scope, validity and commercial value of our patent rights cannot be predicted with any certainty. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, post-grant, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, hold unenforceable or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights, which could significantly harm our business and results of operations. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
Our pending and future patent applications may not result in patents being issued that protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection against competing products or processes sufficient to achieve our business objectives, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents, should they issue, by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Any of the foregoing could have a material adverse effect on our business.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could significantly harm our business.
Our commercial success depends, in part, on our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary and modular CAR-T and CAR-NK cell technology without infringing, misappropriating or otherwise violating the intellectual property and other proprietary rights of third parties. Numerous third-party U.S. and non-U.S. issued patents exist in the area of biotechnology, including relating to the modification of immune cells such as T cells and NK cells the production of CAR-T and CAR-NK cells, and including patents held by our competitors.
Third parties, including our competitors, may allege that our product candidates, including cilta-cel, infringe certain of these patents. While we believe that we would have valid defenses against any assertion of such patents against us, such defenses may be unsuccessful. If any of our products is found to infringe any of these patents, we could be required to obtain a license from the respective patent owners, or, if applicable, their licensees, to continue developing, manufacturing,
51
marketing, selling and commercializing such products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving the licensor and other third parties the right to use the same technologies licensed to us, and it could require us to make substantial licensing, royalty and other payments. We also could be forced, including by court order, to permanently cease development, manufacturing, marketing and commercializing the applicable products. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willingly infringed any such patent. Even if we were ultimately to prevail, any litigation could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology or product candidates, including interference proceedings before the USPTO. Intellectual property disputes arise in a number of areas including with respect to patents, use of other proprietary rights and the contractual terms of license arrangements. Third parties may assert claims against us based on existing or future intellectual property rights and claims may also come from competitors against whom our own patent portfolio may have no deterrent effect. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. As we continue to develop and, if approved, commercialize our current and future product candidates, competitors may claim that our technology infringes, misappropriates or otherwise violates their intellectual property rights as part of business strategies designed to impede our successful commercialization. There are and may in the future be additional third-party patents or patent applications with claims to, for example, materials, compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture of any one or more of our product candidates. Moreover, we may fail to identify relevant third-party patents or patent applications, or we may incorrectly conclude that the claims of an issued patent are invalid or are not infringed by our activities. Because patent applications can take many years to issue, third parties may have currently pending patent applications which may later result in issued patents that any of our product candidates may infringe, or which such third parties claim to be infringed by our technologies.
Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity and enforceability. If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required or may choose to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the otherwise infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could require us to make substantial licensing and royalty payments and it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative effect on our business. Even if successful, the defense of any claim of infringement or misappropriation is time-consuming, expensive and diverts the attention of our management from our ongoing business operations. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ADSs. Any of the foregoing could have a material adverse effect on our business.
We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may hold intellectual property rights, including patent rights, that are important or necessary to the development or manufacture of our product candidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms, or at all, and we could be forced to accept unfavorable contractual terms. If we are unable to obtain such licenses on commercially reasonable terms, our business could be harmed.
52
We may become involved in lawsuits to protect or enforce our patents and other intellectual property, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents, if issued, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringed their patents, trademarks, copyrights or other intellectual property. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patents do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ADSs. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel for significant periods of time during such litigation could outweigh any benefit we receive as a result of the proceedings. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating or successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a negative impact on our ability to compete in the marketplace.
Changes in U.S., European and Chinese patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents and may affect the scope, strength and enforceability of our patent rights or the nature of proceedings that may be brought by or against us related to our patent rights. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (the "America Invents Act"), enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
In China, intellectual property laws are constantly evolving, with efforts being made to improve intellectual property protection in China. For example, on June 1, 2021, an amendment to the PRC Patent Law went into effect introducing patent extensions to eligible innovative drug patents and on January 20, 2024, the implementing rules under this amendment became effective. As such, patents owned by third parties may be extended, which may in turn affect our ability to commercialize our products (if approved) without facing infringement risks. The adoption of the amendments may enable the patent owner to submit applications for a patent term extension. The length of any such extension is uncertain. If we are required to delay commercialization for an extended period of time, technological advances may develop and new products may be launched, which may render our product non-competitive. We also cannot guarantee that
53
other changes to Chinese intellectual property laws would not have a negative impact on our intellectual property protection.
In European countries, as in other countries, intellectual property laws are constantly evolving. As an example, the Unitary Patent and the Unified Patent Court became operational on June 1, 2023 and introduces uncertainties in the pharmaceutical patent landscape within all participating European countries. We cannot guarantee the enforceability of patents in this new patent and court system and face new centralized challenges to patents that could render patents unenforceable across participating member states, introducing a new risk to our patent portfolio in Europe. We cannot guarantee that other changes to European intellectual property laws would not have a negative impact on our intellectual property protection.
Even if we are able to obtain patent protection for our product candidates, the life of such protection, if any, is limited, and third parties could develop and commercialize products and technologies similar or identical to ours and compete directly with us after the expiration of our patent rights, if any, and our ability to successfully commercialize any product or technology would be materially adversely affected.
The life of a patent and the protection it affords is limited. For example, in the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Even if we successfully obtain patent protection for an approved product candidate, it may face competition from generic or biosimilar medications. Manufacturers of generic or biosimilar drugs may challenge the scope, validity or enforceability of our patents in court or before a patent office, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which would materially adversely affect any potential sales of that product.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our patents and patent applications may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Even if we believe that we are eligible for certain patent term extensions, there can be no assurance that the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, will agree with our assessment of whether such extensions are available, and such authorities may refuse to grant extensions to our patents, or may grant more limited extensions than we request. The pending patent applications, if issued, for our product candidates are expected to expire on various dates as described in “Business—Intellectual Property.” Upon the expiration of our patents that may issue from our pending patent applications, we will not be able to assert such patent rights against potential competitors, which would materially adversely affect our business, financial condition, results of operations and prospects.
Our product candidates may face competition sooner than anticipated from biosimilar products.
Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, our product candidates may face competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biologic products and we intend to seek approval for these product candidates pursuant to the BLA pathway. The Biologics Price Competition and Innovation Act of 2009 (the "BPCIA"), created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.
There is a risk that any exclusivity we may be afforded if any of our product candidates are approved as a biologic product under a BLA could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic or biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. In addition, a competitor could decide to forego the biosimilar approval path and submit a full BLA after completing its own preclinical studies and clinical trials. In such cases, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its product as soon as it is approved.
54
In Europe, the European Commission has granted marketing authorizations for several biosimilar products pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In Europe, a competitor may reference data supporting approval of an innovative biological product, but will not be able to market it until 10 years after the time of approval of the innovative product. This 10-year marketing exclusivity period may be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilar products in other countries that could compete with our products, if approved.
If competitors are able to obtain marketing approval for biosimilars referencing our product candidates, if approved, such products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences. Such competitive products may be able to immediately compete with us in each indication for which our product candidates may have received approval.
We may be subject to claims by third parties asserting that we or our employees, consultants or advisors have misappropriated, wrongfully used or disclosed their trade secrets or other intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees, consultants and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of third parties in their work for us, we may be subject to claims that we or these individuals have inadvertently or otherwise used intellectual property, including trade secrets or other proprietary information, of any such individual’s former employer. We may also in the future be subject to claims that we have caused such individual to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these potential claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, such employees and contractors may breach the agreement and claim the developed intellectual property as their own.
Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A court could prohibit us from using technologies or features that are essential to our product candidates if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and could be a distraction to management. In addition, any litigation or threat thereof may adversely affect our ability to hire employees or contract with independent service providers. Moreover, a loss of key personnel or their work product could hamper or prevent our ability to commercialize our products.
We may be subject to claims challenging the inventorship or ownership of our patent rights and other intellectual property.
We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, disputes may arise from conflicting obligations of consultants or others who are involved in developing our technology and product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
55
Any trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business.
We expect to rely on trademarks as one means to distinguish any of our product candidates that are approved for marketing from the products of our competitors. Except for the Chinese trademark for cilta-cel, we have not yet selected trademarks for our product candidates and have not yet begun the process of applying to register trademarks for our product candidates. Once we select trademarks and apply to register them, our trademark applications may not be approved. Third parties may oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks and we may not have adequate resources to enforce our trademarks.
In addition, any proprietary name we propose to use with our clinical-stage product candidates or any other product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent and trademark protection for our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In addition, we may not be able to obtain adequate remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
Moreover, our competitors or other third parties may independently develop knowledge, methods and know-how equivalent to our trade secrets. Competitors or other third parties could purchase our products and replicate some or all of the competitive advantages we derive from our development efforts for technologies on which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third parties, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third parties, our competitive position would be harmed.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. In some cases, we may not be able to obtain patent protection for certain technology outside the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States, even in jurisdictions where we do pursue patent protection. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where we do pursue patent protection or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product
56
candidates and preclinical programs and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents, if pursued and obtained, or marketing of competing products in violation of our proprietary rights generally.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and patent agencies outside the United States in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or product candidates, our competitors might be able to enter the market, which would harm our business.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
•others may be able to make products that are similar to any product candidates we may develop or utilize similar technology but that are not covered by the claims of the patents that we may own or license now or in the future;
•we, or any future license partners or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or license now or in the future;
•we, or any future license partners or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;
•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
•it is possible that our pending patent applications or those that we may own in the future will not lead to issued patents;
•issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;
•our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
•we may not develop additional proprietary technologies that are patentable; and
57
•we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Risks Related to Doing Business in China
References to “foreign” in this section entitled “Risks Related to Doing Business in China” refer to non-PRC countries and regions, unless the context indicates otherwise.
The pharmaceutical industry in China is highly regulated and such laws and regulations are subject to change which may affect approval and commercialization of our drugs.
A material portion of our research and development operations and our manufacturing facilities for China are located in China, which we believe confers clinical, commercial and regulatory advantages. The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. See “Item 4.B. Information On The Company—Business Overview—Government Regulation— PRC Regulation” of this Annual Report for a discussion of the regulatory requirements that are applicable to our current business activities in China. For example, approval from the relevant science and technology departments is required in international collaboration projects using China’s human genetic resources except for in certain circumstances stipulated in the HGR Regulation. Due to certain restrictions of practical operations which are beyond our control, we cannot assure you that we have obtained all required approvals under China’s human genetic resources laws and regulations in a timely manner, or at all. We are paying attention to regulatory trends and are in the process of applying for and obtaining such approvals from the relevant regulatory authority. The failure to obtain such approval could cause relevant international collaboration projects to be suspended by governing authorities, may result in fines and other penalties, and also may constitute a breach under our agreements with certain CROs. According to PRC laws and regulations, entities are required to obtain an export certificate from governmental authorities if they plan to transport, mail or carry China’s human genetic resources out of China in projects of international collaboration in scientific research by using China’s human genetic resources. The export certificate for China’s human genetic resources is a requirement of customs formalities. The failure to obtain such export certificate in relevant export activities could cause governmental authorities to suspend such activities, confiscate the human genetic resources illegally collected and preserved and illegal gains, impose fines and restrictions on business activities such entities and their responsible persons, and even may result in criminal liability if relevant export activities constitute a crime. There is no assurance that we can always obtain relevant approvals for the export of China’s human genetic resources out of China.
Furthermore, under relevant PRC laws and regulations, a license for use of laboratory animals is required for performing experimentation on animals. Any failure to fully comply with such requirement may result in the invalidation of our experimental data. In addition, with respect to our collaboration partner, any failure to comply with existing or future laws and regulations regulated by NHC and other administration authorities related to the management of cell therapy investigator-initiated clinical trials in China could lead to government penalties, suspension of related activities, or breach liability. Compliance or the failure to comply with such laws and regulations could increase the costs of, limit and cause significant delay in these investigator-initiated clinical trials and research and development activities, which could materially and adversely affect our business, operation and prospects as well. However, we do not have control over our collaborators and cannot compel them to comply with NHC and other administration authorities’ requirements. Therefore, we cannot assure you that any required registration or filing procedures of our collaborators under laws will be completed in a timely manner, or at all.
In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our product candidates in China and reduce the current benefits we believe are available to us from developing and manufacturing drugs in China. PRC authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry and any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China, and even administrative penalties. We believe our strategy and approach are aligned with the PRC government’s regulatory policies, but we cannot ensure that our strategy and approach will continue to be aligned.
58
Failure to comply with existing or future laws and regulations related to the management of human genetic resources in China could lead to government enforcement actions, which could include civil, administrative or criminal fines or penalties, private litigation, other liabilities, and/or adverse publicity. Compliance or the failure to comply with such laws could increase the costs of, limit and cause significant delay in our clinical studies and research and development activities, and could otherwise materially and adversely affect our operating results, business and prospects.
Laws and regulations related to the management of human genetic resources in China are rapidly evolving and the enforcement thereof is likely to remain uncertain for the foreseeable future. On June 10, 1998, the Ministry of Science and Technology ("MOST"), and the Ministry of Health jointly issued the Interim Measures for the Administration of Human Genetic Resources and established the rules for protecting and utilizing human genetic resources ("HGR"), in China. MOST and other regulatory agencies in China have been focused on HGR legislation, and proactively sought opinions from the public on draft regulations. In 2015, MOST issued a Guideline on HGR and reinforced its legislative efforts in HGR administration. In May 2019, the Regulation on Human Genetic Resources Management (the "HGR Regulation"), was put in place. The State Council promulgated the HGR Regulation on June 10, 2019 and it became effective on July 1, 2019.
The HGR Regulation prohibits non-PRC entities or individuals or such entities established or actually controlled thereby, or “Foreign Persons,” from collecting or preserving China HGR in China, or providing China HGR abroad, whereas activities of collection and preservation of organs, tissues and cells for purposes of clinical diagnosis and treatment, service of blood collection and provision, investigation of illegal activities, doping test and funeral service, are required to be conducted in accordance with other relevant laws and regulations. The HGR Regulation permits Foreign Persons’ limited use of China HGR “to carry out scientific research activities,” which must be conducted through collaboration with Chinese scientific research institutions, higher education institutions, medical institutions, or enterprises, collectively, the “Chinese Entities.” Such activities must be approved by MOST, and the application for approval must be filed jointly by the Foreign Person and the relevant Chinese Entity. The only exception to the approval requirement is “international collaboration in clinical trials” that do not involve the outbound transfer of China HGR materials such as organs, tissues, or cells comprising the human genome, genes, or other genetic substances, collectively, China HGR Materials. Such clinical trial collaboration, however, must still be pre-registered with MOST. There remain significant uncertainties as to how provisions of the HGR Regulation might be interpreted and implemented. Short-term storage of samples of laboratory testing by foreign laboratories or foreign-invested laboratories may also be interpreted as preserving China HGR, thus being subjected to MOST application, approval or pre-registration processes.
On October 17, 2020, the SCNPC promulgated the Biosecurity Law of the PRC (the "Biosecurity Law") which will become effective from April 15, 2021. The new law, among other things, restates relevant approval or pre-registration requirements of HGR collection, preservation, utilization and external provision, as provided in the HGR Regulation. Moreover, the promulgation of the new law, which takes the form of national law, further demonstrates the commitments of protecting China HGR and safeguarding state biosecurity by the PRC government.
Failure to comply with existing or future HGR laws and regulations, including the HGR Regulation and the Biosecurity Law, may subject us to penalties, including fines, suspension of related activities and confiscation of related HGR and gains generated from conducting these activities, or breach liability. If the circumstances are serious, entities and their responsible person may be prohibited from engaging in activities such as collection, preservation, usage and outbound of China’s HGR within a period or permanently. In addition, it may result in criminal liability if relevant activities constitute crime. There is no assurance that we can always complete all application, approval or pre-registration processes according to existing or future HGR laws and regulations.
The Chinese economy differs from the economies of most developed countries in many respects, including a higher level of government involvement, and the ongoing development of a market-oriented economy.
While the PRC economy has experienced significant growth since the late 1970s, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. These measures are intended to benefit the overall PRC economy, but may also have a negative effect on us. For example, our business, financial condition and results of operations could be adversely affected by PRC government control over capital investments or changes in regulations that are applicable to us.
The PRC economy has been transitioning from a centrally planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s that emphasize the utilization of market
59
forces for economic reform, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies.
The PRC legal system contains uncertainties, which could limit the legal protections available to you and to us.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. Our PRC subsidiaries are subject to laws and regulations applicable to foreign-invested enterprises in China. In particular, they are subject to PRC laws, rules and regulations governing foreign companies’ ownership and operation of pharmaceutical businesses. Such laws and regulations are subject to change, and their interpretation and enforcement involve uncertainties, which could limit the legal protections available to us and our investors. In addition, we cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of such laws, or the preemption of local regulations by PRC laws, rules and regulations.
Moreover, the PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to a significant degree of interpretation by PRC regulatory agencies and courts. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the non-precedential nature of these decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. Therefore, it is possible that our existing operations may be found not to be in full compliance with relevant laws and regulations in the future.
In addition, the PRC government has recently announced its plans to enhance its regulatory oversight of PRC companies listing outside of the PRC. The Opinions on Strictly Cracking Down on Illegal Securities Activities issued on July 6, 2021 called for:
•tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of PRC companies listed outside of the PRC with respect to data security and information security;
•enhanced oversight of companies listed outside of the PRC as well as equity fundraising and listing by PRC companies outside of the PRC; and
•extraterritorial application of China’s securities laws.
As the Opinions on Strictly Cracking Down on Illegal Securities Activities were recently issued, there are great uncertainties with respect to the interpretation and implementation thereof. The PRC government may promulgate relevant laws, rules and regulations that may impose additional and significant obligations and liabilities on Chinese companies listed outside of the PRC regarding data security, cross-border data flow, and compliance with China’s securities laws. It is uncertain whether or how these new laws, rules and regulations and the interpretation and implementation thereof may affect us, but among other things, our ability to obtain external financing through the issuance of equity securities outside of the PRC could be negatively affected.
PRC governmental authorities may take measures having influence on our operations at any time, which could result in a material change in our operations and significantly and adversely impact the value of our ADSs.
The PRC government may take measures having influence on our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could require us to seek permission from PRC authorities to continue to operate our business in the PRC, which could adversely affect our business, financial condition and results of operations, as well as adversely impact the value of the ADSs, causing them to significantly decline in value. Furthermore, recent statements made by the PRC government have indicated an intent to increase the government’s oversight and control over offerings of companies with significant operations in China that are to be conducted in foreign markets, as well as foreign investment in issuers with operations in China like us. Any such action, once taken by the PRC government, could result in action taken by the PRC against our PRC subsidiaries and could
60
significantly limit, delay or hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the Annual Report based on foreign laws. It may also be difficult for regulators outside of the PRC or you to conduct investigations or collect evidence within China.
We are an exempted company incorporated under the laws of the Cayman Islands. We conduct a material portion of our operations in China and a material portion of our assets are located in China. In addition, many of our senior executive officers and directors reside within China for a significant portion of the time and some of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside China. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or the public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
It may also be difficult for you or regulators outside of the PRC to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information, documents and materials needed for regulatory investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective in March 2020, no securities regulator outside of the PRC is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no entity or individual may provide the documents and materials relating to securities business activities to parties outside of the PRC. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for a securities regulator outside of the PRC to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
We may be restricted from transferring our scientific data abroad.
On March 17, 2018, the General Office of the PRC State Council promulgated the Scientific Data Measures, which provide a broad definition of scientific data and relevant rules for the management of scientific data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data involving a state secret may be transferred abroad or to foreign parties. Further, any researcher conducting research funded, at least in part, by the PRC government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before such data may be published in any foreign academic journal. Currently, as the term “state secret” is not clearly defined, there is no assurance that we can always obtain relevant approvals for sending scientific data (such as the results of our pre-clinical studies or clinical trials conducted within China) abroad, or to our foreign partners in China.
If we are unable to obtain the necessary approvals in a timely manner, or at all, our research and development of product candidates may be hindered, which may materially and adversely affect our business, results of operations, financial conditions and prospects. If relevant government authorities consider the transmission of our scientific data to be in violation of the requirements under the Scientific Data Measures, we may be subject to specific administrative penalties imposed by those government authorities.
61
Changes in U.S. and international trade policies, particularly with regard to China, may adversely impact our business and operating results.
The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including imposing several rounds of tariffs affecting certain products manufactured in China. Recently both China and the United States have each imposed tariffs indicating the potential for further trade barriers. It is unknown whether and to what extent new tariffs (or other new laws or regulations) will be adopted, or the effect that any such actions would have on us or our industry. As we commence with commercialization of product candidates, any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our drug products, the competitive position of our drug products, the hiring of scientists and other research and development personnel, and import or export of raw materials in relation to drug development, or prevent us from selling our drug products in certain countries. If any new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if the U.S. government takes retaliatory trade actions due to the recent U.S.-China trade tension, such changes could have an adverse effect on our business, financial condition and results of operations.
Dividends we receive from our subsidiaries located in the PRC may be subject to PRC withholding tax, which could materially and adversely affect the amount of dividends, if any, we may pay our shareholders.
The PRC Enterprise Income Tax Law classifies enterprises as resident enterprises and non-resident enterprises. The PRC Enterprise Income Tax Law provides that an income tax rate of 20% may be applicable to dividends payable to non-resident investors, which (i) do not have an establishment or place of business in the PRC, or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The State Council of the PRC reduced such rate to 10% through the implementation regulations of the PRC Enterprise Income Tax Law. Further, pursuant to the Double Tax Avoidance Arrangement between Hong Kong and Mainland China (the "Double Tax Avoidance Arrangement"), and the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued in February 2009 by the State Administration of Taxation of the PRC (the "SAT"), if a Hong Kong resident enterprise owns more than 25% of the equity interest in a company in China at all times during the 12-month period immediately prior to obtaining a dividend from such company, the 10% withholding tax on dividends is reduced to 5% provided that certain other conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws are satisfied at the discretion of relevant PRC tax authority.
If our British Virgin Island subsidiary and our Hong Kong subsidiary are considered as non-resident enterprises and our Hong Kong subsidiary is considered as a Hong Kong resident enterprise under the Double Tax Avoidance Arrangement and is determined by the competent PRC tax authority to have satisfied relevant conditions and requirements, then the dividends paid to our Hong Kong subsidiary by its PRC subsidiaries may be subject to the reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. In addition, based on the Announcement of the State Administration of Taxation on Issues Relating to Beneficial Owner in Tax Treaties, effective from April 1, 2018, under certain conditions a company cannot be defined as a beneficial owner under the treaty and thus are not entitled to the above mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. If we are required under the PRC Enterprise Income Tax Law to pay income tax for any dividends we receive from our subsidiaries in China, or if our Hong Kong subsidiary is determined by PRC government authority as receiving benefits from reduced income tax rate due to a structure or arrangement that is primarily tax-driven, it would materially and adversely affect the amount of dividends, if any, we may pay to our shareholders.
If we are classified as a “resident enterprise” of China under the PRC Enterprise Income Tax Law, we and our non-PRC shareholders could be subject to unfavorable tax consequences, and our business, financial condition and results of operations could be materially and adversely affected.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside the PRC with “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, SAT issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China.
62
Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC or non-PRC individuals, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of board members with voting rights or senior executives habitually reside in the PRC.
We believe that we are not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders, including our ADS holders, may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders, including our ADS holders, and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20%, which in the case of dividends may be withheld at source. Any PRC tax liability may be reduced by an applicable tax treaty. However, it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on any investment in our ADSs or ordinary shares.
In addition to the uncertainty as to the application of the “resident enterprise” classification, we cannot assure you that the PRC government will not amend or revise the taxation laws, rules and regulations to impose stricter tax requirements or higher tax rates. Any of such changes could materially and adversely affect our financial condition and results of operations.
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of our ADSs.
The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have in the future. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service -related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. As a result, we need to obtain SAFE approval or complete SAFE registration to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than RMB owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than RMB.
In light of the recent flood of capital outflows of China due to the weakening of RMB, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.
63
Fluctuation in exchange rates could have a negative effect on our results of operations.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund, completed the regular five-year review of the basket of currencies that make up the Special Drawing Right (the "SDR"), and decided that with effect from October 1, 2016, the RMB is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the euro, the Japanese yen and the British pound. Since the fourth quarter of 2016, the RMB has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress toward interest rate liberalization and RMB internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the RMB will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
Significant revaluation of the RMB may have a negative effect on our business. For example, to the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. As of the date of this Annual Report, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency or to convert foreign currency into RMB.
PRC regulations relating to offshore investment activities by PRC residents and enterprises may increase our administrative burden and restrict our cross-border investment activity, our investment activity outside the PRC and our investments in the PRC. If our PRC resident and enterprise shareholders fail to make any required applications and filings under such regulations, we may be unable to distribute profits to such shareholders and may become subject to liability under PRC law.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles ("SAFE Circular 37"), which replaces the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Round-tripping Investment via Overseas Special Purpose ("SAFE Circular 75"). SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles ("SPVs"), are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any change of basic information or material events. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiaries of such SPV in China may be prohibited from distributing their profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment ("SAFE Notice 13"). Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, shall be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE.
We may not be aware of the identities of all of our beneficial owners who are PRC residents. To our knowledge, some of our beneficial owners have not complied with SAFE registration requirements under SAFE Circular 37 and
64
subsequent implementation rules on time or at all, sometimes due to reasons beyond their control. However, we do not have control over our beneficial owners and cannot compel them to comply with SAFE Circular 37 and subsequent implementation rules. Therefore, we cannot assure you that any required registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or at all. The failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiary to fines and legal sanctions. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiary and limit our PRC subsidiaries’ ability to distribute dividends to us.
These risks may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, as these foreign exchange and outbound investment related regulations and their interpretation and implementation have been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency- denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiary.
As an offshore holding company of our PRC operating subsidiaries, we may make loans or additional capital contributions to our PRC subsidiaries, subject to satisfaction of applicable governmental registration and approval requirements.
Any loans we extend to our PRC subsidiaries, which is treated as a foreign-invested enterprise under PRC law, cannot exceed the statutory limit and must be registered with the local counterpart of the SAFE.
We may also decide to finance our PRC subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, these capital contributions are subject to registration with the SAMR or its local counterparts. In addition, the PRC government also restricts the convertibility of foreign currencies into RMB and use of the proceeds. On March 30, 2015, SAFE promulgated the Notice on Reforming the Management Method for the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (“SAFE Circular 19”), which took effect and replaced certain previous SAFE regulations from June 1, 2015. SAFE further promulgated the Circular on Reforming and Regulating Policies on the Management of Foreign Exchange Settlement of Capital Accounts (“SAFE Circular 16”), effective on June 9, 2016, which, among other things, amends certain provisions of SAFE Circular 19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the RMB capital converted from foreign currency denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for business beyond its business scope or to provide loans to persons other than affiliates unless otherwise permitted under its business scope. Violations of the applicable circulars and rules may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. These circulars may limit our ability and speed to transfer funds to our PRC subsidiaries. On October 23, 2019, SAFE promulgated the Circular to Further Facilitating Cross-border Trade and Investment (“SAFE Circular 28”), which took effect on the same day. SAFE Circular 28 cancels restrictions on domestic equity investments made with capital funds by non-investing foreign-funded enterprises. If a non-investing foreign-funded enterprise makes domestic equity investment with capital funds obtained from foreign exchange settlement, the investee shall undergo registration formalities for accepting domestic reinvestment and open the “capital account - account for settled foreign exchange to be paid” to receive the corresponding funds according to relevant provisions. Despite the restrictions and procedural requirements under these SAFE circulars, our PRC subsidiaries may use RMB funds converted from foreign currency registered capital to carry out any activities within their normal course of business and business scope, including to fund operational needs, and to make equity investments in domestic companies.
In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we have completed or will be able to complete the necessary government registrations, meet the relevant government requirements or obtain the necessary government approvals on a
65
timely basis, or at all, with respect to existing or future loans to our PRC subsidiaries or future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Failure to comply with PRC regulations regarding the registration or filing requirements for employee stock ownership plans or share option plans may subject the plan participants or us to fines and other legal or administrative sanctions.
Under the applicable regulations and SAFE rules, PRC citizens who participate in an employee stock ownership plan or a stock option plan in a public company listed outside of the PRC are required to register with SAFE and complete certain other procedures. In February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies, or the Stock Option Rules, which replaced the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plans of Overseas Publicly Listed Companies issued by SAFE in March 2007. Pursuant to the Stock Option Rules, if a PRC resident participates in any stock incentive plan of a public company listed outside of the PRC, a qualified PRC domestic agent must, among other things, file on behalf of such participant an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with the exercise or sale of stock options or stock such participant holds. Such participating PRC residents’ foreign exchange income received from the sale of stock and dividends distributed by the public company listed outside of the PRC must be fully remitted into a PRC collective foreign currency account opened and managed by the PRC agent before distribution to such participants. We and our PRC resident employees who have been granted stock options or other share-based incentives of ours are subject to the Stock Option Rules. However, we do not have control over our PRC resident participants and cannot compel them to comply with SAFE registrations.
Therefore, we cannot assure you that any required registration under SAFE registrations will be completed in a timely manner, or at all. If we or our PRC resident participants fail to comply with these regulations, we and/or our PRC resident participants may be subject to fines and legal sanctions. Furthermore, failure to complete the SAFE registrations may limit our PRC resident participants’ ability to make payment under our share incentive plan or receive dividends or sales proceeds related thereto, or limit our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC laws.
In addition, the State Taxation Administration issued the Notice on Several Measures for Further Deepening the Reform of “Simplifying Administration and Decentralizing Powers, Combining Decentralization with Appropriate Control, and Optimizing Services” and Cultivating and Stimulating the Vitality of Market Participants (the “Notice”), in October 2021, which requires that any enterprise implementing any equity (stock) incentive plan submit a Report Form of Equity Incentives and other materials to the competent tax authority within 15 days of the next month after deciding to implement equity incentives or before the end of 2021 for equity incentive plans that have been implemented but not yet completed, including domestic enterprises that provide equity incentives for employees with equity of enterprises outside of the PRC. However, as the Notice is newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice. Therefore, we cannot assure you that any required registration or filing under the Notice or other regulations will be completed in a timely manner, or at all. If we or our participants fail to comply with these regulations, we and/or our participants may be subject to fines and other legal sanctions.
The approval of, or filing or other procedures with, the CSRC or other governmental authority may be required in connection with issuing our equity securities outside of the PRC under Chinese law, and, if required, we cannot predict whether we will be able, or how long it will take us, to obtain such approval or complete such filing or other procedures.
On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Provisions on the Merger or Acquisition of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rules, among other things, requires offshore SPVs formed for the purpose of a listing outside of the PRC and controlled by PRC companies or individuals, to obtain the CSRC approval prior to listing their securities on a stock exchange outside of the PRC. The application of this regulation remains unclear. Our PRC legal counsel has advised us that, based on their understanding of the current PRC laws, the CSRC approval was not required under the M&A Rules in the context of our initial public offering because the ownership structure of our PRC subsidiaries was established by direct investment instead of through acquisition of equity interests or assets of any PRC
66
domestic company by foreign entities as defined under the M&A Rules. However, we have been advised by our PRC legal counsel that there are uncertainties regarding the interpretation and application of the PRC laws and regulations, and there can be no assurance that the PRC government will ultimately take a view that is not contrary to the above opinion of our PRC legal counsel.
Furthermore, the recently issued Opinions on Strictly Cracking Down on Illegal Securities Activities emphasized the need to strengthen the supervision on listings outside of the PRC by companies with operations in China and provided that the special provisions of the State Council on issuance and listing of shares outside of the PRC by those companies limited by shares will be revised. There are still uncertainties regarding the interpretation and implementation of these Opinions, and further explanations or detailed rules and regulations with respect to these Opinions may be issued in the future which could impose additional requirements on us.
On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Overseas Listing Trial Measures”), which will come into effect on March 31, 2023. Pursuant to the Overseas Listing Trial Measures, (i) PRC domestic companies that seek to offer or list equity securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (ii) if a company outside of the PRC satisfies both of the following conditions, its offering and listing outside of the PRC will be deemed an indirect offering by a PRC domestic company: i) more than 50% of such overseas company’s consolidated revenues, profit, total assets or net assets that are derived from its audited consolidated financial statements for the most recently completed fiscal year are attributable to PRC domestic companies, and ii) any of the following circumstances applies: key components of its operations are carried out in the PRC; its principal places of business are located in the PRC; or the majority of the senior management members in charge of operation and management are PRC citizens or residents. The determination will be made on the basis of “substance over form”; and (iii) where a PRC domestic company seeks to indirectly offer and list securities in a market outside of the PRC, such company is required to designate a major domestic operating entity responsible for all filing procedures with the CSRC; where a company makes an application for initial public offerings or listings in a market outside of the PRC, such company is required to submit filings with the CSRC within three business days after such application is submitted, and where an issuer conducts follow-on offerings in the same market outside of the PRC where it has previously offered and listed securities, the issuer shall submit filings with the CSRC within three business days after the follow-on offering is completed. If a PRC domestic company fails to complete the filing procedure or conceals any material fact or falsifies any major content in its filing documents, such PRC domestic company may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines.
However, since the Overseas Listing Trial Measures was newly promulgated, the interpretation, application and enforcement of the Overseas Listing Trial Measures remain unclear. It remains uncertain whether the filing requirements under the Overseas Listing Trial Measures are applicable to securities offerings by us. If the filing procedure with the CSRC under the Overseas Listing Trial Measures is required for any future follow-on offerings or any other capital raising activities by us, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing procedures. Given the substantial uncertainties surrounding the latest CSRC filing requirements at this stage, we cannot assure you that we will be able to complete the filings and fully comply with the relevant new rules on a timely basis, if at all.
In addition, we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us. If it is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, including the cybersecurity review under the Measures for Cybersecurity Review and the Draft Data Security Regulations, are required for our offerings outside of the PRC, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing procedures and any such approval or filing could be rescinded or rejected. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our offerings outside of the PRC, or a rescission of any such approval or filing if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or filing or other government authorization for our offerings outside of the PRC. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offerings outside of the PRC into China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our listed securities.
67
The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of PRC companies by non-PRC investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The M&A Rules and relevant regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by non-PRC investors more time-consuming and complex. The M&A Rules require that the Ministry of Commerce (“MOFCOM”), be notified in advance of any change-of-control transaction in which a non-PRC investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have an impact on the national economic security; or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. The approval from MOFCOM shall be obtained in circumstances where companies outside of the PRC established or controlled by PRC enterprises or residents acquire affiliated domestic companies.
The Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress (the “NPC”), in August 2007, was amended in June 2022 and became effective in August 2022. The Anti-Monopoly Law requires that the SAMR should be notified in advance of any merger, share or asset acquisition, or acquisition of control (including through the provision of influence) by contract or other means if certain thresholds are triggered. Transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the SAMR before they can be completed.
In addition, the Implementing Rules Concerning Security Review on the Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, specify that mergers and acquisitions by foreign investors involved in “an industry related to national security” are subject to strict review by the MOFCOM, and prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. Furthermore, according to the Measures for the Security Review of Foreign Investment, or the New Security Review Measures, promulgated by the National Development and Reform Commission, or NDRC, and MOFCOM on December 19, 2020, a foreign investment security review working mechanism will be established to be responsible for organizing, coordinating and guiding the security review of foreign investment. If a proposed foreign investment meets the conditions as stipulated in the New Security Review Measures, the foreign investor or the relevant domestic party shall report such case to the review working mechanism, in order to obtain the security review clearance before proceeding with the proposed foreign investment. However, as the New Security Review Measures are newly issued, there are still substantial uncertainties as to its interpretation and implementations in practice. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the abovementioned regulations and other relevant rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the SAMR, the MOFCOM or the NDRC or its local counterparts may delay or inhibit our ability to complete such transactions.
We cannot preclude the possibility that the MOFCOM or other government agencies may publish explanations contrary to our understanding or broaden the scope of such security reviews in the future, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.
We and our shareholders face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises, assets attributed to a PRC establishment of a non-PRC company or immovable properties located in China owned by non-PRC companies.
In February 2015, SAT issued a Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises (“SAT Public Notice 7”). SAT Public Notice 7 extends its tax jurisdiction to transactions involving transfer of other taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7 provides clear criteria for assessment of reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Public Notice 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. In October 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source (“SAT Bulletin 37”), which came into effect on December 1, 2017. The Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of a holding company, which is an indirect transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the holding company outside of the PRC if it lacks a reasonable commercial purpose and was established for
68
the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer other than transfer of shares of ADSs acquired and sold on public markets may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties as to the reporting and other implications of certain past and future transactions that involve PRC taxable assets, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is the transferor in such transactions, and may be subject to withholding obligations if our company is the transferee in such transactions, under SAT Public Notice 7 or Bulletin 37, or both.
Our business may be significantly affected by the newly enacted Foreign Investment Law and the “Negative List”.
On March 15, 2019, the NPC promulgated the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws regulating foreign investment in China. The Foreign Investment Law grants foreign invested entities the same treatment as PRC domestic entities, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list” published by the State Council. We are a Cayman Islands holding company and our PRC subsidiaries, Legend Nanjing and Legend Hainan, are currently considered to be foreign invested entities. Legend Hainan was established in October 2021. As of the date of this Annual Report, Legend Hainan is not engaged in substantive business operations in the PRC.
The latest version of the “negative list,” namely, the Special Management Measures (Negative List) for the Access of Foreign Investment (2021) or the Negative List, which was promulgated by the MOFCOM and the NDRC, became effective on January 1, 2022. The Negative List provides that foreign investment is prohibited in the development and application of human stem cell or gene diagnostic and therapeutic technologies.
As of the date of this Annual Report, there has been no official interpretation of the scope of “human stem cell or gene diagnostic and therapeutic technologies” specified in the Negative List and the application of this regulation remains unclear. The Encouraged Industry Catalogue for Foreign Investment (2022) (the “2022 Encouraged Industry Catalogue”), which was promulgated by the MOFCOM and the NDRC, became effective on January 1, 2023, provides that foreign investment is encouraged in the development and production of cell therapy drugs except in areas where foreign investment is prohibited. Further, on November 30, 2021, the CDE published the Technical Guidelines for Non-clinical Research and Evaluation of Gene Therapy Products (Trial) (the “Technical Guidelines for Gene Therapy Products”), and Technical Guidelines for Non-clinical Research of Gene Modified Cell Therapy Products (Trial) (the “Technical Guidelines for Gene Modified Cell Therapy Products”), which became effective as of the date of promulgation. The Technical Guidelines for Gene Therapy Products provides that it is applicable to gene therapy products other than genetically modified cells therapy products, and genetically modified cells therapy products, such as CAR-T cell therapy products, shall refer to the Technical Guidelines for Gene Modified Cell Therapy Products, which was formulated according to the Technical Guidelines for the Research and Evaluation of Cell Therapy Products (Trial).
Legend Nanjing is engaged in the research and development of CAR-T cell therapies. We believe the CAR-T cell therapies, as they are currently being researched and developed by Legend Nanjing, do not involve the use of human stem cells or genetic diagnosis and treatment, and as such should not fall into the category of “human stem cell or gene diagnostic and therapeutic technologies” under the Negative List. Moreover, relevant governmental authorities also confirmed that the research and development of CAR-T cell therapies currently engaged in by Legend Nanjing complies with the requirements of foreign investment industrial policies. We have been advised by our PRC legal counsel, JunHe LLP, that Legend Nanjing has complied with PRC laws and regulations in all material respects for, and obtained all material governmental approvals and permits from PRC regulatory agencies for, the research and development of CAR-T cell therapies. However, we have been advised by our PRC legal counsel that there are uncertainties regarding the interpretation and application of the PRC laws and regulations, and there can be no assurance that the PRC government will ultimately take a view that is not contrary to our view and the opinion of our PRC legal counsel above. If our CAR-T cell therapies or other technologies that are being researched and developed by any of our PRC subsidiaries are deemed by relevant PRC regulatory agencies as falling into the category of “human stem cell or gene diagnostic and therapeutic technologies” under the Negative List, such PRC subsidiary would be prohibited from engaging in the research or development of such CAR-T cell therapies or other technologies. In that event, we may have to stop investing in our PRC subsidiaries or consider restructuring our PRC subsidiaries as PRC domestic entities and our variable interest entity. Our PRC subsidiaries may also have to forfeit their income derived from the research and development of such technologies. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
69
Our leased property interest may be defective and our right to lease the properties may be challenged, which could cause significant disruption to our business. We may be subject to fines due to the lack of registration of our leases.
In China, we lease certain premises used in our operations from third parties. We cannot guarantee that all lessors can provide us with valid ownership certificates or authorization of sublease for our leased properties. Under the relevant PRC laws and regulations, if the lessors are unable to obtain certificates of title because such properties were built illegally or failed to pass the inspection or other reasons, such lease contracts may be recognized as void and, as a result, we may be required to vacate the relevant properties. In addition, if our lessors are not the owners of the properties and they have not obtained consents from the owners or their lessors, our leases could be invalidated. If this occurs, we may have to renegotiate the leases with the owners or the parties who have the right to lease the properties, and the terms of the new leases may be less favorable to us, or we may be required to vacate the relevant properties if the terms of the new leases are not reached
Under PRC laws, all lease agreements are required to be registered with the local housing authorities. We have not registered certain of our lease agreements with the relevant government authorities. Failure to complete these required registrations may expose our landlords, lessors and us to potential monetary fines.
Increases in labor costs and enforcement of stricter labor laws and regulations in the PRC may adversely affect our business and our profitability.
China’s overall economy and the average wage level in China have increased in recent years and are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. We cannot assure you that we have complied or will be able to comply with all labor-related laws and regulations including those relating to obligations to make social insurance payments and contribute to the housing provident funds. We have not fully paid the housing provident funds for all of our employees as required by applicable PRC regulations. We may be required to make up the contributions for our employees, and our financial condition and results of operations may be adversely affected.
The market price of our ADSs and our business may be significantly affected by the U.S. Department of Commerce’s Entity List.
On December 16, 2021, the U.S. Department of Commerce’s Bureau of Industry and Security (the “BIS”), issued a final rule adding 37 entities under 40 entries to its Entity List, which contains a list of names of certain persons outside of the U.S. (including businesses, research institutions, government and private organizations, individuals, and other types of legal persons) that are subject to specific license requirements for the export, re-export and/or transfer of specified items. According to a press release issued by the U.S. Department of Commerce on December 16, 2021, the BIS’s actions were taken, in part, “to address the ongoing threats to U.S. national security and foreign policy presented by the PRC’s efforts to develop and deploy biotechnology and other technologies for military applications and human rights abuses.” Of the 40 entries that were added to the Entity List pursuant to the BIS’s final rule, 34 are located in the PRC, and of such entries, 12 are biotechnology entities (i.e., one biotechnology entity together with 11 of its research institutes). Although we believe that we do not engage in any activity that the BIS’s actions seek to address, there can be no assurance that we will not, in the future, be added to the Entity List.
If relations between China and the United States deteriorate, our business, operating results and financial condition could be adversely affected.
At various times during recent years, the United States and China have had significant disagreements over monetary, economic, political, environmental and social issues, and future relations between these two countries may deteriorate.Various Chinese entities, including certain biotechnology companies and CMOs in China, have been or may become, the subject of trade restrictions, sanctions, and other regulatory requirements by the U.S. government, which could restrict or even prohibit the ability to work with such entities. Changes in political conditions and changes in the state of China-U.S. relations are difficult to predict and could adversely affect our business, operating results and financial condition. Any deterioration in political or trade relations could harm our business. We cannot predict what effect any
70
changes in China-U.S. relations may have on our ability to access capital or effectively do business in the United States and China. For example, President Biden recently issued an Executive Order on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern that seeks to prohibit or restrict specific types of commercial transactions involving “bulk sensitive personal data,” including (1) personal identifiers; (2) personal financial data; (3) personal health data (as defined under HIPAA); (4) precise geolocation data; (5) biometric identifiers; and (6) human genomic data, between U.S. persons and “countries of concern,” including China. If there is no lawful manner for us to transfer such data to China, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions (such as the United States) at significant expense and increased exposure to regulatory actions.
Moreover, any political or trade controversies between the United States and China, whether or not directly related to our business, could cause investors to be unwilling to hold or buy our ADSs and consequently cause the trading price of our ADSs to decline. In addition, any adoption of more stringent rules or regulations in China related to monetary, economic, political, environmental or social issues, particularly as those matters relate to relations with the United States, could harm our business, financial condition or prospects.
Risks Related to Our Organizational Structure
Genscript will continue to own a significant percentage of our ordinary shares and will be able to exert significant control over matters subject to shareholder approval.
Genscript is currently our majority shareholder and three of the ten members of our Board are employees of Genscript. Therefore, Genscript has the ability to substantially influence us and exert significant control through this ownership position. For example, Genscript and its shareholders may be able to control elections of directors, issuance of equity, including to our employees under equity incentive plans, amendments of our organizational documents, or approval of any merger, amalgamation, sale of assets or other major corporate transaction. Genscript’s interests may not always coincide with our corporate interests or the interests of other shareholders, and it may exercise its voting and other rights in a manner with which you may not agree or that may not be in the best interests of our other shareholders. Further, there may be changes to the management or ownership of Genscript that could impact Genscript’s interests in a way that may not coincide with our corporate interests or the interests of other shareholders. So long as Genscript continues to own a significant amount of our equity, it will continue to be able to strongly influence and effectively control our decisions.
Our organizational and ownership structure may create significant conflicts of interests.
Our organizational and ownership structure involves a number of relationships that may give rise to certain conflicts of interest between us and minority holders of our ADSs, on the one hand, and Genscript and its shareholders, on the other hand. Certain of our directors and employees have equity interests in Genscript and, accordingly, their interests may be aligned with Genscript’s interests, which may not always coincide with our corporate interests or the interests of our other shareholders. Further, our other shareholders may not have visibility into the Genscript ownership of any of our directors or officers, which may change at any time through acquisition, disposition, dilution, or otherwise. Any change in our directors’ or officers’ Genscript ownership could impact the interests of those holders.
In addition, we are party to certain related party agreements with Genscript. Genscript and its shareholders, including certain of our directors and employees, may have interests which differ from our interests or those of the minority holders of our ordinary shares. Any material transaction between us and Genscript or any other subsidiary of Genscript will be subject to our related party transaction policy, which requires prior approval of such transaction by our audit committee. To the extent we fail to appropriately deal with any such conflicts of interests, it could negatively impact our reputation and ability to raise additional funds and the willingness of counterparties to do business with us, all of which could have an adverse effect on our business, financial condition, results of operations, and cash flows. See “Item 7—Major Shareholders and Related Party Transactions” for further information on our related party agreements with Genscript.
As a result of being a public company, we have incurred costs and expect to continue to incur additional costs, and we may not manage to comply with our internal control procedures and corporate governance structures.
To comply with the requirements imposed on us as a public company, we have incurred, and expect to continue to incur, significant legal, insurance, accounting and other expenses that we did not as a private company. The increased costs
71
may require us to reduce costs in other areas of our business. In addition, our board of directors, management and administrative staff are required to perform additional tasks. For example, we bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We have invested, and intend to continue to invest, resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from research and development activities. These laws, regulations and standards are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters, enforcement proceedings and higher costs necessitated by ongoing revisions to disclosure and governance practices, which could have a material adverse impact on our business, financial condition, results of operations and prospects.
We qualify as a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that permit less detailed and frequent reporting than that of a U.S. domestic public company.
We currently report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year.
Foreign private issuers also are exempt from Regulation FD, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.
We are entitled to rely on a provision in the Nasdaq’s corporate governance rules that allows us to follow Cayman Island’s corporate law with regard to certain corporate governance matters. This allows us to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on the Nasdaq. For example, corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors or the implementation of a nominating and corporate governance or compensation committee. Currently, our board of directors consists of a majority of independent directors and we have a nominating and corporate governance and compensation committee. We currently rely on foreign private issuer exemptions to Nasdaq Rules 5605(d) and 5605(e), as currently only two of the three members of each of our compensation committee and nominating and corporate governance committee are independent directors. Additionally, we
72
may in the future rely on additional foreign private issuer exemptions, including exemptions allowing for less than a majority of our board of directors to consist of independent directors, and so fewer board members would be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a “foreign private issuer”, and therefore is not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2024. In the future, we would lose our “foreign private issuer” status if more than 50% of our outstanding voting securities become directly or indirectly held of record by U.S. Holders and any one of the following is true: (i) the majority of our directors or executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our “foreign private issuer” status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We would also have to comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq. As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting and other expenses that we do not incur as a foreign private issuer. In addition, members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.
Since shareholder rights under Cayman Islands law differ from those under U.S. law, you may have difficulty protecting your shareholder rights.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our Third Amended and Restated Memorandum and Articles of Association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies). The Registrar of Companies of the Cayman Islands shall make available the list of the names of the current directors of the Company (and where applicable the current alternate directors of the Company) for inspection by any person upon payment of a fee by such person. Our directors have discretion under our Third Amended and Restated Memorandum and Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. As a foreign private issuer, we are permitted to defer to home country practice with respect to certain corporate governance matters under the Nasdaq listing rules. For example, the Cayman Islands does not require a majority of our board to consist of independent directors or the implementation of a nominating and corporate governance or compensation committee. We currently rely on foreign private issuer exemptions to Nasdaq Rules 5605(d) and 5605(e), as currently only two of the three members of each of our compensation committee and nominating and corporate governance committee are independent directors. As a result of these foreign private issuer exemptions available to us, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
73
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a company incorporated in the United States or one that was fully subject to the Nasdaq corporate governance rules. For a discussion of significant differences between the provisions of the Companies Act (As Revised) of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, please refer to Exhibit 2.4 filed with this Annual Report.
Provisions in our Third Amended and Restated Memorandum and Articles of Association may prevent or frustrate attempts by our shareholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our ADSs may be lower as a result.
There are provisions in our Third Amended and Restated Memorandum and Articles of Association that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control was considered favorable by you and other shareholders. For example, our Board has the authority to issue up to 1,000,000 shares of an additional class or classes of shares, which could include preference shares. The Board can fix the price, rights, preferences, privileges, and restrictions of the other classes of shares without any further vote or action by our shareholders. The issuance of such shares may delay or prevent a change of control transaction. As a result, the market price of our ADSs and the voting and other rights of our shareholders may be adversely affected. An issuance of other classes of shares may result in the loss of voting control to other shareholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, including:
•only one of our three classes of directors is elected each year;
•shareholders are entitled to remove directors only for cause;
•shareholders are not permitted to take actions by written consent;
•shareholders must give advance notice to nominate directors or submit proposals for consideration at annual general meetings.
These provisions could discourage potential acquisition proposals and could delay or prevent a change of control transaction. They could also have the effect of discouraging others from making tender offers, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our ADSs.
Raising additional capital may cause dilution to our holders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through any or a combination of securities offerings, debt financings, collaboration and license agreements and research grants. If we raise capital through securities offerings, such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to the holders of our ADSs or ordinary shares.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, holders of our ADSs will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred equity financing, if available, could result in fixed payment obligations, and we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. In addition, we could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. If we raise funds through research grants, we may be subject to certain requirements, which may limit our ability to use the funds or require us to share information from our research and development. If we are unable to raise
74
additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to a third party to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Raising additional capital through any of these or other means could adversely affect our business and the holdings or rights of our shareholders, and may cause the market price of our ADSs to decline.
Risks Related to Our Securities
The trading price of our ADSs may be volatile.
The trading price of our ADSs has been and may continue to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their ADSs at or above the price paid for the ADSs. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:
•the manufacturing and commercialization of CARVYKTI;
•the commencement, enrollment or results of our planned and future clinical trials;
•positive or negative results from, or delays in, testing and clinical trials by us, collaborators or competitors;
•the loss of any of our key scientific or management personnel;
•regulatory or legal developments in the United States, China and other countries;
•the success of competitive products or technologies;
•adverse actions taken by regulatory agencies with respect to our clinical trials or manufacturers;
•changes or developments in laws or regulations applicable to our product candidates and preclinical program;
•changes in the structure of healthcare payment systems;
•changes to our relationships with collaborators, manufacturers or suppliers;
•concerns regarding the safety of our product, product candidates or CAR-T cells in general, including updates required to be made to the Boxed Warning for CARVYKTI;
•announcements concerning our competitors or the pharmaceutical industry in general;
•actual or anticipated fluctuations in our operating results;
•changes in financial estimates or recommendations by securities analysts;
•potential acquisitions, financing, collaborations or other corporate transactions;
•the results of our efforts to discover, develop, acquire or in-license additional product candidates;
•the trading volume of our ADSs on Nasdaq;
•sales of our ADSs or ordinary shares by us, members of our senior management and directors or our shareholders or the anticipation that such sales may occur in the future;
•general economic, political, and market conditions and overall fluctuations in the financial markets in the United States or China;
•stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the biopharmaceutical industry;
•investors’ general perception of us and our business; and
•other events and factors, many of which are beyond our control.
These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their ADSs at or above the price paid for the ADSs and may otherwise negatively affect the liquidity of our ADSs. In addition, the
75
stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Some companies that have experienced volatility in the trading price of their shares have been the subject of securities class action litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms.
Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our business practices. Defending against litigation is costly and time-consuming, and could divert our management’s attention and our resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our ADSs.
Sales of a substantial number of our ordinary shares or ADSs could cause the market price of our ADSs to drop significantly, even if our business is doing well.
Sales of a substantial number of our ordinary shares or ADSs in the public market could occur at any time. If our shareholders sell, or the market perceives that our shareholders intend to sell, substantial amounts of our ordinary shares or ADSs in the public market, the market price of our ADSs could decline significantly.
Additionally, certain holders of ordinary shares, or their transferees, have rights, subject to some conditions, to require us to file (or, if filed, keep in effect) one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. Once the resale of these shares is registered, they can be freely sold in the public market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ADSs could decline.
Holders of our ADSs have fewer rights than our shareholders and must act through the depositary to exercise their rights.
Holders of our ADSs do not have the same rights as our shareholders and may only exercise their voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Holders of the ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the ordinary shares represented by the ADSs. When a general meeting is convened, if you hold ADSs, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. We will make all commercially reasonable efforts to cause the depositary to extend voting rights to ADS holders in a timely manner, but we cannot assure you that ADS holders will receive voting materials in time to instruct the depositary to vote, and it is possible that such ADS holders, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and may lack recourse if such ADSs are not voted as their holders request. In addition, ADS holders will not be able to call a shareholders’ meeting.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could augur less favorable results to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement, our shares or the ADSs or the transactions contemplated thereby, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a court of the State of New York or a federal court in New York, which have non-exclusive jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement, our shares and the ADSs and the transactions contemplated thereby. In addition, New York courts will not enforce a jury trial waiver provision in order to
76
bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement, our shares or the ADSs or the transactions contemplated thereby. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If a holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement, our shares or the ADSs or the transactions contemplated thereby, such holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and / or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may augur different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.
Holders of ADSs may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.
Although we do not have any present plans to declare or pay any dividends on our ordinary shares, in the event we declare and pay any dividends, the depositary for the ADSs has agreed to pay to holders of ADSs the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Holders of ADSs will receive these distributions in proportion to the number of our ordinary shares such holder’s ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to register under U.S. securities laws any offering of ADSs, ordinary shares or other securities received through such distributions. We also have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that holders of ADSs may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to such holders. These restrictions may have an adverse effect on the value of ADSs.
An ADS holder’s right to participate in any future rights offerings may be limited, which may cause dilution to such holder.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to ADS holder in the United States unless we register the rights and the securities to which the rights relate under the Securities Act of 1933, as amended (the “Securities Act”) or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to ADS holder unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution.
Because we do not anticipate paying any cash dividends on our ADSs or ordinary shares in the foreseeable future, capital appreciation, if any, will be the sole source of gains for holders of our ADSs and ordinary shares, and these holders may never receive a return on their investment.
We have never declared or paid a dividend on our ordinary shares in the past, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. Therefore, holders of our ordinary shares and ADSs should not rely on an investment in these securities to provide dividend income. Our board of directors has complete discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or out of the credit standing in our company’s share premium account, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition, our shareholders may, subject to our Third Amended and Restated Memorandum and Articles of Association, by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of
77
directors. As a result, capital appreciation, if any, on our ADSs and ordinary shares will be the sole source of gains for the foreseeable future for the holders of these securities. These factors could harm the value of our ADSs.
If we are or become classified as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences as a result.
Generally, for any taxable year, if at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes. For purposes of these tests, passive income includes dividends, interest gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income (including amounts derived by reason of the temporary investment of funds raised in offerings of our shares) and rents and royalties other than certain rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our ordinary shares or ADSs treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares or ADSs by individuals who are U.S. holders, and having interest charges apply to distributions by us and gains from the sales of our shares or ADSs.
Our status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which may be determined based on the fair market value of each asset, with the value of goodwill and going concern value determined in large part by reference to the market value of our ADSs, which may be volatile). Our status may also depend, in part, on how quickly we utilize the cash proceeds from our initial public offering, follow-on offerings, and other fundraising activities in our business. Based on our operating history and the composition of our income and valuation of our assets, including goodwill, we do not believe we were a PFIC for our taxable year ending December 31, 2023. There can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge our position. Because the determination of whether we are a PFIC for any taxable year is a factual determination made annually after the end of each taxable year, there can be no assurance that we will or will not be considered a PFIC in any taxable year, including the current taxable year. Accordingly, our U.S. counsel expresses no opinion with respect to our PFIC status for our taxable year ending December 31, 2023, and also expresses no opinion with regard to our expectations regarding our PFIC status for the current or future taxable years.
The tax consequences that would apply if we are classified as a PFIC would also be different from those described above if a U.S. shareholder were able to make a valid qualified electing fund ("QEC") election. At this time, we do not expect to provide U.S. shareholders with the information necessary for a U.S. shareholder to make a QEC election. Prospective investors should assume that a QEC election will not be available.
If a United States person is treated as owning at least 10% of our ordinary shares, including ordinary shares represented by ADSs, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. Holder (as defined below under “Material Income Tax Considerations—Material U.S. Federal Income Tax Considerations for U.S. Holders”) is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our ordinary shares, including ordinary shares represented by ADSs, such U.S. Holder may be treated as a “United States shareholder” with respect to each controlled foreign corporation in our group (if any). A non-U.S. corporation generally will be classified as a controlled foreign corporation for U.S. federal income tax purposes if United States shareholders own, directly or indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. The determination of controlled foreign corporation status is complex and includes attribution rules, the application of which is not entirely certain. Because our group includes at least one U.S. subsidiary, attribution rules could cause all of our non-U.S. subsidiaries to be treated as controlled foreign corporations.
A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether the controlled foreign corporation makes any distributions. In addition, a United States shareholder that realizes gain from the sale or exchange of shares in a controlled foreign corporation may be required to classify a portion of such gain as dividend income rather than capital gain. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will furnish to any United States shareholder information that may
78
be necessary to comply with the reporting and tax paying obligations discussed above. Failure to comply with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting. U.S. Holders should consult their tax advisors regarding the potential application of these rules to their investment in our ADSs.
Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders.
The tax treatment of the company is subject to changes in tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate. Many of the countries in which we do business are expected to adopt changes to tax laws, including as a result of the Base Erosion and Profit Shifting Project of the Organisation for Economic Co-operation and Development (the “OECD”), Shifting, Project, the European Commission’s state aid investigations and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. The OECD has published a package of measures for reform as a product of the Base Erosion and Profit Shifting Project, which include the reallocation of global profits of large multinational companies to market jurisdictions based on customer location as well as the introduction of a global minimum tax. Many of the package’s proposed measures require amendments to the domestic tax legislation of various jurisdictions. In the United States, the Inflation Reduction Act of 2022 imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.
Tax authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes or non-realization of expected benefits.
A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, the U.S. Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly, and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable.
If equity research analysts publish unfavorable research or reports, about us, our business or our market, the price and trading volume of our ADSs could decline.
The trading market for our ADSs will be influenced by the research and reports that equity research analysts publish about us and our business. We do not have any control over the analysts or the content and opinions included in their reports. The price of our ADSs could decline if one or more equity research analysts downgrade our ADSs or issue other unfavorable commentary or research about us. If one or more equity research analysts cease coverage of us or fail to publish reports on us regularly, demand for our ADSs could decrease, which in turn could cause the trading price or trading volume of our ADSs to decline.
Holders of ADSs may be subject to limitations on transfers of their ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when deemed necessary or advisable by it in good faith in connection with the performance of its duties or at our reasonable written request, subject in all cases to compliance with applicable U.S. securities laws. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
79
We may be subject to securities litigation, which is expensive and could divert management’s attention.
The market price of our ADSs may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
80
ITEM 4. INFORMATION ON THE COMPANY
A.History and Development of the Company
Our legal name is Legend Biotech Corporation and our commercial name is Legend Biotech. Our company was incorporated on May 27, 2015 as an exempted company in the Cayman Islands with limited liability under the Companies Act (As Revised) of the Cayman Islands. Legend Biotech is a Cayman Islands holding company incorporated as a Cayman Islands exempted company and not a Chinese operating company. We operate through our operating subsidiaries located primarily in the United States, PRC and EU. Our operations in the PRC, in addition to our business presence elsewhere in the world, are enabled by our subsidiaries based therein.
The following diagram illustrates our corporate structure, including our parent Cayman Islands holding company, subsidiaries, and consolidated affiliated entities, as of the date of this Annual Report:
Our principal executive offices are located at 2101 Cottontail Lane, Somerset, NJ 08873, and our phone number is (737) 317-5050. The registered office address of the Company is Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, Grand Cayman KY1-1002, Cayman Islands. Our agent for service of process in the United States is Ying Huang, Ph.D., Chief Executive Officer, Legend Biotech Corporation, 2101 Cottontail Lane, Somerset, New Jersey 08873.
Our capital expenditures for the years ended December 31, 2023, 2022, and 2021 amounted to $104.0 million, $70.3 million, and $44.5 million, respectively. These expenditures primarily consisted of property, plant and equipment and intangible assets. We expect our capital expenditures to increase in absolute terms in the near term as we continue to advance our research and development programs and grow our operations. We anticipate our capital expenditure in 2024 to be financed from our cash and cash equivalents on hand. Primarily, these capital expenditures will be made in the United States, EU and China, where our principal manufacturing and research and development facilities are currently located.
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and can be accessed at www.sec.gov. We maintain a corporate website at www.legendbiotech.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this Annual Report.
B.Business Overview
We are primarily a global, clinical-stage biopharmaceutical company engaged in the discovery, development, manufacturing and commercialization of novel cell therapies for oncology and other indications. Our team of approximately 1,800 employees in the United States, China and Europe, our differentiated technology, global development and manufacturing strategy and expertise provide us with the ability to generate, test and manufacture next-generation cell therapies targeting indications with high unmet needs. Our lead product candidate, ciltacabtagene autoleucel, or cilta-cel (referred to as LCAR- B38M for purposes of our LEGEND-2 trial), is a CAR-T cell therapy we are jointly developing
81
with our strategic partner, Janssen, for the treatment of multiple myeloma (“MM”). Clinical trial results achieved to date demonstrate that cilta-cel has the potential to deliver deep and durable anti-tumor responses in relapsed and refractory multiple myeloma (“RRMM”) patients with a manageable safety profile.
On February 28, 2022, cilta-cel was approved by the U.S. Food and Drug Administration (the “FDA”) under the trademark CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. We have established a sales, marketing and operational infrastructure to support the launch of CARVYKTI in the United States. On May 25, 2022, the European Commission granted conditional marketing authorization of CARVYKTI for the treatment of adults with RRMM who have received at least three prior therapies, including a proteasome inhibitor (“PI”), an immunomodulatory agent (“IMiD”) and an anti-CD38 antibody, and have demonstrated disease progression on the last therapy. On September 26, 2022, Japan’s Ministry of Health, Labour and Welfare approved CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma, limited to cases meeting both of the following conditions: patients have no history of CAR-positive T cell infusion therapy targeting B-cell maturation antigen (“BCMA”); and patients who have received three or more lines of therapies, including an immunomodulatory agent, a proteasome inhibitor and an anti-CD38 monoclonal antibody, and in whom multiple myeloma has not responded to or has relapsed following the most recent therapy.
Cilta-cel has been granted breakthrough therapy designation by the FDA, Priority Medicines (“PRIME”), designation, enabling accelerated assessment, by the European Medicines Agency (“EMA”), and breakthrough therapy designation by the CDE. In January 2021, the Committee for Medicinal Products for Human Use (“CHMP”), of the EMA accepted a request for an accelerated assessment of the marketing authorization application. Orphan Drug Designation has been granted for cilta-cel by the FDA, the European Commission, Japan Ministry of Health, Labour and Welfare, Switzerland Swissmedic, and South Korea Ministry of Food and Drug Safety.
On June 5, 2023, we announced study closeout results from the CARTITUDE-1 clinical trial, studying cilta-cel in the treatment of RRMM, which were presented at the 2023 ASCO Annual Meeting.
In our Phase 1b/2 CARTITUDE-1 trial, longer-term results in 97 patients with RRMM continued to show a high overall response rate (“ORR”) of 98%. After 27.7 months of follow-up, 83% of patients treated with cilta-cel achieved a stringent complete response, or sCR, which was higher than the 67% sCR rate reported at a median of approximately 1 year of follow up. Furthermore, 95% of patients achieved a very good partial response (“VGPR”), or better. At study closeout with a median follow-up of 33.4 months, median duration of response (DOR) was 33.9 months, median progression-free survival (PFS) was 34.9 months and median overall survival (OS) was not reached. An estimated 62.9% of patients were alive at the 3-year follow-up. Of the 61 patients evaluable for minimal residual disease (“MRD”), 91.8% were MRD-negative at the 10-5 cutoff threshold. The 30 month PFS rates in patients with 12-month sustained MRD negativity and 12-month sustained MRD-negative ≥CR were 75% and 79%, respectively. The longer-term data showed no new events of CRS reported since the median approximate 1 year follow up. One new case of signs and symptoms of parkinsonism, previously termed movement and neurocognitive treatment-emergent adverse events (“AEs”), was observed at the 27.7-month median follow-up with no additional cases at study closeout.
We also presented longer-term data from our Phase 2 multicohort CARTITUDE-2 trial at various scientific congresses in 2023. The CARTITUDE-2 trial was designed to evaluate the safety and efficacy of cilta-cel in various clinical settings for patients with MM. Updated data from Cohort A of the trial was presented at the 65th American Society of Hematology Meeting in 2023. Cohort A examined the efficacy and safety of cilta-cel in 20 patients with progressive multiple myeloma after 1-3 prior lines of therapy and who are lenalidomide-refractory. At a longer median follow-up of approximately 30 months, patients experienced early and deep responses with a manageable safety profile consistent with the CARTITUDE-1 trial. MRD negativity among MRD-evaluable patients at the 10-5 sensitivity threshold was 100% (17/17 patients). ORR was 95%, which included 90% of patients achieving complete response (“CR”) or better and 95% achieving VGPR or better. The median time to first response was one month and the median time to best response was 3.25 months. The 24-month PFS and OS rate was 75%.
Cohort B included 19 patients with early relapse after initial therapy with a PI, and IMiD, defined as progression within 12 months after autologous stem cell transplant (“ASCT”) or from the start of anti-MM therapy for patients who have not had ASCT. Data showed early and deep responses with a manageable safety profile. At a median follow-up of 28 months, MRD negativity among MRD-evaluable patients was 93% (14/15 patients). ORR was 100%, which included 90% of patients achieving CR or better and 100% of patients achieving VGPR or better. The median time to first response was .95 months and the median time to best response was 5.1 months. The 24-month PFS and 24-month OS rates were 73% and 84%, respectively.
82
Data from Cohort C of the CARTITUDE-2 trial was also presented at the 20th International Myeloma Society Annual Meeting and Exposition in 2023. Cohort C included 20 patients with prior exposure to a proteasome inhibitor (“PI”), immunomodulatory drug (“IMiD”), anti-CD38 monoclonal antibody (mAb), and non-cellular BCMA-targeting therapy including an antibody-drug conjugate (“ADC”) or bispecific antibody (“BsAb”). At a median follow-up of 18 months, ORR was 60% for the full cohort of ADC and BsAb exposed patients, which included 55% of patients achieving VGPR or better. Median duration of response was 12.3 months and median PFS was 9.1 months for the full cohort.
The safety profile seen in CARTITUDE-2 Cohorts A, B, and C were consistent with data previously reported from CARTITUDE-1. CRS occurred in 95% of patients in Cohort A, 84% of patients in Cohort B, and in 60% of patients in Cohort C, which were mostly grades 1/2 with median time to onset of 7 to 8 days post-infusion and median duration of approximately 3 to 5.5 days.
Additionally, CARTITUDE-4, our Phase 3 trial evaluating cilta-cel versus pomalidomide, bortezomib, and dexamethasone (PVd) or daratumumab, pomalidomide, and dexamethasone (DPd) for the treatment of adult patients with relapsed and lenalidomide-refractory multiple myeloma who received one to three prior lines of therapy, met its primary endpoint of showing a statistically significant improvement in PFS compared to standard therapy at the trial's first pre-specified interim analysis. At a median follow-up of 15.9 months, the median progression-free survival was not reached in the cilta-cel group and was 11.8 months in the standard-care group (hazard ratio, 0.26; 95% confidence interval 0.18 to 0.38; P<0.001). The trial has been unblinded following the recommendation of an independent data monitoring committee. Progression-free survival at 12 months was 75.9% in the cilta-cel group and 48.6% in the standard care group. More patients in the cilta-cel group than in the standard-care group had an overall response (84.6% vs. 67.3%), a complete response or better (73.1% vs. 21.8%), and an absence of minimal residual disease (60.6% vs. 15.6%). Death from any cause for the cilta-cel group and standard care group was reported in 39 patients and 46 patients, respectively. Most patients reported grade 3 or 4 adverse events during treatment. Among the 176 patients who received cilta-cel in the as-treated population, 134 (76.1%) had CRS (grade 3 or 4, 1.1%; no grade 5), 8 (4.5%) had ICANS (all grade 1 or 2), 1 had movement and neurocognitive symptoms (grade 1), 16 (9.1%) had cranial nerve palsy (grade 2, 8.0%; grade 3, 1.1%), and 5 (2.8%) had CAR-T–related peripheral neuropathy (grade 1 or 2, 2.3%; grade 3, 0.6%).
In 2023, we also released five-year follow-up data from LEGEND-2, the longest follow-up for any BCMA-targeted CAR-T cell therapy study investigating LCAR-B38M, the same CAR construct to cilta-cel, showed a median OS of 55.8 months, with 16.2% of patients with heavily pretreated MM remaining disease-free. At the data cut-off, median follow-up in the LEGEND-2 study was 65.4 months. Seventy-four patients received LCAR-B38M, with a median of three prior lines of therapy; 35.7% of patients had high risk cytogenic profiles. In the study, the ORR was 87.8%, and 73% of patients achieved a CR. The median duration of response in the study was 23 months, and median PFS was 18 months at maturity, consistent with previously reported data. The rate of MRD-negative CR was 67.6%. No new CAR-T cell-related toxicities were reported in the analysis.
CAR-T cell therapy is a form of cancer immunotherapy, whereby a patient’s T cells are engineered to express a CAR that recognizes and binds to tumor cell surface antigens, resulting in their activation to target cancer cells for destruction. CAR-T cell therapy has emerged as a revolutionary and potentially curative therapy for patients with certain hematologic cancers. In 2017, the FDA approved the first two CAR-T cell therapies, Kymriah and Yescarta, after these products demonstrated strong efficacy in select relapsed or refractory B cell malignancies.
The development of CAR-T cell therapies has required notable advancements across the spectrum to overcome several challenges, including selecting the ideal tumor antigen target, engineering a CAR construct that will lead to potent and selective killing of tumor cells, the lack of validated preclinical models that are predictive of safety and efficacy in humans, and the ability to manufacture cell therapies with the high quality and reproducibility required for pharmaceutical products. In addition, meeting commercial demand at both a regional and global scale remains a challenge.
We have built our company around overcoming the challenges associated with CAR-T cell therapy development through deploying our fully-integrated, global cell therapy capabilities including in-house expertise on early-stage discovery, efficient clinical translation, manufacturing and commercialization to bring our pipeline of next-generation CAR-T product candidates to patients. We are leveraging our in-house antibody generation, coupled with our CAR-T specific functional screening capability, to add one or multiple tumor antigen binding sites on T cells. We seek to bridge the gap between discovery research and patients by leveraging our relationships with clinicians and their ability to conduct investigator-initiated clinical trials in top-tier hospitals in China without a formal investigational new drug (“IND”), process as part of the encouragement of innovation by the National Medical Products Administration (“NMPA”). We work with the clinicians and hospitals to conduct these trials in accordance with international standards to support future global regulatory filings and partnerships. We believe this strategy enables us to rapidly advance product candidates to patient populations with large unmet needs. To satisfy anticipated commercial demand in various geographies, we are building manufacturing facilities in the United States, EU and China. Furthermore, we will seek to make our products, if approved, widely available to cancer patients throughout the United States, Europe and Asia independently or through partnerships.
83
Taken together, we believe that our fully integrated approach will enable us to rapidly expand the use of CAR-T cell therapies.
Our lead product, cilta-cel, is an autologous CAR-T cell therapy that targets the BCMA, which is a highly expressed protein in a number of hematologic malignancies including MM. Autologous cells refer to the patient’s own cells. Following FDA’s approval of CARVYKTI, we are continuing to develop cilta-cel for potential further improvements in the treatment of MM. MM is a highly aggressive disease representing approximately 10% of all hematologic malignancies and 20% of deaths of hematologic malignancies worldwide. The American Cancer Society projects that 35,780 new cases of MM and 12,540 deaths will occur in the United States in 2024. Worldwide, there were an estimated 159,985 new cases of MM in 2018. Existing therapies include monoclonal antibodies, proteasome inhibitors and immunomodulatory agents, which generated aggregate sales of approximately $18 billion in 2018. Nevertheless, MM remains incurable and patients eventually relapse and become refractory to treatment. For example, median overall survival (“mOS”) in patients who have received at least three prior lines of therapy and are refractory to both an immunomodulatory drug and a proteasome inhibitor is only 13 months. The reported ORR for approved therapies for the population of heavily pre-treated and refractory patients with MM is 30% or less. Therefore, we believe there is a high unmet need for a therapy that provides an improved efficacy profile for a prolonged period of time.
We believe that cilta-cel has the potential to transform the treatment of MM. Following the results from our Phase 1 clinical trial in China, which we refer to as LEGEND-2, we are conducting a Phase 2 registrational trial of cilta-cel in RRMM patients in China, which we refer to as CARTIFAN-1. Based on available data from CARTIFAN-1, we submitted a New Drug Application (“NDA”) to China’s Center for Drug Evaluation (“CDE”), in December 2022.
In conjunction with our collaboration partner Janssen, we completed the rolling submission of a cilta-cel Biologics License Application (“BLA”) to the FDA in March 2021, submitted a cilta-cel marketing authorization application to the EMA in April 2021, and a cilta-cel NDA to Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) in December 2021. On February 28, 2022, FDA approved cilta-cel under the name CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. On May 25, 2022, the European Commission granted conditional marketing authorization of CARVYKTI for the treatment of adult patients with relapsed and refractory multiple myeloma, who have received at least three prior therapies, including an immunomodulatory agent, a proteasome inhibitor and an anti-CD38 antibody and have demonstrated disease progression on the last therapy. On September 26, 2022, Japan’s Ministry of Health, Labour and Welfare approved CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma, limited to cases meeting both of the following conditions: patients have no history of CAR-positive T cell infusion therapy targeting BCMA; and patients who have received three or more lines of therapies, including an immunomodulatory agent, a proteasome inhibitor and an anti-CD38 monoclonal antibody, and in whom multiple myeloma has not responded to or has relapsed following the most recent therapy.
In addition to the trials we are conducting to support our initial regulatory submissions, we are conducting multiple clinical trials to evaluate cilta-cel as an earlier line of therapy for MM. In November 2019, we and our strategic partner Janssen began enrolling an aggregate of approximately 160 patients in a Phase 2 multicohort trial of cilta-cel in the United States, EU, Israel and Saudi Arabia, which we refer to as CARTITUDE-2, in patients with MM in various clinical settings such as in early relapse patients or as a front-line therapy. Based on those results, we intend to explore expanding our investigation in those patient populations to potentially support regulatory approval submissions upon the agreement of regulatory agencies. In addition, the Phase 3 CARTITUDE-4 clinical trial, which includes approximately 400 patients in the United States, Europe, Australia, Japan, the Republic of Korea and Israel, completed enrollment during October 2021. This clinical trial is comparing treatment with cilta-cel to treatment of standard triplet therapy in Revlimid-refractory MM. On January 27, 2023 we announced that CARTITUDE-4 met its primary endpoint of showing a statistically significant improvement in PFS compared to standard therapy at the study’s first pre-specified interim analysis. These results were published in the New England Journal of Medicine. At a median follow-up of 15.9 months, the median progression free survival was not reached in the cilta-cel group and was 11.8 months in the standard-care group (hazard ratio, 0.26; 95% confidence interval 0.18 to 0.38; P<0.001). The trial has been unblinded following the recommendation of an independent data monitoring committee. Furthermore, we initiated the Phase 3 CARTITUDE-5 clinical trial during August 2021, targeting enrollment at approximately 650 patients, including sites in the United States, Europe, Canada, Australia, Korea and Japan. This clinical trial is comparing treatment with cilta-cel to treatment of standard triplet therapy in newly diagnosed MM patients for whom hematopoietic stem cell transplant is not planned as an initial therapy. Through a collaboration with the European Myeloma Network, we and Janssen initiated a Phase 3 CARTITUDE-6 clinical trial in October 2023, targeting enrollment at approximately 750 patients, including, but not limited to, sites in EU, Australia, Korea, and Israel. This clinical trial will compare treatment with cilta-cel to treatment of autologous stem cell transplant (ASCT) in newly diagnosed MM patients.
We have established a global collaboration with Janssen for cilta-cel, pursuant to which we share equally the development, production and commercialization costs and profits or losses in all areas other than mainland China, Hong
84
Kong, Macau and Taiwan, or Greater China, where we assume 70% of development, production and commercialization costs and retain or bear 70% of pre-tax profits or losses. We received an upfront payment of $350.0 million from Janssen in 2018, and an additional $335.0 million in milestone payments through December 31, 2023.
In addition to cilta-cel, we have a broad portfolio of earlier-stage autologous CAR-T product candidates targeting various cancers, including Non-Hodgkins Lymphoma (“NHL”), acute lymphoblastic leukemia (“ALL”), gastric cancer, esophageal cancer, pancreatic cancer, colorectal cancer, hepatocellular carcinoma, small cell lung cancer, and non-small cell lung cancer. We are also developing an allogeneic gamma delta CAR-T product candidate and an allogeneic CAR-NK product candidate targeting BCMA for MM, which are currently in investigator-initiated Phase 1 clinical trials in China. Our pipeline of product candidates is summarized in the table below.
In November 2023 we entered into the Novartis License Agreement. The Novartis License Agreement grants Novartis the exclusive worldwide rights to develop, manufacture and commercialize these cell therapies, and Novartis may apply its T-Charge™ platform to their manufacture. We received a $100 million upfront payment in January 2024 and will be eligible for an aggregate $1.01 billion additional clinical, regulatory and commercial milestone payments as well as tiered royalties.
We are led by Ying Huang, Ph.D., our Chief Executive Officer and a member of our Board of Directors, who was most recently a Managing Director and Head of Biotech Equity Research at BofA Securities, Inc., and earlier in his career, he was a Principal Scientist at Schering-Plough (now Merck), and also Lori Macomber, our Chief Financial Officer. We have assembled a team with broad experience in biopharmaceutical drug discovery, development and commercialization.
Our Strategy
Our goal is to become a worldwide leader in cell therapy, advancing the treatment of cancers. Our strategy to achieve this goal is as follows:
•Advance cilta-cel through registrational trials and obtain approval for the treatment of MM globally. We believe we have demonstrated that cilta-cel can deliver deep and durable anti-tumor responses, resulting in increased survival in RRMM patients. During 2022, cilta-cel received approval from the FDA, conditional approval from the European Commission, and approval from Japan’s Ministry of Health, Labour and Welfare. While these approvals were for later-stage patients, we intend to aggressively pursue clinical development of cilta-cel in MM including in earlier-stage patients and potentially as front-line therapy.
•Rapidly advance our pipeline by leveraging our global clinical development strategy. We plan to continue to leverage our technical know-how, discovery and clinical expertise, and deep relationships with clinical investigators and treatment centers to explore new opportunities for cell therapy. We plan to continue to
85
leverage our access to investigator-initiated clinical trials that are conducted in accordance with international standards to advance our product candidates in China and to select product candidates for IND applications in the United States. Our global clinical development strategy enables us to quickly assess the therapeutic potential of these individual product candidates in patients in an efficient and cost-effective manner. While we have encountered legal and regulatory challenges in transferring clinical data from China to other jurisdictions, we believe this will allow us to rapidly advance product candidates that we find most promising into global registrational clinical trials. We can also refine and optimize product candidates that do not achieve sufficient results in the investigator-initiated trials, and potentially mitigate certain clinical development risks in our target markets.
•Maintain and expand our global leadership in the cell therapy field. We believe we are a leading company in the cell therapy field, and we intend to continue to expand our global presence in order to provide access to our products, if approved, to patients around the world. We plan to continue to recruit leading talent across regions to be able to leverage our efficient and cost-effective clinical development strategy in China and to expand our suite of technologies that we believe enables us to take a systematic approach to rapidly developing improved cell therapies. We are conducting clinical pivotal trials for cilta-cel designed to support further regulatory approvals in the major markets of the United States, Europe, China and Japan. We also intend to establish a global commercial team to support all aspects of our product sales including market access, healthcare provider education, hospital certification, reimbursement, manufacturing and patient and provider support.
•Expand our manufacturing capabilities. Our manufacturing facility in the United States that we operate with Janssen currently supplies CARVYKTI for the U.S and EU markets, and we anticipate using such facility to supply other countries if we obtain approvals in such countries. Cilta-cel for our clinical trials is currently supplied by our U.S. facility, one of our Belgium facilities and our facility in China. We intend to further expand the commercial-scale manufacturing capacities at our U.S. facility and are in the process of establishing manufacturing capabilities in Belgium for commercial supply in the EU and U.S. markets, and possibly additional markets. Moreover, with Janssen, we have engaged, and are continuing to engage and pursue the use of third party CMOs to supplement our clinical and commercial capabilities and infrastructure, including the Novartis Clinical Supply Agreement.
•Establish ourselves as a preferred global partner. Our global network and strategy facilitates accelerated clinical proof-of-concept for pipeline candidates. Further, through our strong presence in China, deep relationships with Chinese key opinion leaders, health policy experts, leading healthcare institutions, local world-class manufacturing and strong understanding of and experience with Chinese regulations, we are well positioned to be the partner of choice to help non-Chinese companies navigate the lucrative yet complex Chinese market. We believe our global collaboration with Janssen, for the development and potential commercialization of cilta-cel is a testament to our potential as a preferred global partner.
Background on Cancer and CAR-T Cell Therapy
Cancer is the second leading cause of death worldwide. Cancers originate when individual cells develop mutations in essential cellular functions that drive increased cell division and growth. T cells, a key component of the immune system, are responsible for defending the body against infectious pathogens and cancerous cells. Through their T cell receptor, T cells are able to recognize and eliminate cancerous cells. However, cancer cells can evolve mechanisms to evade recognition by and establish other escape mechanisms from T cell surveillance. Cancer immunotherapy is a treatment strategy designed to enhance and manipulate immune responses to work more effectively against cancer.
Adoptive cell therapy (“ACT”) is a cancer immunotherapy that involves the infusion of immune cells into a patient with the intent of having these cells attack and destroy cancer cells. In most cases these immune cells are autologous, or isolated from the same patient to which they are re-administered. These isolated cells are expanded in number and can be stimulated with specific growth factors, cytokines, chemokines or antigens, or can be genetically modified to recognize and destroy certain tumors.
The two most common engineered ACTs, CAR-T cells and TCR-T cells are genetically modified cells that express either chimeric antigen receptors or naturally occurring T cell receptors (“TCRs”) that recognize antigens on a patient’s tumors. Other immune cell types can be engineered to express CAR constructs as well, including NK cells. Synthetic CAR receptors combine the specificity of a monoclonal antibody with cytotoxic and immune surveillance functions of a T cell and bind to extracellular antigens of cell-surface proteins overexpressed by cancer cells, thus enabling major
86
histocompatibility complex-independent T cell activation. CD19 is an antigen overexpressed on lymphoma cancer cells. Anti-CD19 CAR-T cell therapies have demonstrated strong efficacy and, in some cases, curative potential in select relapsed or refractory B cell malignancies, ultimately leading to the FDA approvals of the first CAR-T therapies, Kymriah and Yescarta in 2017.
Challenges in Developing CAR-T and CAR-NK Cell Therapies
Despite the advancements in the field, there are a number of key challenges in developing CAR-T and CAR-NK cell therapies.
•Selecting an appropriate tumor antigen target: The antigen targets that are recognized by CAR-T or CAR-NK cells are membrane-bound cell surface proteins. Limited distribution in normal tissue, over or homogeneous expression in tumors, and lack of shedding or internalization are critical factors related to the target antigen that need to be considered for target selection for developing cell therapies. While expression of target antigens on normal tissues increases the risk of on-target/off-tumor toxicity, reduced or loss of expression due to shedding or internalization on tumor cells can decrease the treatment efficacy.
•Designing an optimal CAR construct: The properties of the CAR construct are crucial to the overall success of CAR-T and CAR-NK cell therapy. The affinity and flexibility of the antigen binding domain(s) are important in enhanced tumor-specific recognition, and co-stimulation during cell activation regulates metabolism, survival and functions of T cells. A common side effect with CAR-T and CAR-NK cell therapy is excessive cell activation when encountering its target antigen. Such over activation can result in cytokine release syndrome (“CRS”), a life threatening condition caused by high levels of inflammatory cytokines. Therefore, designing an optimal CAR construct requires a balance between efficacy and safety.
•Preclinical to clinical translation: The lack of validated preclinical models that are predictive of safety and efficacy in humans presents a considerable barrier for efficient development of CAR-T and CAR-NK cell therapy products. Currently, few preclinical animal models can recapitulate the human immune system, tumor microenvironment and normal tissue distribution of target antigens. Although several animal models have been used in prior CAR-T and CAR-NK cell therapy studies, most of them do not reflect the obstacles to achieve clinical efficacy and fail to predict potentially life-threatening toxicities.
•Manufacturing complexities: Manufacturing of cell therapies is difficult due to the variability of collected cells from individual patients. Limited economies of scale can be realized given the bespoke nature of autologous CAR-T and CAR-NK manufacturing. These factors have contributed to limited clinical translation and patient access. Furthermore, high costs and, in certain instances, high failure rates during the manufacturing process, continue to limit the scalability of CAR-T and CAR-NK cell therapies. The difference in regulations governing the manufacturing of cell therapies from region to region presents an additional layer of complexity for drug developers looking to expand their capabilities globally.
Our Approach
We have built our company around overcoming the challenges associated with cell therapy development through deploying our fully-integrated, global cell therapy capabilities including in-house expertise on early-stage discovery, efficient clinical translation, manufacturing and commercialization to bring our pipeline of next-generation product candidates to patients. We are leveraging our in-house antibody generation, coupled with our CAR-T and CAR-NK specific functional screening capability, to add one or multiple binding sites on immune cells. We seek to bridge the gap between discovery research and patient treatments by leveraging our long-term relationships with clinicians in China and their expertise to conduct investigator-initiated clinical trials in top-tier hospitals in China to rapidly advance product candidates to patient populations with large unmet needs. To satisfy anticipated commercial demand in various geographies, we have built a manufacturing facility in the United States and China and are in the process of establishing manufacturing capabilities in Belgium for commercial supply in the EU and U.S. markets, and possible additional markets. We will, moreover, continue to evaluate the use of third party CMOs to assist us in meeting commercial demand. Furthermore, we will seek to make our products, if approved, widely available to cancer patients globally, including in the United States, Europe and Asia. Taken together, we believe that our fully integrated approach will enable us to rapidly expand the use of cell therapies to meet the significant unmet need among patients.
87
Technology Capabilities
From the commencement of our operations in 2014, we recognized the transformational potential of cell therapy. We have assembled a team of experts and a suite of technologies that we believe enables us to take a systematic approach to rapidly develop improved cell therapies. A number of technical areas underpin our approach to cell therapy and related fields.
In-house antibody and CAR screening capability
There is considerable variability in CAR-T and CAR-NK cell therapies’ ability to specifically recognize and kill tumor cells. Many earlier product candidates developed by others have relied on in-licensed antibodies, which may not be specifically designed for CAR-T and CAR-NK application. In contrast, we have developed a high-throughput screening technology that allows us to identify antibody fragments that have the most desirable properties and thus allowing us to optimize antigen-binding domains and linkers for specific CAR constructs. This allows us to repeatedly select and prioritize CAR constructs that are most likely to target the tumor cells of interest with high potency while sparing normal cells. We have demonstrated in our preclinical research and early clinical investigations that appropriate selection of the antigen-binding domain is an important determinant of overall anti-tumor activity. We also believe that our in-house antibody generation, coupled with our CAR-T specific functional screening capability, helps us expand our internal pipeline programs and keep pace with the rapidly evolving cell therapy development landscape.
Multiple antibody development platforms and multi-specific binding approaches
To maximize the possibility of identifying the best binder for a given target in a CAR-T or CAR-NK application, we have multiple in-house antibody development platforms, including single domain antibodies derived from llama and mice and fully human antibodies.
For our lead product candidate, cilta-cel, we have chosen to generate and characterize our own antigen-binding domains isolated from llamas. Llamas produce highly diverse antibodies including a unique class of single-domain antibodies that can have high antigen-binding potency compared to that of more conventional antibodies which are composed of heavy and light chain domains. These smaller, single-domain antibodies are also able to access antigenic sites that are close to the cell membrane, which may not be physically accessible to larger, conventional antibodies.
Our technology has the potential to efficiently generate multi-epitope antibodies targeting the same antigen or multi-antigen specific CAR constructs. The small size of llama single-domain antibody allows us to efficiently construct CARs with two or more antigen binding domains targeting the same antigen or different antigens simultaneously. Using this technology, we successfully generated llama single-domain antibodies targeting two epitopes on BCMA, which were applied to the CAR construct in cilta-cel.
Global Clinical Development Strategy
We employ a global clinical development strategy designed to progress our product candidates rapidly through the clinic. In particular, we utilize our deep relationships with thought leaders in China to conduct proof-of-concept studies, from which we believe we can more efficiently inform the design of our clinical development programs and potentially mitigate certain clinical development risks. While we have encountered legal and regulatory challenges in transferring clinical data from China to other jurisdictions, we continue to believe that this approach is beneficial. Through initially testing product candidates in humans in investigator-initiated trials in China, we can quickly assess the therapeutic potential of and improve individual product candidates in an efficient and cost-effective manner, which allows us to quickly identify promising product candidates and advance them into registrational clinical trials across China, the United States, Europe and Japan. We also intend to continue to invest in our manufacturing facilities in the United States, EU and China and continue to develop our commercial capabilities to support our product sales, including product promotion, healthcare provider education, and medical and scientific exchange.
Given our expertise and understanding of the significant differences in the regulatory environment for cell therapies in China compared to the United States, we have the potential to be a preferred partner for companies outside of China or those that are founded or controlled by entities outside of China to conduct scientific research using genetically modified cells in China. Following consultation, and subject to oversight by scientific advisory boards and ethical committees, clinicians in China can initiate clinical testing for experimental cell therapies at their hospitals without the requirement for clearance of a formal IND application by the NMPA as part of the NMPA’s encouragement of innovation. We work with clinicians and hospitals to conduct investigator-initiated trials in accordance with international standards to support future global regulatory filings and partnerships. This approach enables us to rapidly test our product candidates directly in
88
patients. We also have established relationships with China-based key opinion leaders, regulatory bodies, institutional review boards, ethics committees and related entities involved in accelerating and monitoring clinical development of cell therapies.
We are one of the most advanced companies in developing CAR-T cell therapies in China, having received clearance for the first CAR-T cell therapy IND application by the NMPA. We are also the first to conduct a registrational CAR-T clinical trial in China. We have built a strong, global research team of over 305 researchers who identify potential cellular targets and create and assess a broad portfolio of product candidates. Establishing this expertise has attracted the leading investigators and partners within China.
The LEGEND-2 trial was conducted at four top-tier large-scale hospitals that treat millions of patients annually and are associated with universities with integrated operations in medical treatment and medical education. In China alone, there were an estimated 4.3 million new cancer cases and 2.9 million cancer deaths in 2018. Eighty percent of these patients are treated in regional and provincial hospitals, many of which we collaborate with. We believe the clinical experience at these hospitals in treating patients with these therapies with regard to dosing, conditioning regimens and management of adverse events, such as CRS, represent an invaluable resource for first-in-human testing of potential clinical candidates.
Patients who are enrolled in investigator-initiated clinical trials typically have failed multiple lines of previous therapies and lack any alternatives. From these clinical trials clinicians collect detailed biomarker data, profiles of cellular responses, and clinical responses which are used to help refine treatment protocols and are shared with us to understand the strengths and weaknesses of our product candidates. We use the data from these early clinical trials to advance promising product candidates and, when appropriate, improve other product candidates. We also use the data to identify product candidates or biological hypotheses that are not effective, enabling us to narrow our focus and avoid unnecessary expense and time.
Clinical-and Commercial Stage Manufacturing Expertise
We have assembled a clinical, manufacturing and commercial (“CMC”), team with extensive CAR-T process development and commercialization experience, many of whom have direct experience with commercial launch and manufacturing supply of marketed CAR-T products. We have current good manufacturing practices (“cGMP”), compliant manufacturing facilities in the United States and China that supply the clinical material for our trials for our pipeline programs, and our facility located in the United States also manufactures for commercial supply in the U.S. market. We are also in the process of establishing manufacturing facilities in the EU for future supply.
In establishing these facilities, we have taken significant efforts to establish defined procedures regarding manufacturing robustness, facility design, employing quality personnel and designing cell therapies taking into account manufacturability. We believe these efforts, along with our rigorous manufacturing infrastructure and deep industry expertise have enabled the development of our robust manufacturing process and can potentially drive further cycle time improvement and cost reductions in developing cell therapy product candidates.
Our Programs
Cilta-cel for the Treatment of Multiple Myeloma
Cilta-cel is a CAR-T cell therapy that we are developing for the treatment of MM. In a Phase 1 first-in-human clinical trial (LEGEND-2), 74 RRMM patients were treated with LCAR-B38M CAR-T cells. With a median follow-up time of 65.4 months, the ORR was 87.8% including a CR rate of 73%. The median duration of response was 23.3 months and the median PFS was 18 months. Median OS was 55.8 months. At a median follow-up of 47.8 months, expected adverse events were reported in all patients in LEGEND-2, with CRS reported in 91.9% of patients, with grade 3 or higher CRS observed in 9.5% of patients. Total CAR-T cell neurotoxicity of any grade was observed in 1 patient. No grade 3 or higher neurotoxicity events were reported, and no new CAR-T cell-related adverse events were reported since the 48-month follow-up. At a median follow-up of 47.8 months, there were 34 reported deaths during the Phase 1 LEGEND-2 clinical trial: 28 due to disease progression, one due to CRS and tumor lysis syndrome, one due to pulmonary embolism and potential acute coronary syndrome, one due to respiratory failure associated with subsequent therapy, one due to esophageal carcinoma, and two due to infection. At a median follow-up of 65.4 months, 33 patients were alive of whom 12 were disease free at 5 years or greater after infusion.
89
Patients were measured for whether they achieved a CR, VGPR or a partial response (“PR”) in accordance with the International Myeloma Working Group (the “IMWG”) uniform response criteria for MM. The IMWG uniform response criteria has been utilized in registration studies of approved myeloma drugs. The IMWG uniform response criteria assesses efficacy of treatment options for myeloma and allows for a comparison of efficacy between treatment strategies in clinical trials, strict definitions for responses, as shown in the table below, and classifications to improve detail and clarify inconsistent interpretations across clinical trials.
The IMWG criteria for CR, VGPR, PR and stable disease (“SD”) is summarized below.
| CR | •Negative immunofixation in the serum and urine and •Disappearance of any soft tissue plasmacytomas and •<5% plasma cells in bone marrow aspirates | ||||
| VGPR | •Serum and urine monoclonal protein ("M-protein") detectable by immunofixation but not on electrophoresis or •≥90% reduction in serum M-protein plus urine M-protein level <100 mg/24 h | ||||
| PR | •≥50% reduction of serum M-protein plus reduction in 24-hour urinary M-protein by ≥90% or to <200 mg/24 h •If the serum and urine M-protein are unmeasurable, a ≥50% decrease in the difference between involved and uninvolved free light chain levels is required in place of the M-protein criteria and if serum-free light assay is also unmeasurable, ≥50% reduction in plasma cells is required in place of M-protein, provided baseline bone marrow plasma-cell percentage was ≥30% •In addition to these criteria, if present at baseline, a ≥50% reduction in the size (SPD) of soft tissue plasmacytomas is also required | ||||
| SD | •Not meeting criteria for CR, VGPR, PR, or progressive disease | ||||
In collaboration with Janssen, we are currently conducting a Phase 2 trial of cilta-cel in RRMM patients in China (CARTIFAN-1) and a Phase 1b/2 trial in RRMM patients in the United States and Japan (CARTITUDE-1). The CARTITUDE-1 Phase 1b/2 registrational trial has completed enrollment. For the Phase 1b portion of the CARTITUDE-1 trial, the primary endpoint was to characterize safety and establish the recommended Phase 2 dose and, for the Phase 2 portion, the primary endpoint was to evaluate efficacy by ORR. Secondary endpoints included efficacy, duration of and timing to response, progression-free survival, overall survival, pharmacokinetic and pharmacodynamic markers, and presence of anti-JNJ-4528 antibodies. In the United States, 97 patients were treated with cilta-cel in the combined Phase 1b/2 CARTITUDE-1 trial. At a median follow-up of 27.7 months (data as of January 11, 2022), the overall response rate was 97.9% with a sCR rate of 82.5%. At study closeout (median follow-up of 33.4 months; data as of October, 14, 2022), the median DOR was 33.9 months. The median PFS was 34.9 months for all patients and 38.2 months for patients with a complete response (CR) or better. The PFS rates for all patients at 30 months and 36 months were 54.2% and 47.5%, respectively. Median OS was not reached and an estimated 62.9% of patients were alive at the 3-year follow-up. At the 27.7 month median follow-up, the most common hematologic adverse events observed were neutropenia (95.9%), anemia (81.4%), thrombocytopenia (79.4%), leukopenia (61.9%) and lymphopenia (53.6%). With respect to adverse events of special interest, no new events of CRS were reported since the median approximate 1 year follow up. One new case of signs and symptoms of parkinsonism, previously termed movement and neurocognitive treatment-emergent AEs, was observed at the 27.7-month median follow-up. At a median follow-up of 33.4 months, there were no new neurotoxicity events were reported since the 27.7 month follow-up. A total of 26 second primary malignancies (“SPMs”) were reported during the study in 20 patients. Four new patients developed 6 new cases of SPMs since the 27.7 month median follow-up, including 2 cases of basal cell carcinoma, and 1 case each of myelodysplastic syndrome, B-cell lymphoma, melanoma, and prostate cancer. A total of 35 deaths occurred during the study with 17 due to progressive disease, 12 deaths due to adverse events unrelated to treatment, and 6 deaths due to adverse events related to treatment.
Cilta-cel has been granted breakthrough therapy designation by the FDA, PRIME designation, enabling accelerated assessment, by the EMA, and breakthrough therapy designation by CDE. In January 2021, the CHMP also accepted a request for an accelerated assessment of the marketing authorization application. Orphan drug designation has been granted for cilta-cel by the FDA, the European Commission, Japan Ministry of Health, Labour and Welfare, Switzerland
90
Swissmedic, and South Korea Ministry of Food and Drug Safety. On February 28, 2022, cilta-cel was approved by FDA under the trademark CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. On May 25, 2022, the European Commission granted conditional marketing authorization of CARVYKTI for the treatment of adults with relapsed and refractory MM who have received at least three prior therapies, including a PI, an IMiD and an anti-CD38 antibody, and have demonstrated disease progression on the last therapy. On September 26, 2022, Japan’s Ministry of Health, Labour and Welfare approved CARVYKTI for the treatment of adults with relapsed or refractory multiple myeloma, limited to cases meeting both of the following conditions: patients have no history of CAR-positive T cell infusion therapy targeting BCMA; and patients who have received three or more lines of therapies, including an immunomodulatory agent, a proteasome inhibitor and an anti-CD38 monoclonal antibody, and in whom multiple myeloma has not responded to or has relapsed following the most recent therapy. In December 2022, a cilta-cel NDA was submitted to the CDE in China for the treatment of RRMM.
Clinical results received to date demonstrate that cilta-cel has the potential to deliver deep and durable anti- tumor responses in RRMM patients with a manageable safety profile.
In 2017, we entered into a global collaboration with Janssen for cilta-cel, pursuant to which we share equally the development, production and commercialization costs and profits or losses in all areas other than Greater China, where we assume 70% of development, production and commercialization costs and retain or bear 70% of pre-tax profits or losses. We received an upfront payment of $350.0 million from Janssen in 2018, and an additional $335.0 million in milestone payments through December 31, 2023.
Background on Multiple Myeloma
MM is currently an incurable blood cancer that starts in the bone marrow and is characterized by an excess proliferation of a type of antibody-producing white blood cell called plasma cells. MM is the third most common blood cancer and represents approximately 10% of all cases and 20% of deaths of hematological malignancies. In 2018, there were 25,962 new cases of MM and 13,648 deaths in the United States, 48,297 new cases of MM and 30,860 deaths in Europe and 20,066 new cases of MM and 14,655 deaths in China. For 2024, the American Cancer Society estimates that about 35,780 new MM cases will be diagnosed and about 12,540 deaths are expected to occur in the United States.
Most people in the United States who are diagnosed with MM are 65 years old or older, with less than one percent of cases diagnosed in people younger than 35 years old. From 2013 to 2019, MM had a five-year relative survival rate of approximately 59.8% in the United States. Treatment choices for MM vary with the aggressiveness of the disease and overall health of the patients.
Newly diagnosed patients in good physical health with active disease generally receive high-dose chemotherapy followed by autologous hematopoietic stem cell transplantation (“HSCT”). When transplantation is not an option or if HSCT patients fail to achieve a CR, standard of care consists of systemic chemotherapy. The therapeutic landscape of MM has changed significantly in the past decade with the introduction of novel immunomodulatory agents, such as lenalidomide, marketed as Revlimid by Bristol-Myers Squibb, as well as monoclonal antibodies, such as daratumumab, marketed as Darzalex by Janssen, and proteasome inhibitors, including bortezomib, marketed as Velcade by Takeda and Janssen, and carfilzomib, marketed as Kyprolis by Amgen. Worldwide sales of drugs to treat MM were approximately $18 billion in 2018 with 63% of these sales in the United States.
Despite these major advances, MM remains incurable even when patients receive one or more treatment agents. Patients typically receive between three and five lines of therapy but then ultimately experience a final tumor relapse having exhausted all effective treatment options. mOS in patients who have received at least three prior lines of therapy, and are refractory to both an immunomodulatory drug and a proteasome inhibitor, is only 13 months, with an mOS of less than 12 months in patients that are refractory to CD38-targeting monoclonal antibodies and one or more proteasome inhibitors and/or one or more immunomodulatory drugs. The reported ORR for approved therapies for the population of heavily pre-treated and refractory patients with MM is 30% or less.
Emerging therapeutic approaches include an array of product candidates that target specific antigens on MM cells, and includes antibody-drug conjugates and redirected T cell therapies such as T cell engagers and CAR-T cell therapies. Despite recent progress, we believe there is a high unmet need for a therapy that provides an improved and durable efficacy profile.
91
BCMA
BCMA is a protein normally expressed on B cells, where it functions as a pro-survival receptor. High levels of BCMA are found in plasma cells, which are specialized B cells that produce and secrete large quantities of antibodies. BCMA is overexpressed in a number of hematologic malignancies, including MM.
Tissue distribution of BCMA, as determined using quantitative analysis of transcription levels, shows that BCMA is generally expressed only in lymphoid cells and not in other tissues in the body. The expression level of BCMA in plasmacytomas, or MM tumors, is hundreds to thousands of times higher than normal tissues, making BCMA a prime candidate for therapeutic agents directed against MM.
Published details of a third-party trial conducted by leading researchers at the U.S. National Institutes of Health report that treatment with anti-BCMA CAR-T cells yielded an ORR of 58% in a series of 24 RRMM patients and an ORR of 81% in a subset of 16 patients receiving the highest dose of 9 x 106 CAR-T cells/kg. These results provide preliminary evidence for the role that anti-BCMA CAR-T cells may play in the treatment of RRMM. We believe that there are opportunities to build upon these initial results in the development of next-generation CAR-T cell therapies.
Our Solution, Cilta-cel
Cilta-cel is a structurally differentiated autologous CAR-T cell therapy that targets BCMA. We used single-domain antibodies against BCMA that we isolated from llamas to design the cilta-cel CAR construct. Two BCMA binding domains, VHH1 and VHH2, were then linked to a T cell costimulatory domain from the 4-1BB protein, also known as CD137, and the CD3 zeta-chain to form the CAR construct.
Cilta-cel CAR construct
CAR construct of cilta-cel has two antigen-binding domains
92
Same antigen dual binding domain CAR
We believe cilta-cel provides benefits to MM patients through the following mechanisms of action:
•having two antigen-binding domains takes advantage of the concept of higher binding avidity—two points of contact between the CAR and the tumor antigen results in binding much less likely to be reversible than single point of contact with either antigen;
•dual antigen-binding domains could also allow CARs to cross-link epitopes on different molecules, which facilitates the gathering of more CARs in the immune synapse for T cell activation, increases downstream signal strength of T cells, and therefore, enhances overall CAR-T functionality; and
•inclusion of antigen-binding domains that recognize antigenic sites independently could lead to an increased ratio of on-off target binding, resulting in higher specificity thereby resulting in less off-target effects.
We conducted a preclinical study in which the anti-tumor killing effect of a single binder BCMA CAR (BCAR001 and BCAR002) was compared to a dual-binding BCMA CAR (BCAR003). As depicted below, the data from the study demonstrated that, at the same effector-to-target ratio (E/T 5:1), anti-tumor killing activity of a CAR containing a dual-binder was superior to those containing just one binder in cell lines with BCMA expression.
Preclinical data demonstrates higher specific cytolytic activity of dual-binder BCMA CAR over
single-binder BCMA CAR
single-binder BCMA CAR
Completed Clinical Results LEGEND-2 (China)
LEGEND-2 is a first-in-human investigator-initiated phase 1 study in China to evaluate the safety of LCAR-B38M CAR-T cells as well as provide initial proof-of-concept efficacy in patients with relapsed or refractory multiple myeloma. Patient enrollment in this study began in 2016 and accrued a total of 74 patients across four academic sites in China. Data from the four academic sites was previously reported in a 2022 Journal of Hematology & Oncology publication, and most recently at the 2023 American Society of Clinical Oncology Annual Meeting. At a median follow-up of 65.4 months, the overall median mPFS was 18 months with a 5-year PFS rate of 21.70%. The mOS was 55.8 months with a 5-year OS rate of 49.11%. In this study, LCAR-B38M displayed a safety profile that was generally consistent with other safety reports of BCMA-targeting CAR-T therapies. CRS and cytopenias were the most observed AEs in this study and no new CAR-T cell related toxicities were reported since the 48-month follow-up.
Ongoing Clinical Development
We obtained approval to conduct confirmatory clinical trial, CARTIFAN-1, through multiple centers in China in March 2018. Following the submission of an IND, which was cleared by the FDA in May 2018, we and Janssen are conducting the CARTITUDE-1, CARTITUDE-2, CARTITUDE-4, CARTITUDE-5 and CARTITUDE-6 (in collaboration with the European Myeloma Network (the “EMN”)) trials.
93
CARTIFAN-1 (China)
We are enrolling RRMM patients in a pivotal Phase 2 trial, which we refer to as CARTIFAN-1, involving 8 sites in China. The primary endpoint of this trial is ORR. In December 2022, we submitted a cilta-cel NDA to CDE in China based on available data from CARTIFAN-1.
CARTITUDE-1 (United States and Japan)
Together with Janssen, we have completed enrollment of patients in a Phase 1b/2 clinical trial of cilta-cel, across 17 sites in the United States and 4 sites in Japan and 97 patients had been dosed in the Phase 1b/2 trial in the United States. These 97 patients had failed a median of six prior lines of therapies (with a range of 3-18 prior lines of therapies). All patients were exposed to immunomodulatory drugs, proteasome inhibitors and anti-CD38 therapies, and 99% of patients were refractory to last line of therapy. For the Phase 1b portion of the CARTITUDE-1 trial, the primary endpoint was to characterize safety and establish the dose and for the Phase 2 portion, the primary endpoint was to evaluate efficacy by ORR. Secondary endpoints included efficacy, duration of and timing to response, progression-free survival, overall survival, pharmacokinetic and pharmacodynamic markers, and presence of anti-JNJ-4528 antibodies. For the CARTITUDE-1 trial, patients received cilta-cel infusion following apheresis and lymphodepletion with cyclophosphamide and fludarabine daily for three days. The median administered dose of cilta-cel was 0.71 x 106 CAR+ viable T cells/kg (range 0.51 – 0.95 x 106).
We have completed enrolling patients in the Phase 2 portion of the CARTITUDE-1 trial and the latest results from the combined Phase 1b/2 CARTITUDE-1 study were presented the 2023 ASCO Annual Meeting.
As of January 11, 2022 (median follow-up of 27.7 months), 97 patients with RRMM continued to show a high ORR of 97.9%, with 82.5% of patients achieving a sCR. At a median follow-up of 33.4 months (data as of October 14, 2022), median DOR was 33.9 months. The median PFS for all patients and patients with CR or better was 34.9 months and 38.2 months, respectively. The PFS rates for all patients at 30 months and 36 months were 54.2% and 47.5%, respectively. Median OS was not reached, and an estimated 62.9% of patients were alive at the 3-year follow-up. At the 27.7 month median follow-up, the most common hematologic adverse events of any grade were neutropenia (95.9%), anemia (81.4%), thrombocytopenia (79.4%), leukopenia (61.9%) and lymphopenia (53.6%). One new case of signs and symptoms of parkinsonism, previously termed movement and neurocognitive treatment-emergent AEs, was observed at the 27.7-month median follow-up and the longer-term data showed no new neurotoxicity events since the 27.7-month follow-up. A total of 26 second primary malignancies (SPMs) were reported in 20 patients. Four new patients developed six new cases of SPMs since the 27.7 month median follow-up, including 2 cases of basal cell carcinoma, and 1 case each of myelodysplastic syndrome, B-cell lymphoma, melanoma, and prostate cancer. A total of 35 deaths occurred during the study with 17 due to progressive disease, 12 deaths due to adverse events unrelated to treatment, and 6 deaths due to adverse events related to treatment.
94
*Presented at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023; Chicago, IL, USA & Virtual.
Collectively, we believe these results demonstrate that cilta-cel has a manageable safety profile at the recommended Phase 2 dose and can deliver early, deep, and durable responses in heavily pretreated RRMM patients.
Based on the results of CARTITUDE-1, including the efficacy observations from the Phase 1b and Phase 2 portions of the trial, the rolling submission of the cilta-cel BLA to the FDA was initiated in December 2020 and completed in April 2021. A cilta-cel marketing authorization application was submitted to EMA in April 2021 and an NDA was submitted to PMDA in December 2021.
95
CARTITUDE-2 (United States, Belgium, France, Germany, Netherlands, Spain, Israel, Saudi Arabia)
We and Janssen began enrolling patients in November 2019 in a multi-cohort, open-label Phase 2 trial of JNJ-4528 in the United States, Europe, Israel and Saudi Arabia which we refer to as CARTITUDE-2. CARTITUDE-2 consists of the following eight cohorts, with enrollment of approximately 169 patients:
•Cohort A: Treatment of patients with progressive MM with cilta-cel after one to three prior lines of therapy
•Cohort B: Treatment of MM patients with cilta-cel with early relapse after a front-line therapy
•Cohort C: Treatment of RRMM patients with cilta-cel that have failed therapy with a proteasome inhibitor, immunomodulatory therapy, an anti-CD38 monoclonal antibody, and anti-BCMA therapy
•Cohort D: Treatment of MM patients with cilta-cel and lenalidomide who have not achieved a CR after ASCT
•Cohort E: Treatment of newly diagnosed MM patients, transplant was not planned, high risk disease
•Cohort F: Treatment of newly diagnosed MM patients with standard risk disease
•Cohort G: Treatment of newly diagnosed MM patients, transplant not planned
•Cohort H: Treatment of newly diagnosed MM patients, transplant eligible
The primary endpoint for Cohorts A-F of this trial is the percentage of patients with negative MRD one year after treatment, and the primary endpoint for Cohorts G-H is the percentage of participants with sustained MRD-negative CR. Based on the results of each cohort, we intend to explore expanding our investigation in those patient populations to potentially support regulatory approval submissions upon the agreement of regulatory agencies. We also have the ability to expand CARTITUDE-2 to include further cohorts to evaluate additional unmet needs of MM patients.
Cohort A of the trial evaluated the efficacy and safety of cilta-cel in 20 patients with progressive MM after 1-3 prior lines of therapy and were refractory to lenalidomide. As of April 2023 (median follow-up of 29.9 months), the ORR was 95% with a CR or better rate of 90%. Median time to first response was 0.99 months and the median time to best response was 3.25 months. The median DOR was not reached at a median follow-up of 17.1 months. At a median follow-up of 29.9 months, the 24-month DOR rate was 73.3%, the 24-month PFS rate was 75.0%, and the 24-month OS rate was 75.0%. All patients with MRD-evaluable samples at 10-5 threshold (n=17) were MRD negative. Hematologic adverse events included neutropenia (95%), thrombocytopenia (80%), anemia (75%), lymphopenia (80%) and leukopenia (60%). CRS of any grade occurred in 95% of patients and CAR T-cell neurotoxicity of any grade occurred in 30% of patients. Three patients (15%) had immune effector cell associated neurotoxicity syndrome (“ICANS”). There were no cases of movement and neurocognitive treatment emergent adverse events or parkinsonism observed. Five deaths occurred post cilta-cel infusion: one due to COVID-19 pneumonia (treatment related), one due to sepsis (not treatment related), and three due to progressive disease.
Cohort B of the trial evaluated the efficacy and safety of cilta-cel in 19 patients with early relapse MM after a front-line therapy. As of April 2023 (median follow-up was 27.9 months), the overall response rate was 100%, which included 89.5% of patients achieving ≥ CR. The median time to first response was 0.95 months and median time to best response was 5.1 months. Of the 15 patients with MRD-evaluable samples, 14 (93.3%) were MRD negative at the 10-5 threshold. The hematologic treatment emergent adverse events (“TEAEs”) that were observed included neutropenia (94.7%), thrombocytopenia (57.9%), anemia (57.9%), lymphopenia (47.4%), and leukopenia (31.6%). CRS of any grade occurred in 16 (84.2%) patients, and ICANS of any grade occurred in one patient. One patient experienced Grade 3/4 movement and neurocognitive TEAEs on day 38 post cilta-cel infusion.
96
* Presented by J Hillengass at the 65th American Society of Hematology (ASH) Annual Meeting; December 9–12, 2023; San Diego, CA, USA
* Presented by J Hillengass at the 65th American Society of Hematology (ASH) Annual Meeting; December 9–12, 2023; San Diego, CA, USA
97
* Presented by J Hillengass at the 65th American Society of Hematology (ASH) Annual Meeting; December 9–12, 2023; San Diego, CA, USA
* Presented by J Hillengass at the 65th American Society of Hematology (ASH) Annual Meeting; December 9–12, 2023; San Diego, CA, USA
Cohort C of the trial evaluated the efficacy and safety of cilta-cel in 20 patients with prior exposure to a PI, IMiD, mAb, and non-cellular BCMA-targeting therapy including an ADC or BsAb. As of June 2022 (median follow-up was 18 months), ORR was 60% for the full cohort of ADC and BsAb exposed patients, which included 55% of patients achieving VGPR or better. Median duration of response was 12.3 months and median PFS was 9.1 months for the full cohort. Of the 10 patients with MRD-evaluable samples at 10-5 threshold, 7 (70%) were MRD negative. The hematologic TEAEs that were observed included neutropenia, thrombocytopenia, anemia, lymphopenia and leukopenia. CRS occurred in 12 (60%)
98
patients, and ICANS occurred in four patients. No cases of movement and neurocognitive treatment emergent AEs MNTs/parkinsonism were observed.
*Presented by Cohen et al. at the 20th International Myeloma Society (IMS) Annual Meeting and Exposition; September 27–30, 2023; Athens, Greece
*Presented by Cohen et al. at the 20th International Myeloma Society (IMS) Annual Meeting and Exposition; September 27–30, 2023; Athens, Greece
99
*Presented by Cohen et al at the 64th American Society of Hematology (ASH) Annual Meeting; December 10–13, 2022; New Orleans, LA, USACARTITUDE-4 (Australia, Austria, Belgium, Denmark, France, Germany, Italy, Israel, Japan, Republic of Korea, Netherlands, Poland, Spain, Sweden, United Kingdom, United States)
We and Janssen are conducting a 400 patient, randomized, open-label Phase 3 trial of cilta-cel in Revlimid-refractory MM patients who received one to three prior lines of therapy, which we refer to as CARTITUDE-4. Patients will be randomized 1:1 to receive standard of care (investigator choice between pomalidomide/ bortezomib/dexamethasone or daratumumab/pomalidomide/dexamethasone) or be treated with a single administration of cilta-cel. The primary endpoint of this trial is progression free survival. On January 27, 2023 we announced CARTITUDE-4 met its primary endpoint of showing a statistically significant improvement in PFS compared to standard therapy at the study’s first pre-specified interim analysis. The trial has been unblinded following the recommendation of an independent data monitoring committee.
At a median follow-up of 15.9 months (data as of November 1, 2022), the median PFS was not reached in the cilta-cel arm (n= 208) and was 11.8 months in the standard care arm (n=211), with a HR of 0.26 (95% CI, 0.18-0.38) and P<0.0001. The 12-month PFS rates for the cilta-arm and standard care arm was 76% and 49%, respectively. In the cilta-cel arm, the ORR was 84.6% and 73.1% of patients had a CR or better. The median DOR was not reached with a 12-month DOR rate of 84.7%. MRD negativity was observed in 60.6% of patients in the cilta-cel arm. Among the 176 patients that received cilta-cel as study treatment, the ORR was 99.4% and 86.4% of patients had a CR or better. The 12-month PFS rate was 90% and 72% of patients were MRD negative and the 10-5 threshold. Patients in the standard care arm had a median DOR of 16.6 months with a 12-month DOR rate of 63.0%. MRD negativity was observed in 15.6% of patients in the standard care arm. Hematologic adverse events of any grade for both the cilta-cel and standard care arms included neutropenia (89.9% vs 85.1%), anemia (54.3% vs 26.0%), thrombocytopenia (54.3% vs. 31.3%), and lymphopenia (22.1% vs 13.9%). Deaths due to treatment-emergent adverse events were reported in 10 patients in the cilta-cel arm and 5 patients in the standard-care arm. Among the 176 patients that received cilta-cel as study treatment, any grade CRS was reported in 76.1% of patients (1.1% grade 3/4). Neurotoxicity of any grade was reported in 20.5% of patients (2.8% grade 3/4). Additional neurotoxicity events of any grade included ICANS in 8 (4.5%) patients, cranial nerve palsy in 16 (9.1 %) patients, peripheral neuropathy in 5 (2.8%) patients, and movement and neurocognitive treatment-emergent adverse events in 1 (0.6%) patients.
100
*Presented by Dhakal etal.at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023, Chicago, IL, USE & Virtual
101
*Presented by Dhakal et al.at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023, Chicago, IL, USE & Virtual
*Presented by Dhakal et al.at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023, Chicago, IL, USE & Virtual
102
*Presented by Dhakal et al.at the 2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023, Chicago, IL, USE & Virtual
*Presented by Dhakal et al.at the2023 American Society of Clinical Oncology (ASCO) Annual Meeting; June 2-6, 2023, Chicago, IL, USE & Virtual
CARTITUDE-5 (Argentina, Australia, Austria, Belgium, Brazil, Canada, Czechia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Israel, Japan, Republic of Korea, Netherlands, Norway, Poland, Portugal, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, United States)
103
We and Janssen are conducting a 650 patient, randomized, open-label, global, multicenter, Phase 3 trial in patients with newly diagnosed MM, which we refer to as CARTITUDE-5. Patients are randomized 1:1 to receive standard of care with VRd induction followed by lenalidomide (Revlimid), and dexamethasone maintenance or VRd induction followed by a single administration of cilta-cel (no maintenance). The primary endpoint of this trial is progression free survival. Our goal is to complete enrollment in CARTITUDE-5 by the end of the first half of 2024.
CARTITUDE-6 (Australia, Belgium, Czechia, Greece, Israel, Japan, Republic of Kora, Netherlands, Norway, Spain, Switzerland, Sweden, the United States and the United Kingdom)
Through a collaboration with the European Myeloma Network (the “EMN”), we and Janssen have initiated a 750 patient, randomized, open-label, global, multicenter, Phase 3 trial in patients with newly diagnosed MM, comparing treatment with cilta-cel to treatment with autologous stem cell transplant. This study is known as EMN028, and we refer to it as CARTITUDE-6. The dual primary end-points of the trial are PFS and sustained MRD-negative CR for at least 12 months, determined by next-generation sequencing ( at least 10-5 threshold).
An IND for CARTITUDE-6 was submitted to and received by the FDA on November 14, 2022. Subsequently, the FDA requested additional safety data as a condition to permitting the study to continue under the U.S. IND, which primarily included requests for additional safety data to support the proposed dose and schedule and the proposed induction regimen. Based on such comments, it was decided to withdraw the IND. After reviewing additional safety information from the CARTITUDE-2 study, the FDA agreed that the additional data were sufficient to support the initiation of the CARTITUDE-6 study in the US. Thus, the IND for CARTIFUDE-6 was re-submitted by EMN and cleared by the FDA in November 2023.
Other Ongoing Phase 1 Clinical Trials in the United States
During November 2022, we announced that FDA had cleared our IND application to proceed with the clinical development of LB2102, an investigational, autologous CAR-T therapy for the treatment of adult patients with extensive stage small cell lung cancer (“SCLC”). LB2102 is designed to selectively target delta-like ligand 3 (“DLL-3”), a ligand that is highly restricted to various malignancies, including SCLC, large cell neuroendocrine carcinoma (“LCNEC”), certain other neuroendocrine tumors and some prostate cancers. DLL-3 has also been linked to tumor growth, migration and invasion. The Phase 1, first-in-human, open-label clinical study is designed to evaluate the safety and preliminary efficacy of LB2102 in subjects with extensive stage SCLC and patients with LCNEC, as well as to determine the recommended dose for Phase 2. In June 2023, the FDA granted orphan designation for LB2102 for treatment of SCLC. This study is currently enrolling in the United States.
During June 2022, we announced that FDA had cleared our IND application to evaluate LB1908 in a Phase 1 clinical trial in the United States. LB1908 is an investigational, autologous CAR-T therapy selectively targeting claudin 18.2 through a high-affinity VHH antibody for the treatment of adults with relapsed or refractory gastric, esophageal (including gastro-esophageal junction) or pancreatic cancers. Claudin18.2 is a tight junction protein commonly expressed in patients with these cancer subtypes. The Phase 1, first-in-human, open-label, multicenter clinical study seeks to characterize the safety and tolerability of LB1908, as well as determine the recommended dose for Phase 2 and evaluate preliminary efficacy. In November 2022, the FDA granted orphan designation for LB1908 for treatment of gastric cancer including gastroesophageal junction cancer.This study is currently enrolling in the United States.
Other Ongoing Investigator-Initiated and Preclinical Programs in China
In addition to cilta-cel, we have a broad portfolio of product candidates, both autologous and allogeneic, targeting various cancers that are in various stages of preclinical and clinical development, including some that are in investigator-initiated trials. We plan to use data from investigator-initiated clinical trials to prioritize which product candidates to advance into broader clinical testing.
Autologous CAR-T Product Candidate Clinical Development
We are evaluating an autologous CAR-T therapy targeting GPC3 in a Phase 1 single arm, open-label investigator-initiated trial in patients with relapsed and refractory advanced hepatocellular carcinoma in China.
We are evaluating an autologous CAR-T therapy targeting claudin 18.2 in a Phase 1 single arm, open-label investigator-initiated trial in patients with advanced solid tumors (including advanced gastric cancers and non-gastric cancers) in China. During June 2022, we announced that FDA had cleared our IND application to evaluate LB1908 in a Phase 1 clinical trial in the United States. In November 2022, FDA granted orphan designation for LB1908 for treatment of gastric cancer including gastroesophageal junction cancer. This study is currently enrolling in the United States. See “Item
104
4. Information on the Company—B. Business Overview—Our Programs—Other Ongoing Phase 1 Clinical Trials in the United States.”
During November 2022, we announced that FDA had cleared our IND application to proceed with the clinical development of LB2102, an investigational, autologous CAR-T therapy for the treatment of adult patients with extensive stage small cell lung cancer (SCLC). In June 2023, FDA has granted orphan designation for LB2102 for treatment of SCLC. This study is currently enrolling in the United States. See “Item 4. Information on the Company—B. Business Overview—Our Programs—Other Ongoing Phase 1 Clinical Trials in the United States.”
We are evaluating an autologous CAR-T therapy targeting CD19, CD20, and CD22 in a Phase 1 single-arm, open label investigator-initiated trial in patients with relapsed and refractory B-cell lymphoma in China. We are evaluating an autologous CAR-T therapy targeting CD19, CD20, and CD22 in a Phase 1 single-arm, open label investigator-initiated trial in patients with relapsed and refractory B-cell acute lymphocytic leukemia.
Allogeneic CAR-T and CAR-NK Product Candidate Clinical Development
We are evaluating an allogenic gamma delta (γδ) T cell product candidate targeting BCMA in a Phase 1, single-arm, open-label investigator initiated trial in patients with relapsed or refractory multiple myeloma.
We are evaluating an allogenic CAR-NK cell product candidate targeting BCMA in a Phase 1, single-arm, open-label investigator initiated trial in patients with relapsed or refractory multiple myeloma.
Collaboration and License Agreements
Collaboration and License Agreement with Janssen Biotech, Inc.
In December 2017, we entered into a collaboration and license agreement with Janssen (the “Janssen Agreement”) for the worldwide development and commercialization of cilta-cel.
Pursuant to the Janssen Agreement, we granted Janssen a worldwide, co-exclusive (with us) license to develop and commercialize cilta-cel. We and Janssen will collaborate to develop and commercialize cilta-cel for the treatment of MM worldwide pursuant to a global development plan and global commercialization plan.
Janssen will be responsible for conducting all clinical trials worldwide with participation by our team in the United States and Greater China for cilta-cel. We will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for Greater China, while Janssen will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for the rest of the world. We and Janssen will share development, production and commercialization costs and pre-tax profits or losses equally in all countries of the world except for Greater China, for which the cost-sharing and profit/loss split will be 70% for us and 30% for Janssen.
In consideration for the licenses and other rights granted to Janssen, Janssen paid us an upfront fee of $350.0 million and we were eligible to receive up to an additional $1.35 billion in milestone payments from Janssen. Of the $1.35 billion, we may not receive up to $280 million due to mutually agreed upon modifications to our clinical development plan that resulted in the decision to not conduct certain trials as originally planned. We have previously received the following milestone payments:
•$25 million, $30 million, and $30 million in January 2019, September 2019 and January 2020, respectively, upon the dosing of a specified numbers of patients in our CARTITUDE-1 clinical trial,
•a milestone payment of $25 million in September 2019 for the receipt of a response data readout from a specified number of patients in our CARTITUDE-1 clinical trial showing an ORR of at least 50%,
•a milestone payment of $75 million in January 2021 in connection with the completion of the pre-BLA meeting with the FDA, for the first marketing approval application in the United States for cilta-cel,
•a milestone payment of $15 million in July 2021 in connection with the acceptance of a submission of a Marketing Authorization to the EMA,
•milestone payments of $50 million during February 2022 in connection with the submission of an NDA to the PMDA in Japan and the enrollment of a specified numbers of patients in our CARTITUDE-5 clinical trial, and
105
•a milestone payment of $50 million during April 2022 in connection with the receipt of a commercialization approval for cilta-cel in the United States.
•a milestone payment of $15 million during August 2023 in connection with the acceptance of a submission of a Type II variation application to the EMA; and
•a milestone payment of $20 million during September 2023 in connection with the acceptance of a submission of a supplemental BLA to the FDA.
Additionally, we are eligible to receive further milestone payments up to $125 million for the achievement of specified manufacturing milestones, up to $210 million for the achievement of specified net trade sales milestones, and up to an additional $680 million for the achievement of specified future development and regulatory milestones.
Furthermore, until such time as our collaboration experiences its first profitable year, we are entitled to receive advances from Janssen if the collaboration’s estimated working capital for any year falls below $50 million. In such event, Janssen provides advances to us in an amount equal to the excess of $50 million over the collaboration’s working capital for the year. The total amount of such advances in any calendar year may not exceed $125 million and the total amount of such advances outstanding at any time may not exceed $250 million. The interest rate pursuant to the Janssen Agreement has transitioned in accordance with the LIBOR Act. Thus, outstanding advances accrue interest at 12 month CME term Secured Overnight Financing Rate (“SOFR”) plus LIBOR/SOFR adjustment (12 month) plus a margin of 2.5% . Janssen has the right to recoup such advances and interest from our share of the collaboration’s pre-tax profits and, subject to some limitations, from milestone payments due to us under the Janssen Agreement. We are not otherwise obligated to repay the advances or interest, except in connection with our change in control or a termination of the Janssen Agreement by Janssen due to our material breach of the agreement. We may at any time in our discretion voluntarily pre-pay any portion of the then outstanding advances or associated interest. As of December 31, 2023, the aggregate outstanding principal amount of such advances and interest were approximately $250.0 million and $31.3 million, respectively.
During the term of the Janssen Agreement neither we nor Janssen may develop or commercialize cilta-cel except as permitted under the Janssen Agreement. Additionally, for a period of up to 20 years after the effective date of the Janssen Agreement, neither we nor Janssen may develop or commercialize any CAR-T cell therapy targeting BCMA for the treatment of MM, either independently or in collaboration with a third party, except pursuant to the Janssen Agreement, subject to certain exceptions for mergers, acquisitions, in-licenses or similar transactions.
The Janssen Agreement will remain in force as long as cilta-cel is being sold. We or Janssen may terminate the Janssen Agreement on 90 days’ notice for an uncured material breach by the other party. Janssen may also terminate the Janssen Agreement (i) in its entirety or on a geographic region-by-geographic region basis without cause on 180 days’ notice to us or (ii) in its entirety upon the occurrence of an unforeseen material safety event on 60 days’ notice to us. Upon any termination, we will have rights under Janssen’s intellectual property to independently continue to develop and commercialize cilta-cel without compensation to Janssen.
In connection with the Janssen Agreement, we entered into the Interim Product Supply Agreement dated as of February 28, 2022 (the “IPSA”) pursuant to which we will supply cilta-cel to Janssen for clinical and commercial use worldwide (excluding Greater China). Under the IPSA, Janssen pays us a transfer price for supplied product based on the total costs necessary to produce and supply such product. Ultimately, however, the cost for commercial supply and clinical supply of product are shared equally by us and Janssen as “Allowable Expenses” and “Development Costs,” respectively, under the Janssen Agreement. The IPSA will remain in effect until June 30, 2024 or such alternate date determined by the joint manufacturing committee (the “JMC”) that has been established under the Janssen Agreement. The IPSA will also terminate if the Janssen Agreement expires or is terminated. We expect to enter into a product supply agreement with Janssen that will replace the IPSA.
Novartis License
In November 2023, our wholly owned subsidiary, Legend Biotech Ireland Limited (“Legend Ireland” and together with the Company, the “Legend Entities”)), entered into a License Agreement (“Novartis License Agreement”) with Novartis Pharma AG (“Novartis”), pursuant to which the Legend Entities granted Novartis an exclusive worldwide license under certain intellectual property rights controlled by the Legend Entities in order to develop, manufacture, commercialize and otherwise exploit certain CAR-T cell therapies targeting DLL3, including our existing autologous CAR-T cell therapy candidate which we refers to as “LB2102” (the “Licensed Products”).
106
In accordance with the Novartis License Agreement, on January 3, 2024, Novartis made to the Company an upfront payment of $100 million after closing the transaction. In addition, we will be eligible to receive from Novartis up to an aggregate of $1.01 billion in milestone payments upon achievement of specified clinical, regulatory and commercial milestones. We will also be eligible to receive tiered royalties from the high single digits to the low teens based upon net sales of Licensed Products, subject to certain reductions and offsets. Royalty payments obligations of Novartis continue on a Licensed Product-by-Licensed Product and country-by-country basis, until the latest of: (i) a specified period of time after the first commercial sale of such Licensed Product in such country; (ii) the expiration of the last-to-expire qualifying valid claim of a licensed patent that covers such Licensed Product in such country; and (iii) the expiration of regulatory exclusivity for such Licensed Product in such country.
We will be responsible for conducting a Phase 1 clinical trial in the United States for LB2102 (the “Legend Phase 1 Trial”) in accordance with a mutually agreed development plan and development budget. Novartis will reimburse us for our development costs and expenses in conducting the Legend Phase 1 Trial, subject to certain limitations and exceptions.
Other than with respect to the Legend Phase 1 Trial, Novartis will be solely responsible, at its cost, for the development, manufacture, commercialization and other exploitation of the Licensed Products.
For specified periods of time and subject to certain exceptions, (i) neither we nor Novartis will be permitted to conduct outside of the Novartis License Agreement clinical trial or commercialization activities for certain competing CAR-T cell therapies that are directed to DLL3 and (ii) Legend will not be permitted to conduct outside of the Novartis License clinical trial activities for in vivo CAR-T cell therapies that are directed to DLL3.
Unless terminated early by a party pursuant to its terms, the Novartis License will continue in effect on a Licensed Product-by-Licensed Product and country-by-country basis until the expiration of the applicable royalty term.
The Novartis License Agreement is subject to customary termination provisions, including termination of the Novartis License in its entirety by either party for the other party’s uncured material breach or the other party’s bankruptcy or other similar financial distress, termination of the Novartis License in its entirety by Novartis for a material safety event, and termination of the Novartis License Agreement in its entirety or on a country-by-country basis, by Novartis, with or without cause, upon specified prior notice to us. In the event of certain terminations of the Novartis License Agreement, we are entitled to certain reversionary rights with respect to the terminated Licensed Products.
The Novartis License Agreement contains customary representations, warranties, covenants, and terms governing the prosecution and enforcement of certain intellectual property
Raw Materials
We currently source certain biological materials – such as cells, chemicals, water, cytokines, vectors, nucleic acids, antibodies, medium, serum, buffers —that are necessary to produce our product candidates from specialized third parties. We acquire these raw and starting materials through service agreements and do not systematically have long-term supply contracts in place. However, we believe that competitive pricing is achieved because there are a number of potential long-term replacements to each of our suppliers. Generally, the prices of the principal biological raw and starting materials that we purchase are stable or fluctuate within a limited range. To the extent that we are exposed to price fluctuations, we generally do not expect, in the near term, to be able to pass on cost increases because of the early development stage of our product candidates.
Commercialization
We have established a sales, marketing and operational infrastructure to support the commercialization of CARVYKTI in the United States. According to our collaboration and license agreement with Janssen, we have the right to elect to perform up to 50% of the overall commercialization effort in the United States (excluding any activities that Janssen has the exclusive right to perform). Janssen will commercialize cilta-cel in all countries excluding the United States and Greater China in accordance with a mutually agreed upon commercialization plan. If we launch cilta-cel in Greater China, we will lead commercialization efforts there and Janssen will have the right to elect to perform up to 30% of the overall commercialization effort there, excluding activities that we have the exclusive right to perform. As we move our product candidates through development toward marketing approval, we will evaluate several commercial strategies for each product candidate. These strategies may include further expansion of our external sales organization, entering into joint marketing collaboration agreements with other drug development companies, or out-licensing products to other drug development companies.
107
Intellectual Property
Intellectual property is of vital importance in our field and in biotechnology generally. We seek to protect and enhance proprietary technology, inventions, and improvements that are commercially important to the development of our business by seeking, maintaining, and defending patent rights, whether developed internally, acquired or licensed from third parties. We will also seek to rely on regulatory protection afforded through orphan drug designations, inclusion in expedited development and review, data exclusivity, market exclusivity and patent term extensions where available.
We have sought patent protection in the United States and internationally for our clinical candidates and platform technologies. As of December 31, 2023, we own 87 issued patents and 546 pending patent applications around the world covering our development platforms, commercial product, clinical products, and preclinical products. Such applications may not result in issued patents and, even if patents do issue, such patents may not be in a form that will provide us with meaningful protection for our products. We also rely on trade secrets that may be important to the development of our business. Trade secrets are difficult to protect and provide us with only limited protection.
We expect to file additional patent applications in support of current and new clinical candidates as well as new platform and core technologies. Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges and operating without infringing on the proprietary rights of others. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. For this and more comprehensive risks related to our intellectual property, please see Item 3.D. “Risk Factors—Risks Related to Our Intellectual Property.”
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office (“USPTO”), in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent or delays on the part of a patentee. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to an approved drug may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek patent term extensions to any issued patents we may obtain in any jurisdiction where such patent term extensions are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. For more information regarding the risks related to our intellectual property, see Item 3.D. “Risk Factors—Risks Related to Our Intellectual Property.”
In some instances, we submit patent applications directly with the USPTO or other patent offices around the world including the Chinese patent office (CNIPA) as provisional or priority patent applications. Corresponding non-provisional patent applications must be filed not later than 12 months after the provisional or priority application filing date. While we intend to timely file non-provisional patent applications relating to our provisional or priority patent applications, we cannot predict whether any such patent applications will result in the issuance of patents that provide us with any competitive advantage.
We file non-provisional applications and Patent Cooperation Treaty (“PCT”), applications that claim the benefit of the priority date of earlier filed provisional or priority applications, when applicable. The PCT system allows a single application to be filed within 12 months of the original priority date of the patent application, and to designate all of the PCT member states in which national patent applications can later be pursued based on the international patent application filed under the PCT. The PCT searching authority performs a patentability search and issues a non-binding patentability opinion which can be used to evaluate the chances of success for the national applications in foreign countries prior to
108
having to incur the filing fees. Although a PCT application does not issue as a patent, it allows the applicant to seek protection in any of the member states through national-phase applications. At the end of the period of two and a half years from the first priority date of the patent application, separate patent applications can be pursued in any of the PCT member states either by direct national filing or, in some cases by filing through a regional patent organization, such as the European Patent Organization. The PCT system delays expenses, allows a limited evaluation of the chances of success for national/regional patent applications and enables substantial savings where applications are abandoned within the first two and a half years of filing.
For all patent applications, we determine claiming strategy on a case-by-case basis. Advice of counsel and our business model and needs are always considered. We seek to file patents containing claims for protection of all useful applications of our proprietary technologies and any products, as well as all new applications and/or uses we discover for existing technologies and products, assuming these are strategically valuable. We continuously reassess the number and type of patent applications, as well as the pending and issued patent claims to pursue maximum coverage and value for our processes, and compositions, given existing patent office rules and regulations. Further, claims may be modified during patent prosecution to meet our intellectual property and business needs.
We recognize that the ability to obtain patent protection and the degree of such protection depends on a number of factors, including the extent of the prior art, the novelty and non-obviousness of the invention, and the ability to satisfy the enablement requirement of the patent laws. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted or further altered even after patent issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our future product candidates or for our technology platform. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.
In addition to patent protection, we also rely on trademark registration, trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting trade secrets, know-how and inventions. For more information regarding the risks related to our intellectual property, see Item 3.D. “Risk Factors—Risks Related to Our Intellectual Property.”
The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. Third-party patents could require us to alter our development or commercial strategies, or our products or processes, obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention. For more information, see “Item 3.D. Risk Factors—Risks Related to Our Intellectual Property.”
When available to expand market exclusivity, our strategy is to obtain, or license additional intellectual property related to current or contemplated development platforms, core elements of technology and/or clinical candidates.
109
Company-Owned Intellectual Property
We own one published PCT application filed in August 2016 and one published PCT application filed in August 2017 relating to the cilta-cel BCMA product candidate. A total of 110 national phase applications from both these PCTs were filed broadly to acquire patent coverage in a variety of jurisdictions, including in the United States, Greater China (mainland China and Hong Kong), Yemen, Saudi Arabia, Qatar, Oman, Bahrain, Egypt, United Arab Emirates, Europe, South Korea, Brazil, Canada, Chile, Colombia, Costa Rica, Eurasian, Israel, India, Japan, Mexico, Philippines, Ukraine, Vietnam, Malaysia, South Africa, Singapore, Australia and New Zealand. As of December 31, 2023, we have obtained 45 granted patents regarding to cilta-cel (including three U.S. patents, one European patent, three Chinese patents, four Australian patents, three Japanese patents, one South Korean patent, two Canadian patents and two South African patents). If issued, composition of matter claims issuing from these applications are projected to expire in 2036 and 2037.
Regarding cilta-cel BCMA-targeting CAR-T cell therapy for multiple myeloma, we own one PCT application filed in December 2021, one PCT application filed in May 2022, one PCT application filed in November 2022, one PCT application filed in May 2022, one PCT application filed in February 2023, one provisional patent application filed in the U.S. in April 2023, and one PCT application filed in November 2023. Janssen is our co-applicant for these applications. If issued, treatment method claims issuing from these applications are projected to expire in 2041, 2042, 2043 and 2044.
Regarding our Claudin 18.2 product candidate, we own one PCT application filed in 2020, which has entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan. If issued, composition of matter claims issuing from this application are projected to expire in 2040.
Regarding our CD19/CD20/CD22 product candidate, we own four PCT applications filed in July 2021, which have entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan. If issued, composition of matter claims issuing from this application are projected to expire in 2041.
Regarding our GPC-3 product candidate, we own one PCT patent application filed in February 2020, which has entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan. If issued, composition of matter claims issuing from these applications are projected to expire in 2040.
Regarding our DLL3 product candidate, we own one PCT patent application filed in July 2020, which has entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan. If issued, composition of matter claims issuing from these applications are projected to expire in 2040.
Regarding our NK cell BCMA product candidate, we own one PCT patent application filed in December 2020 and one PCT patent application filed in July 2022, both of which have entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan. If issued, composition of matter claims issuing from these applications are projected to expire in 2040 and 2042.
Regarding our gamma delta T-cell BCMA product candidate, we own one PCT patent application filed in December 2020, which has entered the national phase in key jurisdictions including the U.S., Europe, Greater China, and Japan, and one PCT patent application filed in August 2022. If issued, composition of matter claims issuing from these applications are projected to expire in 2040 and 2042.
Manufacturing
The manufacture and delivery of cell therapies to patients involves complex, integrated processes. Commercial success in cell therapies requires a manufacturing process that is reliable, scalable and economical. We are devoting significant resources to process development and manufacturing in order to optimize process robustness, lower failure rates in developing cell therapy product candidates as well as reduce our per-unit manufacturing costs and enable us to quickly achieve regional and global scale if we obtain regulatory approval for our product candidates.
Our manufacturing facility in the United States that we operate with Janssen currently supplies CARVYKTI for the U.S and EU markets, and we anticipate using such facility to supply other countries if we obtain approvals in such countries. Citla-cel for our clinical trials is currently supplied by our U.S. facility, one of our Belgium facilities and our facility in China. We intend to further expand the commercial-scale manufacturing capacities at our U.S. facility and are in the process of establishing manufacturing capabilities in Belgium for commercial supply in the EU and U.S. markets, and possibly additional markets. Moreover, with Janssen, we have engaged and are continuing to engage and pursue the use of
110
third-party CMOs to supplement our manufacturing facilities for clinical and commercial supply, including the Novartis Clinical Supply Agreement.
We are employing a systematic approach to manufacturing which is designed to provide a common platform suitable for manufacturing all of our product candidates. This platform allows for parallel processing and the ability to scale for commercial supply in a controlled environment and at an economical cost. We have improved the viral transduction process to help minimize processing inconsistencies and reduce failure rates. In addition, our manufacturing and logistics process is designed to ensure that product integrity is maintained during shipment along with accurate tracking and tracing of shipments.
Our manufacturing and commercialization strategy requires a fully integrated product delivery cycle. We believe having established a manufacturing platform process and manufacturing capabilities within the United States, China and Europe suitable for commercialization early in the development of our cell therapies is a competitive advantage. Over time, we expect to expand regional manufacturing capacity and continue to engage CMOs to meet projected product requirements for commercialization. We believe that anticipated future clinical and commercial demand for cilta-cel and new pipeline programs can be met, as our facilities have been designed for ease of expansion.
We believe our scalable robust manufacturing process, along with our proprietary technologies and our industry experienced team, would be challenging and costly for potential competitors to replicate.
Competition
CARVYKTI competes and any future products will compete with novel therapies developed by biopharmaceutical companies, academic research institutions, governmental agencies and public and private research institutions, in addition to standard of care treatments.
Novartis' Kymriah is approved for the treatment of children and young adults with acute B lymphocytic leukemia, or ALL, that is refractory or has relapsed at least twice and for adults with relapsed or refractory diffuse large B cell lymphoma ("DLBCL"). Kite's Yescarta is approved for the treatment of adult patients with relapsed or refractory large B-cell lymphoma as well as follicular lymphoma. Kite's Tecartus is indicated for adult patients with relapsed or refractory mantle cell lymphoma (MCL) or adult patients with relapsed or refractory B-cell precursor acute lymphoblastic leukemia (ALL). Bristol-Myers Squibb's anti-CD19 CAR-T therapy, Breyanzi (liso-cel), as well as anti-BCMA CAR-T therapy, Abecma (ide-cel), in collaboration with bluebird bio, are also marketed CAR-T products.
Due to the promising therapeutic effect of cell therapies in clinical trials, we anticipate increasing competition from existing and new companies developing these therapies.
Our potential CAR-T cell therapy competitors include:
•companies developing cell therapies targeting BCMA for the treatment of MM, including Allogene Therapeutics, Inc., Arcellx, Inc., Autolus Therapeutics plc, bluebird bio, Inc., Bristol-Myers Squibb, Co., Caribou Biosciences, Inc., CARsgen Therapeutics Holdings Limited,, Celyad Oncology, Gracell Biotechnologies, Innovent Biologics, IASO Biotechnology, Poseida Therapeutics Inc., Novartis AG and Sana Biotechnology, Inc.;
•academic medical centers pursuing independent development of BCMA CAR-T technologies; and
•additional companies developing BCMA-targeted therapies for the treatment of MM, including Amgen, Inc., Regeneron Pharmaceuticals, Inc., GSK plc, Bristol-Myers Squibb, Co., Johnson & Johnson (the parent company of Janssen, our collaboration partner for cilta-cel), AbbVie and Pfizer Inc.
In that regard, Janssen, our cilta-cel collaboration partner, received FDA approval in October 2022 for Tecvalyi (teclistamab-cqyv), an off-the-shelf, T-cell directed, bispecific antibody targeting both BCMA and CD3.
We also compete with many companies developing cell therapies, including for trial sites, enrollment in our trials and with respect to diseases that we are targeting and may target in the future. In addition, we may compete with cell therapies companies that are focused on development in Asia.
In addition, our commercial success depends on our ability and the ability of our collaborators to develop, manufacture, market and sell our product and any future product candidates and use our proprietary and modular CAR-T cell technology without infringing, misappropriating or otherwise violating the intellectual property and other proprietary
111
rights of third parties. Numerous third-party U.S. and non-U.S. issued patents exist in the area of biotechnology, including in the area of CAR-T cell therapies and including patents owned or controlled by our competitors. In addition, there are frequent allegations of patent infringement in the area of biotechnology. Third parties, including our competitors, may allege that our product candidates, including cilta-cel, infringe certain of these patents. While we believe that we would have valid defenses against any assertion of such patents against us, such defenses may be unsuccessful and a successful claim of patent infringement against us could require us to be liable for damages, make substantial licensing, royalty and other payments, or cease development, manufacturing, marketing and commercializing the infringing products. Moreover, if we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained or in-licensed is not sufficiently broad or if the validity of such patent protection is threatened, we may not be able to compete effectively, as it could create opportunities for competitors to enter the market or dissuade other companies from collaborating with us to develop products and technology, any of which would hurt our competitive position and could impair our ability to successfully commercialize our product candidates in any indication for which they are approved.
Many of our competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, preclinical testing, clinical trials, manufacturing, and marketing than we do. Future collaborations and mergers and acquisitions may result in further resource concentration among a smaller number of competitors.
Our commercial potential could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more efficiently or effectively manufactured, are more convenient or are less expensive than products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market or make our development more complicated. The key competitive factors affecting the success of all of our programs are likely to be efficacy, safety, success in manufacturing and patient access.
These competitors may also vie for a similar pool of qualified scientific and management talent, sites and patient populations for clinical trials, as well as for technologies complementary to, or necessary for, our programs.
Government Regulation
United States Regulation
The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.
In the United States, the FDA regulates biologic products under the Federal Food, Drug and Cosmetic Act, its implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act. Our product candidates are subject to regulation by the FDA as biologics. Biologics require the submission of a BLA and licensure, which constitutes approval, by the FDA before being marketed in the United States. Failure to comply with applicable FDA or other requirements at any time during product development, clinical testing, the approval process or after approval may result in administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, suspension or revocation of approved applications, warning letters, product recalls, product seizures, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
•completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s good laboratory practices (“GLP”) regulations;
•submission to the FDA of an IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;
112
•approval by an independent Institutional Review Board (“IRB”) or Ethics Committee at each clinical site before the trial is commenced;
•performance of adequate and well-controlled human clinical trials to establish the safety and effectiveness of the proposed biologic product candidate for its intended indications;
•preparation of and submission to the FDA of a BLA when adequate data are obtained from pivotal clinical trials;
•a determination by the FDA within 60 days of its receipt of a BLA to accept the application for review;
•satisfactory completion of an FDA Advisory Committee review, if applicable;
•satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with Good Clinical Practices, or GCP regulations; and
•FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States.
Preclinical and Clinical Development
Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND application to the FDA. An IND application is a request for authorization from the FDA to ship and administer an investigational new drug product to humans. The central focus of an IND application is on the general investigational plan and the protocol(s) for clinical studies. The IND application also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. If the IND sponsor is not able to address FDA’s concerns satisfactorily within the 30-day time frame, the IND may be placed on clinical hold. The IND sponsor and the FDA must resolve any outstanding concerns or questions before the IND is cleared by the FDA and the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Generally, a separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board ("DSMB") which provides recommendation on whether or not a study should move forward at designated check points based on access to certain data from the study. The DSMB may recommend halting of the clinical trial if it determines that there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.
For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
•Phase 1—The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. For investigational products developed for oncology indications, the Phase 1 trials are normally conducted in patients with serious or life-threatening diseases without other treatment alternatives.
113
•Phase 2—The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. For certain indications in patients with serious or life-threatening diseases and with no available therapies, it may be possible to obtain BLA approval based on data from Phase 2 trials if a positive benefit risk profile is demonstrated.
•Phase 3—The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.
Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA.
BLA Submission and Review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to the FDA unless a waiver or exemption applies.
Once an original BLA has been submitted, FDA has 60 days to determine whether the application can be filed. If FDA determines that an application to be deficient, on its face, in a way that precludes a complete review, FDA may not accept the application for review and may issue a refuse-to-file letter to the sponsor. If FDA determines the application is fileable, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process can be significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facilities in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will identify the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the commercial product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant
114
might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. The FDA also may condition approval on, among other things, changes to proposed labeling, the development of adequate controls and specifications or post-approval safety measures. The FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy ("REMs") program to ensure the benefits of the product outweigh its risks. A REMs is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.
Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions with the FDA review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product may also be eligible for rolling review, in which case the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.
A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.
Any marketing application for a biologic submitted to the FDA for approval, including a product with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition compared to marketed products. For products containing new molecular entities, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (compared with ten months under standard review).
Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
Regenerative medicine advanced therapy (“RMAT”) designation is intended to facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is
115
defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like fast track and breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with the FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. Once approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval through the submission of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence such as electronic health records; through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with the therapy prior to approval.
Fast track designation, breakthrough therapy designation, priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development and/or approval process.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making available a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Post-Approval Requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product,
116
including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMs program. Other potential consequences include, among other things:
•restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls;
•fines, warning letters or holds on post-approval clinical studies;
•refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;
•product seizure or detention, or refusal of the FDA to permit the import or export of products; or
•injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are consistent with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
Biosimilars and Reference Product Exclusivity
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product.
Biosimilarity, which requires that the product be highly similar and there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product be biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered to a patient more than once, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of first licensure for the reference product. In addition, the FDA may not approve a biosimilar product until 12 years from the date of first licensure of the reference product. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the competing product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether and to what extent products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate implementation and impact of the BPCIA is subject to significant uncertainty.
117
Other Healthcare Laws and Compliance Requirements
Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation: the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, to induce, or in return for, either the referral of an individual for, or the purchase or recommendation of an item or service for which payment may be made, directly or indirectly, under any federal healthcare program; federal civil and criminal false claims laws, including the civil False Claims Act, which prohibits, among other things, presenting, or causing to be presented, false or fraudulent claims for payment or approval to the federal government, including federal healthcare programs, and its criminal equivalent; the Civil Monetary Penalties Law, which prohibits, among other things, individuals or entities from knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim for payment for items and services furnished under a federal health care program; the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes which prohibit, among other things, knowingly and willfully (1) executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program (2) obtaining by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control, of any healthcare benefit program, (3) falsifying, concealing, or covering up by any trick, scheme, or device a material fact, and (4) making, in any matter involving a healthcare benefit program, any materially false, fictitious, or fraudulent statements or representations, or making or using any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment for healthcare benefits, items, or services, and which, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), also imposes certain requirements on HIPAA covered entities, their business associates, as well as their covered subcontractors relating to the privacy, security and transmission of individually identifiable health information; the U.S. federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to the federal government for transparency purposes, information related to payments (both direct and indirect) or other transfers of value made to physicians, as defined by such law, certain other healthcare professionals, such as nurse practitioners and physicians assistants, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and U.S. state and foreign law equivalents of each of the above federal laws, which, in some cases, differ from each other in significant ways, and may not have the same effect, thus complicating compliance efforts. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to significant penalties, including, without limitation, civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological product for which we obtain regulatory approval. Sales of any product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. As there is no uniform policy of coverage and reimbursement for drug products among third-party payors in the United States, coverage and reimbursement policies for drug products can differ significantly from payor to payor. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time- consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at this time what government authorities and third-party payors will decide with respect to coverage and reimbursement for our drug products. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization.
In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for
118
substitution of generic products. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third- party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded healthcare programs, and increased governmental control of drug pricing.
In March 2010, the ACA was signed into law, which substantially changed the way healthcare is financed by both governmental and private insurers in the United States, and significantly affected the pharmaceutical industry. The ACA contains a number of provisions of particular import to the pharmaceutical and biotechnology industries, including, but not limited to, those governing enrollment in federal healthcare programs, a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs. Since its enactment, there have been judicial, Congressional, and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer- sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. In addition, the Tax Act was enacted, which, among other things, removes penalties for not complying with ACA’s individual mandate to carry health insurance. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the "donut hole" under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how such challenges and any additional healthcare reform measures will impact the ACA and our business.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers, which will remain in effect until 2031, unless additional Congressional action is taken.
In addition, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several presidential executive orders, Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, at the federal level, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to President Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Services ("HHS") released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA includes a provision requiring the Secretary of HHS to negotiate prices with drug companies for a small number of single-source brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). The number of drugs subject to price negotiation will be 10 Part D drugs for 2026, another 15 Part D drugs for 2027, another 15 Part D and Part B drugs for 2028, and another 20 Part D and Part B drugs for 2029 and later years. These drugs will be selected from among the 50 drugs with the highest total Medicare Part D spending and the 50 drugs with the highest total Medicare Part B spending. The law establishes an upper limit for the negotiated price for a given drug or biologic, and specifies factors the Secretary of HHS is required to consider when negotiating these upper pricing limits. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. The IRA also imposes rebates under Medicare Part B and Medicare Part D that penalize manufactures for price increases that outpace inflation. Additionally, in response to the Biden administration’s October 2022 executive order, on February
119
14, 2023, HHS released a report outlining three new models for testing by the Centers for Medicare & Medicaid Services (“CMS”) Innovation Center which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized in any health reform measures in the future. Further, on December 7, 2023, the Biden administration announced an initiative to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023, the National Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights. While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect health reform initiatives to continue.
European Union (EU) Regulation
As in the U.S., the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing in the EU is subject to a complex set of laws, rules and regulations affecting our business.
EU Medicinal Product Development
In the EU, medicinal product development typically involves preclinical laboratory and animal tests as well as clinical trials. Satisfaction of EU pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation, as well as animal studies, to assess the characteristics and potential pharmacology, pharmacokinetics and toxicity of the product. The conduct of the preclinical tests must comply with EU and national regulations and requirements, including Good Laboratory Practices ("GLP").
Clinical trials in the EU must be conducted, like in the U.S., in compliance with applicable regulations, Good Clinical Practices (“GCP”), as well as under protocols detailing the objectives of the trial and the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. In the EU, each protocol involving testing on patients and subsequent protocol amendments must be submitted to the relevant regulatory agency as part of a new clinical trial application ("CTA") and to one or more Ethics Committees and national competent authorities for their review. Analogously to the U.S., clinical trials that are deployed to support marketing authorization applications are typically conducted in three sequential phases.
On January 31, 2022, Regulation EU No 536/2014 (the Clinical Trial Regulation (“CTR”), which repealed and replaced the former Directive No 2001/20 (the Clinical Trials Directive (“CTD”)) and related national implementing legislation of member states of the EU (“EU Member States”), entered into application in the EU. The CTR is intended to harmonize and streamline clinical trial authorizations, simplify adverse event reporting procedures, improve the supervision of clinical trials and increase their transparency. Specifically, the CTR, which is directly applicable in all EU Member States, introduces a streamlined application procedure through a single-entry point, the “EU portal,” the Clinical Trials Information System (“CTIS”); a single set of documents to be prepared and submitted for the application; as well as simplified reporting procedures for clinical trial sponsors. A harmonized procedure for the assessment of applications for clinical trials has been introduced and is divided into two parts. Part I assessment is by the competent authorities of a reference EU Member State selected by the trial sponsor and relates to clinical trial aspects that are considered to be scientifically harmonized across EU Member States. This assessment is then submitted to the competent authorities of all concerned EU Member States in which the trial is to be conducted for their review. Part II is assessed separately by the competent authorities and Ethics Committees in each concerned EU Member State. Individual EU Member States retain the power to authorize the conduct of clinical trials on their territory.
The CTR foresees a transitional period for clinical trials. For clinical trials in relation to which application for approval was made on the basis of the CTD before January 31, 2023, the CTD will continue to apply on a transitional basis for three years after the CTR entered into application (until January 31, 2025). By that date, all ongoing trials will become subject to the provisions of the CTR. The CTR will apply to clinical trials from an earlier date if the related clinical trial application was made on the basis of the CTR or if the clinical trial has already transitioned to the CTR framework before
January 31, 2025. Clinical trial applications submitted on or after January 31, 2023 must comply with the CTR.
120
National Competent Authorities (“NCAs”) may order the temporary halt or permanent discontinuation of a clinical trial at any time or impose other sanctions if they believe that the clinical trial is not being conducted in accordance with applicable requirements or presents an unacceptable risk to the clinical trial patients. An Ethics Committee may also require the clinical trial to be halted, either temporarily or permanently, for failure to comply with the applicable requirements, or may impose other conditions.
Disclosure of Clinical Trial Information in the EU
Many jurisdictions have mandatory clinical trial information obligations incumbent on sponsors. In the EU, transparency requirements relating to clinical trial information are established in the CTR. The CTR establishes a general principle of transparency, according to which information contained in clinical trial applications and all the related documentation uploaded and stored in the CTIS are made publicly accessible unless confidentiality is justified on grounds of protection of personal data or CCI, is necessary to protect confidential communications between EU Member States in relation to the preparation of an assessment report, or is necessary to ensure effective supervision of the conduct of a clinical trial in EU Member States. This confidentiality exception may be overruled if there is an overriding public interest in disclosure. The publication of data and documents in relation to the conduct of a clinical trial will take place in accordance with specific timelines. Related timelines are established by the EMA and are determined based on the documents and the categorization of the clinical trial.
In addition, Regulation No 1049/2001 on access to documents, or the Access to Documents Regulation, and the related EMA policy 0043 on access to documents provide a right for EU-based interested parties to submit a request to the EMA to access documents containing certain information held by the EMA. Only very limited information is exempted from such disclosure requests. These exceptions, which - as such - are to be interpreted narrowly in the EU, include the protection of CCI and protected personal data. However, CCI protection is not afforded in those cases where the authorities conclude that there is an overriding public interest in disclosure. Case law of the Court of Justice of the European Union (the “CJEU”) has also confirmed the absence of a general presumption of confidentiality over documents containing clinical and preclinical data provided to the EMA in support of a marketing authorization application.
EU Marketing Authorization
In the EU, medicinal products can only be commercialized after obtaining a marketing authorization. The same rules also apply in the EFTA Pillar of the EEA (Norway, Iceland and Liechtenstein). A company may submit a marketing authorization application on the basis of centralized procedure, the decentralized procedure, or the mutual recognition procedure. Companies may also submit national marketing authorizations, which are issued by the competent NCAs and only cover their respective national territory.
To obtain a marketing authorization for a product in the EU, which is valid throughout the EEA, an applicant must submit a marketing authorization application either in accordance with the centralized procedure administered by the EMA or one of the procedures administered by competent authorities in the EU Member States, the decentralized procedure, the national procedure or the mutual recognition procedure. A marketing authorization may be granted only to applicants established in the EU.
The centralized procedure provides for grant of a single marketing authorization by the European Commission that is valid for all the EU Member States. Pursuant to Regulation (EC) No 726/2004, the centralized procedure is mandatory for certain types of products, including for (i) medicinal products derived from certain biotechnology processes, (ii) products designated as orphan medicinal products, (iii) medicinal products containing a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune diseases and other autoimmune dysfunctions and viral diseases. The centralized procedure is also mandatory for Advanced Therapy Medicinal Products (“ATMPs”), which comprise gene therapy, somatic cell therapy and tissue engineered products. The centralized procedure is optional for products containing a new active substance that are indicated for the treatment of other diseases, or for products that are deemed to constitute a significant therapeutic, scientific or technical innovation or for which a centralized authorization process is in the interest of patients in the EU.
Under the Centralized Procedure, the EMA’s Committee on Medicinal Products for Human Use (“CHMP”) conducts an initial assessment of the product and renders opinions about the safety, efficacy and quality of medicinal products on behalf of the EMA. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. The CHMP is composed of
121
experts nominated by each Member State’s NCA, with one of them appointed to act as Rapporteur and another appointed to act as Co-Rapporteur for the co-ordination of the assessment.
Under the centralized procedure in the EU, the maximum timeframe for the evaluation of a marketing authorization application is 210 days, excluding clock stops when additional information or oral explanation is to be provided by the marketing authorization applicant in response to questions of the CHMP. The process usually takes longer as additional information is requested, which triggers clock-stops in the procedural timelines. At the end of the review period, the CHMP provides an opinion to the European Commission. If the opinion is favorable, the European Commission may then adopt a decision to grant the marketing authorization. In the event of a negative opinion, the company may request a re-examination of the application within 15 days of receipt of the negative opinion. The company then has 60 days to provide the CHMP with detailed grounds for requesting the re-examination. Within 60 days of providing this information, the CHMP must re-examine its opinion. The European Commission follows the recommendation of the CHMP in almost all cases.
Accelerated assessment may be granted by the CHMP in exceptional cases when the medicinal product targeting an unmet medical need is expected to be of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of 210 days will be reduced to 150 days (excluding clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment.
Unlike the centralized authorization procedure, the decentralized marketing authorization procedure requires a separate application to, and leads to separate approval by, the competent authorities of each EU Member State in which the product is to be marketed. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. The referenced EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member States who, within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the Heads of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralized Procedures – Human (“CMDh”) for review. The subsequent decision of the European Commission is binding on all EU Member States.
The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU Member State to apply for this authorization to be recognized by the competent authorities in other EU Member States. Like the decentralized procedure, the mutual recognition procedure is based on the acceptance by the competent authorities of the EU Member States of the marketing authorization of a medicinal product by the competent authorities of other EU Member States. The holder of a national marketing authorization may submit an application to the competent authority of an EU Member State requesting that this authority recognize the marketing authorization delivered by the competent authority of another EU Member State.
A marketing authorization has, in principle, an initial validity of five years. The marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance of the medicinal product by the EMA or by the competent authority of the EU Member State in which the original marketing authorization was granted. The risk-benefit balance is made on the basis of scientific criteria concerning its quality, safety and efficacy. To support the application, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the electronic Common Technical Document (“eCTD”), providing up-to-date data concerning the quality, safety and efficacy of the product, including all variations introduced since the marketing authorization was granted, at least nine months before the marketing authorization ceases to be valid. The European Commission or the competent authorities of the EU Member States may decide on justified grounds relating to pharmacovigilance to proceed with one further five-year renewal period for the marketing authorization. Once subsequently definitively renewed, the marketing authorization shall be valid for an unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the EU market (for a centralized marketing authorization) or on the market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-called sunset clause).
ATMPs include gene therapy products, somatic cell therapy products, and tissue engineered products. The grant of marketing authorization in the EU for products containing viable human tissues or cells such as gene therapy medicinal products is governed by Regulation (EC) No. 1394/2007 on ATMPs, read in combination with Directive (EC) No. 2001/83 of the European Parliament and of the Council, commonly known as the Community code on medicinal products. Regulation (EC) No. 1394/2007 establishes specific rules concerning the authorization, supervision and pharmacovigilance of gene therapy medicinal products, somatic cell therapy medicinal products and tissue engineered products. Manufacturers of advanced therapy medicinal products must demonstrate the quality, safety and efficacy of their products to the EMA which is required to provide an opinion regarding the application for marketing authorization. In case of ATMPs, the
122
CHMP must consult with the Committee for Advanced Therapies (“CAT”), on any scientific assessment necessary to draw up its scientific opinion. The European Commission grants or refuses marketing authorization in light of the opinion delivered by the EMA.
Cell-based products must also comply with Directive (EC) No. 2004/23 of the European Parliament and of the Council of March 31, 2004 on setting standards of quality and safety for the donation, procurement, testing, processing, preservation, storage and distribution of human tissues and cells (the “Tissues and Cells Directive”). This Directive describes the conditions and quality requirements which must be applied when sourcing the cells intended for manufacturing of the cell-based medicinal product. The EU Member States have transposed the Tissues and Cells Directive into their national laws. However, various interpretations of the Tissue and Cells Directive have occurred and are reflected in individual EU Member States national implementing legislation which have led to diverging approaches.
In the EU, a conditional marketing authorization may be granted be granted by the European Commission in cases where all the required safety and efficacy data are not yet available. The European Commission may grant a conditional marketing authorization for a medicinal product if it is demonstrated that all of the following criteria are met: (i) the benefit-risk balance is positive; (ii) if the benefit of the immediate availability on the market of the product is deemed to outweigh the risk inherent in the fact that additional data are still required; (iii) it is likely that the applicant will be able to provide comprehensive data post-authorization; and (iv) the medicinal product fulfills an unmet medical need. The conditional marketing authorization is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once any pending studies are provided, the conditional marketing authorization can be converted into a traditional marketing authorization. However, if the conditions are not fulfilled within the timeframe set by the EMA and approved by the European Commission, the marketing authorization will cease to be renewed. This procedure can also be combined with a rolling review of data during the development of a promising medicine, to further expedite its evaluation.
A marketing authorization may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to provide comprehensive information, or when generating data may be contrary to generally accepted ethical principles. Like a conditional marketing authorization, a marketing authorization granted in exceptional circumstances is reserved to medicinal products intended to be authorized for treatment of rare diseases or unmet medical needs for which the applicant does not hold a complete data set that is required for the grant of a standard marketing authorization. However, unlike the conditional marketing authorization, an applicant for authorization in exceptional circumstances is not subsequently required to provide the missing data. Although the marketing authorization “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is reviewed annually, and the marketing authorization will be withdrawn if the risk-benefit ratio is no longer favorable.
EMA Prime Scheme
In the EU, innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs. These include the PRIME scheme, which provides incentives similar to the breakthrough therapy designation in the U.S. PRIME is a voluntary scheme intended to enhance the EMA’s support for the development of medicinal products that target an unmet medical need. Eligible products must target conditions for which there is an unmet medical need (there is not satisfactory method of diagnosis, prevention or treatment in the EU or, if there is, the new medicinal product will offer a major therapeutic advantage over existing treatments) and they must demonstrate the potential to address the unmet medical need by introducing new methods of therapy or improving existing ones. Benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to early and proactive dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and potentially accelerated assessment of marketing authorization application once a dossier has been submitted.
Our product cilta-cel was granted access to the PRIME scheme, making the product eligible for accelerated assessment.
123
Post-approval Requirements in the EU
Similar to the United States, both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the competent regulatory authorities of the individual EU Member States. The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs. Moreover, if a company obtains original marketing authorization for a product via an accelerated approval pathway, the company will often be required to conduct a post-marketing confirmatory trial to verify and describe the clinical benefit in support of full marketing authorization. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of the marketing authorization for a product.
All new marketing authorization applications must include a risk management plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials, Post-Authorization Efficacy Studies (“PAES”), or Post-Authorization Safety Studies (“PASS”).
Various requirements apply to the manufacturing and placing on the EU market of medicinal products. The manufacturing of medicinal products in the EU requires a manufacturing authorization and import of medicinal products into the EU requires a manufacturing authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance, including EU cGMP standards. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of EU Member States. Marketing authorization holders and/or manufacturing and import authorization, or MA holders and/or distribution authorization holders may be subject to civil, criminal or administrative sanctions, including suspension of manufacturing authorization, in case of non-compliance with the EU or EU Member States’ requirements applicable to the manufacturing of medicinal products.
Advertising and promotion of medicinal products are subject to both EU and EU Member States’ laws governing promotion of medicinal products, interactions with healthcare professionals (“HCPs”), misleading and comparative advertising and unfair commercial practices. Although general requirements for advertising and promotion of medicinal products are established under EU legislation, the details are governed by regulations developed in individual EU Member States and can differ from one country to another. For example, applicable laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics (“SmPC”), as approved by the competent authorities in connection with a marketing authorization. The SmPC is the document that provides information to physicians concerning the safe and effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of prescription medicinal products is also prohibited in the EU.
In the EU, interactions between pharmaceutical companies and HCPs, healthcare organizations (“HCOs”) and patient organizations (“POs”) are subject to strict laws, such as national anti-bribery laws of European countries, national sunshine rules, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct. These rules limit the circumstances in which pharmaceutical companies may provide advantages to HCPs, HCOs or POs to prevent inducements.
Data privacy and security
Finally, very stringent data privacy requirements apply in the EEA and the UK. In particular, Regulation (EU) 2016/679 (the General Data Protection Regulation (the “EU GDPR”) and the UK’s GDPR (the “UK GDPR”) , impose stringent data protection obligations on controllers or processors of personal data, including compliance with principles which require that personal data to be collected for specified, explicit and legal purposes, and processed in a manner consistent with those purposes. Personal data collected and processed must be adequate, relevant and not excessive in relation to the purposes for which it is collected and processed. The EU and UK GDPR also provide that personal data must be held securely, and not transferred outside of the EEA or UK, as applicable, unless certain steps are taken to ensure an adequate level of protection. The EU and UK GDPR also requires companies processing personal data to implement adequate technical measures in order to ensure the most appropriate level of security which may vary depending on different factors such as the categories of processed personal data, the state of the art, the costs of implementation and the nature, scope, context and purposes of processing as well as the risk of varying likelihood and severity for the rights and freedoms of natural persons. In addition, the EU and UK GDPR require companies processing personal data to take certain
124
organizational steps to ensure that they have adequate records, policies, security, training and governance frameworks in place to ensure the protection of data subject rights, including as required to respond to complaints and requests from data subjects. For instance, the EU and UK GDPR require companies to make detailed disclosures to data subjects, provides for conditions under which a valid consent for processing can be obtained, requires the appointment of a data protection officer where sensitive personal data (e.g., health data) is processed on a large scale, imposes mandatory data breach notification throughout the EEA or UK and imposes additional obligations when contracting with service providers or partners. In addition, to the extent a company processes, controls or otherwise uses “special category” of personal data (including patients’ health or medical information, genetic information and biometric information), more stringent rules apply, further limiting the circumstances and the manner in which a company is legally permitted to process that data. Failure to comply with the requirements of the EU and UK GDPR and the related national data protection laws of the EEA countries may result in fines up to 20 million euros (17.5 million British Pounds under the UK GDPR), or 4% of a company’s global annual revenues for the preceding financial year, whichever is higher.
Pricing and Reimbursement in the EU
Typically, governments closely regulate pricing and reimbursement of medicinal products and often have a significant discretion in determining whether a product will be reimbursed at all and, if it is, how much it will be paid. In the EU, pricing and reimbursement schemes vary widely from country to country. In certain EU countries medicinal products cannot be commercially launched until a reimbursement price has been agreed. Some EU Member States may approve a specific price for a product, or they may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other EU Member States allow companies to fix their own prices for products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many EU Member States have increased the amount of discounts that pharmaceutical companies are requirement to offer. These efforts could continue as countries attempt to manage healthcare expenditures. The downward pressure on healthcare costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products onto national markets. Political, economic, and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU Member States, and parallel trade (arbitrage between low-priced and high-priced member states), can further reduce prices.
In addition, some EEA countries may require the completion of additional studies that compare the cost-effectiveness of a particular medicinal product candidate to currently available therapies. This Health Technology Assessment (“HTA”), which is currently governed by the national laws of the individual EU Member States, is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual EU Member States. On December 13, 2021, the Health Technology Regulation (“HTA Regulation”), was adopted. While the HTA Regulation entered into force in January 12, 2022, it will only begin to apply from January 12, 2025 onwards, with preparatory and implementation-related steps to take place in the interim. The HTA Regulation is intended to boost cooperation among EU Member States in assessing health technologies, including new medicinal products (as well as certain high-risk medical devices), and providing the basis for cooperation at EU level for joint clinical assessments in these areas. The results of assessments conducted on the basis of the HTA may result in increased parity of reimbursement levels for medicinal products between EU Member States.
Negotiating prices with governmental authorities can delay commercialization of our products. Payers in many countries use a variety of cost-containment measures that can include referencing prices in other countries and using those reference prices to set their own price, mandatory price cuts and rebates. This international patchwork of price regulation can lead to different prices across countries and some cross-border trade in our products from markets with lower prices. Even after a price is negotiated, countries can, and often do, request or require adjustments to the price and other concessions over time.
Data Exclusivity And Market Exclusivity in the EU
In the EU, innovative medicinal products that have been granted marketing authorization (i.e., reference products) generally receive eight years of data exclusivity and an additional two years of market exclusivity. The data exclusivity period prevents applicants for the authorization of generic or biosimilar products from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, an application for authorization of a generic or biosimilar product may be submitted, and the data of the reference product may be referenced. However, no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period can be extended to a maximum of eleven years if, during the first eight years of those
125
ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
In the EU, there is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials must be provided in support of an application for marketing authorization. Guidelines from the EMA detail the type and quantity of supplementary data to be provided for different types of biological products.
Orphan Medicinal Product Designation and Exclusivity in the EU
Pursuant to Article 3 of Regulation (European Commission) No 141/2000, as implemented by Regulation (EC) No. 847/2000, a medicinal product may be designated by the European Commission as orphan if its sponsor can establish that (1) is the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition.
Regulation (EC) No 847/2000 sets out further provisions for implementation of the criteria for designation of a medicinal product as an orphan medicinal product. An application for the designation of a medicinal product as an orphan medicinal product must be submitted at any stage of development of the medicinal product but before filing of a marketing authorization application. A marketing authorization for an orphan medicinal product may only include indications designated as orphan. For non-orphan indications treated with the same active pharmaceutical ingredient, a separate marketing authorization has to be sought. Regulation (EC) No 847/2000 sets out further provisions for implementation of the criteria for designation of a medicinal product as an orphan medicinal product. An application for the designation of a medicinal product as an orphan medicinal product must be submitted at any stage of development of the medicinal product but before filing of a marketing authorization application. A marketing authorization for an orphan medicinal product may only include indications designated as orphan. For non-orphan indications treated with the same active pharmaceutical ingredient, a separate marketing authorization has to be sought.
Orphan medicinal product designation entitles an applicant to incentives such as fee reductions or fee waivers, protocol assistance, and access to the centralized marketing authorization procedure.
Upon grant of a marketing authorization, medicinal products receiving orphan designation are entitled to ten years market exclusivity for the approved therapeutic indication. During which time the EMA cannot accept another marketing authorization application, or grant a marketing authorization, or accept an application to extend a marketing authorization for a similar product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan medicinal products that have also complied with an agreed Pediatric Investigation Plan, or PIP. market exclusivity in the EU for pediatric studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications. Orphan medicinal product designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria on the basis of which it received orphan medicinal product designation, including where it can be demonstrated on the basis of available evidence that, if the original medicinal product is sufficiently profitable not to justify maintenance of market exclusivity or where the prevalence of the condition has increased above the legal threshold. Additionally, a marketing authorization may be granted to a similar product for the same orphan indication at any time during the ten-year period if: (i) the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; (ii) the applicant consents to a second orphan medicinal product application; or (iii) the manufacturer of the original orphan medicinal product cannot supply the orphan medicinal product in sufficient quantities. A company may voluntarily remove a product from the register of orphan products.
EU Supplementary Protection Certificates
In the EU, Supplementary Protection Certificates ("SPCs") are available to extend a patent term for up to five years to compensate patent protection lost during regulatory review. SPCs must be applied for and granted on a country-by-country basis.
126
Additional Protection for Pediatric Indications in the EU
In the EU, Regulation (EC) No 1901/2006 provides that all marketing authorisation application s for new medicinal products must include the results of trials conducted in the pediatric population, in compliance with a pediatric investigation plan (“PIP”), agreed with the EMA’s Pediatric Committee (“PDCO”). The PIP requirement also applies when a marketing authorization holder intends to add a new indication, pharmaceutical form or route of administration for a medicinal product that has already been authorized. The PIP sets out the timing and measures proposed to generate data to support a pediatric indication for the medicinal product for which marketing authorization is being sought. The PDCO may grant a deferral of the obligation to implement some or all of the measures provided in the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Furthermore, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data are not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all EU Member States and study results are included in the product information, even when negative, the product is eligible for a six-month extension to the Supplementary Protection Certificate (“SPC”), if any is in effect at the time of authorization or, in the case of orphan medicinal products, a two-year extension of orphan market exclusivity. This pediatric reward is granted subject to specific conditions and, in particular, that: (i) the applicant demonstrates having complied with all the measures contained in the PIP; (ii) the SmPC, and if appropriate the package leaflet, reflects the results of studies conducted in compliance with such PIP; and (iii) the product is authorized in all EU Member States. The rewards for conducting studies in the pediatric population can be granted irrespective of the fact that the information generated in compliance with the agreed PIP fails to lead to the authorization of a pediatric indication.
PRC Regulation
In the PRC, we operate in an increasingly complex legal and regulatory environment. We are subject to a variety of PRC laws, rules and regulations affecting many aspects of our business. This section summarizes the principal PRC laws, rules and regulations that we believe are relevant to our business and operations.
PRC Drug Regulation
Introduction
China heavily regulates the development, approval, manufacturing and distribution of drugs, including biologics. The specific regulatory requirements applicable depend on whether the drug is made and finished in China, which is referred to as a domestically manufactured drug, or made abroad and imported into China in finished form, which is referred to as an imported drug, as well as the approval or “registration” category of the drug. For both imported and domestically manufactured drugs, China typically requires regulatory approval for a CTA to conduct clinical trials in China and submit China clinical trial data, prior to submitting an application for marketing approval. For a domestically manufactured drug, there is also a requirement to have a drug manufacturing license for a facility in China.
In 2017, the drug regulatory system entered a new and significant period of reform. The General Office of the State Council and the General Office of the Central Committee of the China Communist Party jointly issued the Opinion on Deepening the Reform of the Evaluation and Approval System to Encourage Innovation in Drugs and Medical Devices, or the Innovation Opinion in October 2017. The expedited programs and other advantages under this and other recent reforms encourage drug manufacturers to seek marketing approval in China first, manufacture domestically, and develop drugs in high priority disease areas, such as oncology.
To implement the regulatory reform introduced by the Innovation Opinion, the NPC and the NMPA has been revising the fundamental laws, regulations and rules regulating pharmaceutical products and the industry, which include the framework law known as the PRC Drug Administration Law (“DAL”). The DAL was promulgated by the Standing Committee of the NPC on September 20, 1984 and last amended on August 26, 2019 and took effect as of December 1, 2019. The DAL is implemented by a high-level regulation issued by the State Council referred to as the DAL Implementing Regulation. A set of regulations have been subsequently promulgated for further implementation of the DAL; the primary one governing CTAs, marketing approval, and post-approval amendment and renewal is known as the Drug Registration Regulation (“DRR”). The DRR was promulgated by the CFDA on February 28, 2005 and the last amended DRR took effect from July 1, 2020. Although the NMPA has issued several notices and proposed regulations in 2018 and 2019 to implement the reforms, the implementing regulations for many of the reforms in the Innovation Opinion have not yet been finalized and issued, and therefore, the details regarding the implementation of the regulatory changes remained uncertain in some respects.
127
Regulatory Authorities and Recent Government Reorganization
In the PRC, the NMPA is the primary regulatory agency for pharmaceutical products and businesses. The agency was formed from the prior China Food and Drug Administration (“CFDA”), in 2018 as part of a government reorganization.
Like the CFDA, the NMPA is still the primary drug regulatory agency and implements the same laws, regulations, rules, and guidelines as the CFDA, and it regulates almost all of the key stages of the life-cycle of pharmaceutical products, including nonclinical studies, clinical trials, marketing approvals, manufacturing, advertising and promotion, distribution, and pharmacovigilance (i.e., post-marketing safety reporting obligations). The CDE, which remains under the NMPA, conducts the technical evaluation of each drug and biologic application to assess safety and efficacy.
The NHC (formerly known by the names: the Ministry of Health (MOH) and National Health and Family Planning Commission (NHFPC)), is China’s primary healthcare regulatory agency. It is responsible for overseeing the operation of medical institutions, some of which also serve as clinical trial sites, and regulating the licensure of hospitals and other medical personnel. NHC plays a significant role in drug reimbursement. Furthermore, the NHC and its local counterparts at or below the provincial-level of local government also oversee and organize public medical institutions’ centralized bidding and procurement process for pharmaceutical products, through which public hospitals and their pharmacies acquire drugs.
Also, as part of the 2018 reorganization, the PRC government formed the National Healthcare Security Administration which focuses on regulating reimbursement under the state-sponsored insurance plans.
Non-Clinical Research
The NMPA requires preclinical data to support registration applications for imported and domestic drugs. According to the DRR, nonclinical safety studies must comply with the Administrative Measures for Good Laboratories Practice of Non-clinical Laboratory. On August 6, 2003, the NMPA promulgated the Administrative Measures for Good Laboratories Practice of Non-clinical Laboratory, which was revised on July 27, 2017, to improve the quality of non-clinical research, and began to conduct the Good Laboratories Practice. The NMPA promulgated the newly revised Administrative Measures for Certification of Good Laboratory Practice for Non-clinical Laboratory on January 19, 2023, which became effective on July 1, 2023. Pursuant to the newly revised Administrative Measures for Certification of Good Laboratory Practice for Non-clinical Laboratory, the NMPA is responsible for the certification of non-clinical research institutions nationwide and local provincial medical products administrative authorities is in charge of the daily supervision of non-clinical research institution. The NMPA decides whether an institution is qualified for undertaking pharmaceutical non-clinical research by evaluating such institution’s organizational administration, its research personnel, its equipment and facilities, and its operation and management of non-clinical pharmaceutical projects. A Good Laboratory Practice Certification will be issued by the NMPA if all the relevant requirements are satisfied, which will also be published on the NMPA’s website.
Pursuant to the Regulations for the Administration of Affairs Concerning Experimental Animals promulgated by the State Science and Technology Commission on November 14, 1988 and amended on January 8, 2011, July 18, 2013 and March 1, 2017, respectively, by the State Council, the Administrative Measures on Good Practice of Experimental Animals jointly promulgated by the State Science and Technology Commission and the State Bureau of Quality and Technical Supervision on December 11, 1997, and the Administrative Measures on the Certificate for Experimental Animals (Trial) promulgated by the Ministry of Science and Technology and other regulatory authorities on December 5, 2001, using and breeding experimental animals shall be subject to some rules and performing experimentation on animals requires a Certificate for Use of Laboratory Animals. On January 19, 2023, the NMPA issued the newly revised "Good Laboratory Practice for Nonclinical Testing Management Measures", which came into effect on July 1, 2023. These measures further clarified the requirements for good laboratory practice in nonclinical testing, including laboratory organization and management, scientific researchers, equipment and facilities, quality control, and risk management.
Registration Categories
Prior to engaging with the NMPA on research and development and approval, an applicant will need to determine the registration category for its product candidate (which will ultimately need to be confirmed with the NMPA), which will determine the application requirements for its clinical trial and marketing application.
According to the DRR, drug marketing registration applications shall be subject to three categories, namely traditional Chinese drugs, chemical drugs and biological products. Among them, the registration applications of chemical drugs shall be categorized by innovative chemical drugs, improved new chemical drugs, generic chemical drugs and others,
128
and the registration applications of biological products shall be categorized by innovative biological products, improved new biological products, and biological products on the market (including biological similar drugs) and others.
The Registration Category of Biological Products and the Data Requirements for Declaration, issued by NMPA on June 29, 2020 and effective from July 1, 2020, which replaced the former category of therapeutic biological products and stipulated that the therapeutic biological products should be classified into 3 Categories, among which Category I refers to therapeutic biological products that have not been marketed anywhere in the world, Category II refers to improved new therapeutic biological products and Category III refers to therapeutic biological products that have been marketed in China or abroad.
Expedited Programs
Priority Evaluation and Approval Programs to Encourage Innovation
The NMPA has adopted several expedited review and approval mechanisms since 2009 and created additional expedited programs in recent years that are intended to encourage innovation. Applications for these expedited programs can be submitted together with the registration package or after the registration submission is admitted for review by the CDE. The Opinions on Encouraging the Prioritized Evaluation and Approval for Drug Innovation promulgated by the NMPA on December 21, 2017 clarified that fast track CTAs or drug registration pathways will be available to the innovative drugs. The Opinions on Encouraging the Prioritized Evaluation and Approval for Drug Innovation was replaced by the Announcement on the Release of Three Documents including the Procedures for the Evaluation of Breakthrough Therapeutic Drugs (Trial) issued by the NMPA on July 7, 2020. The three documents are namely the Procedures for the Evaluation of Breakthrough Therapeutic Drugs (Trial), Procedures for the Evaluation and Approval of the Listing Application for Conditional Approval of Drugs (Trial) and Procedures for Prioritized Evaluation and Approval for Drug Marketing (Trial), among others, which allow the applicant to apply for the breakthrough therapy drug procedure during the Phase I and II clinical trials and normally no later than the commencement of Phase III clinical trials for the innovative or improved drugs which are used for the prevention and treatment of diseases that seriously endanger life or seriously affect quality of life and there exists no effective means of prevention and treatment or there is sufficient evidence to show a significant clinical advantage over the existing treatments. In addition, when applying for the marketing license of a drug, for drugs with obvious clinical value, the applicant can apply for the prioritized evaluation and approval procedure.
If admitted to one of these expedited programs, an applicant will be entitled to more frequent and timely communication with reviewers at the CDE, expedited review and approval, and more agency resources throughout the review approval process.
NMPA also permits conditional approval of certain medicines based on early phase China clinical trial data or only on foreign approval clinical data. Post-approval the applicant may need to conduct one or more post- marketing studies. The agency has done this for drugs that meet unmet clinical needs for life-threatening illnesses and also for drugs that treat orphan indications. In 2018, the NMPA and the NHC established a conditional approval program for drugs designated by the CDE that have been approved in the U.S., EU and Japan within the last 10 years and that meet one of the three criteria: (1) orphan indications, (2) drugs that treat life threatening illnesses for which there are not effective treatment or preventive methods, and (3) drugs that treat life threatening illnesses and that have a clear clinical advantage over other approved therapies.
The DRR has incorporated the previous reform in respect of the accelerated approval for clinical trial and drug marketing registration and introduced four procedures for expedited marketing registration of drugs, which are procedures for ground-breaking therapeutic drugs, procedures for conditional approval, procedures for prioritized reviews and approval and procedures for special examination and approval:
•Procedures for ground-breaking therapeutic drugs: during the drug clinical trials for an innovative drug or improved new drug used for prevention and treatment of life-threatening illnesses or illnesses which have a serious impact on quality of life and for which there is no other effective prevention and treatment method or for which there is adequate evidence to prove that the said innovative drug or improved new drug has obvious clinical advantages over existing treatment approaches, the applicant may request for application of procedures for ground-breaking therapeutic drugs.
•Procedures for conditional approval: during the drug clinical trials for drugs which fall under the following circumstances, an application for conditional approval of marketing registration may be submitted (i) for drugs for treatment of life-threatening illnesses for which there is no effective treatment approach and for which the clinical trial of such drugs already has data to prove efficacy and is able to forecast the clinical value; (ii) for
129
drugs urgently needed for public health and for which the clinical trial of such drugs already has data to prove efficacy and is able to forecast the clinical value; and (iii) for other vaccines urgently needed for major public health emergencies or deemed by the NHC to be urgently needed if its benefits outweigh the risks according to the evaluation.
•Procedures for prioritized reviews and approval: at the time of the drugs’ marketing registration, drugs that have obvious clinical value may apply for application of procedures for prioritized review and approval, including (i) clinically and urgently needed but insufficient drugs, innovative drugs and improved new drugs for prevention and treatment of major contagious diseases and rare diseases; (ii) new pharmaceutical product types, dosage form and specifications of pediatric drugs which comply with pediatric physiological characteristics; (iii) vaccines and innovative vaccines urgently needed for prevention and control of diseases; (iv) drugs included in the procedures for ground-breaking therapeutic drugs; (v) drugs which comply with conditional approval criteria; and (vi) other circumstances of prioritized review stipulated by the NMPA.
•Procedures for special examination and approval: at the time of a threat or occurrence of public health emergency, the NMPA may, in accordance with law, decide to implement special examination and approval for urgently needed drug required for the prevention and treatment during the public health emergency. Drugs included in the special examination and approval procedures may, based on special needs of disease prevention and control, be restricted for use within a certain period and scope.
Clinical Trials and Marketing Approval
Upon completion of preclinical studies, a sponsor typically needs to conduct clinical trials in China for registering a new drug. The materials required for this application and the data requirements are determined by the registration category. The NMPA has taken a number of steps to increase efficiency for approving CTAs, and it has also significantly increased monitoring and enforcement of the Administrative Regulations of Quality of Drug Clinical Practice, or the PRC’s GCP to ensure data integrity.
Trial Approval
All clinical trials conducted in China for new drug registration purposes must be approved and conducted at pharmaceutical clinical trial institutions which shall be under the filing administration. For imported drugs, proof of approval outside the PRC is required prior to the trial, unless the drug has never been approved anywhere in the world. In addition to a standalone China trial to support development, imported drug applicants may establish a site in China that is part of an international multicenter trial (“IMCT”), at the outset of the global trial. Domestically manufactured drugs are not subject to approval requirements outside the PRC, and in contrast to prior practice, the NMPA has recently decided to permit those drugs to conduct development via an IMCT as well.
In 2015, the NMPA began to issue an umbrella approval for all phases (typically phase three) of a new drug clinical trial, instead of issuing approval phase by phase. For certain types of new product candidates, CTAs may be prioritized over other applications and put in a separate expedited queue for approval.
The NMPA has now adopted a system for clinical trials of new drugs where trials can proceed if after 60 business days, the applicant has not received any objections from the CDE. China is also expanding the number of trial sites by changing from a clinical trial site certification procedure into a notification procedure.
Drug Clinical Trial Registration
Pursuant to the DRR, clinical trials of drugs are subject to approval and a bioequivalence test shall be filed. Clinical trials of drugs are required to comply with the PRC’s GCP and must be carried out by drug clinical trial organizations which have completed filings pursuant to relevant provisions and which comply with the relevant provisions. On September 6, 2013, the NMPA released the Announcement on Drug Clinical Trial Information Platform, providing that for all clinical trials approved by the NMPA and conducted in China, instead of the aforementioned registration filed with the NMPA, clinical trial registration shall be completed and trial information shall be published through the Drug Clinical Trial Information Platform. The applicant shall complete trial pre-registration within one month after obtaining the clinical trial approval to obtain the trial’s unique registration number and shall complete registration of certain follow-up information before the first subject’s enrollment in the trial. If approval of the foregoing pre-registration and registration is not obtained within one year after obtaining the clinical trial approval, the applicant shall submit an explanation, and if the procedure is not completed within three years, the clinical trial approval shall automatically be annulled.
130
Human Genetic Resources Approval
On July 2, 2015, the Ministry of Science and Technology issued the Service Guide for Administrative Licensing Items concerning Examination and Approval of Sampling, Collecting, Trading, Exporting Human Genetic Resources, or Taking Such Resources out of the PRC, which provides that non-PRC-invested sponsors that sample and collect human genetic resources in clinical trials shall be required to file with the China Human Genetic Resources Management Office through its online system. On October 26, 2017, the Ministry of Science and Technology issued the Circular on Optimizing the Administrative Examination and Approval of Human Genetic Resources, which simplified the approval for sampling and collecting human genetic resources for the purpose of commercializing a drug in the PRC. The State Council of PRC issued the Regulations on the Administration of Human Genetic Resources (“HGR Regulation”), which became effective on July 1, 2019. The HGR Regulation regulate the collection, preservation, usage and external provision of China’s human genetic resources. According to this regulation, “human genetic resource” includes human genetic resource materials and information. Human genetic resource materials refer to organs, tissues, cells and other genetic materials containing human genome, genes and other genetic materials. Human genetic resource information refers to information, such as data, generated by human genetic resources materials. The Ministry of Science and Technology is responsible for the management of human genetic resources at the national level, and the administrative departments of science and technology under the provincial governments are responsible for the management of human genetic resources at local level. Non-PRC entities, non-PRC individuals and such entities established or actually controlled thereby are not allowed to collect or preserve China’s human genetic resources (including organs, tissues, cells and other genetic materials of human genome and gene) or provide human genetic resources abroad, while they are prohibited from using China’s human genetic resources unless they have obtained an approval from relevant PRC government authority or have filed with relevant government authority for international cooperation with a Chinese entity. The HGR Regulation formalized the approval requirements pertinent to research collaborations between Chinese and non-PRC-owned entities. Pursuant to the new rule, a new notification system (as opposed to the advance approval approach originally in place) is put in place for clinical trials using China’s human genetic resources at clinical institutions without involving the export of human genetic resources outside of China.
Biosecurity Law
On October 17, 2020, the Standing Committee of the National People’s Congress adopted the Biosecurity Law of the People’s Republic of China, which became effective on April 15, 2021 (the “Biosecurity Law”). The Biosecurity Law establishes an integrated system to regulate biosecurity related activities in China, including the security regulation of HGR and biological resources. The Biosecurity Law expressly declares that China has sovereignty over its HGR, and further endorsed the HGR Regulation, by recognizing the fundamental regulatory principles and systems established by it over the utilization of Chinese HGR by non-PRC entities in China. The Biosecurity Law is a law adopted by China’s highest legislative authority, it gives China’s major regulatory authority of HGR, the Ministry of Science and Technology, significantly more power and discretion to regulate HGR, and it is expected that the overall regulatory landscape of Chinese HGR will evolve and become even more rigorous and sophisticated. Failure to comply with the requirement under the Biosecurity Law will result in the penalties, including fines, suspension of related activities and confiscation of related HGR and gains generated from conducting these activities.
On May 26, 2023, the Ministry of Science and Technology issued the Implementing Rules of the Regulation on the Administration of Human Genetic Resources, which became effective on July 1, 2023 (the “Implementing Rules”). The Implementing Rules closely scrutinize all HGRs-related activities from upstream collection of HGR materials to downstream exploitation and external provision of the HGR materials and data derived therefrom (the “HGR data”). The Implementing Rules are intended to provide operational details and clarify questions that have emerged in the past few years after the HGR Regulations became effective. Under the Implementing Rules, clinical studies conducted for purpose of obtaining marketing authorization for drugs and medical devices in China, if not involving the export of HGR materials, shall be filed with the Ministry of Science and Technology (as opposed to the advance approval) if the HGR materials are collected by sites, and processed by sites or an onshore third-party lab specified in the clinical trial protocol. The Implementing Rules enumerate situations where a security review is required for external provision or utilization in an open manner of HGR data, such as external provision or utilization in an open manner of HGR data about important genetic pedigrees, HGR data from specific regions, and exome sequencing and genome sequencing information of over 500 individuals.
Trial Exemptions and Acceptance of Non-PRC Data
The NMPA may reduce requirements for clinical trials and data, depending on the drug and the existing data. The NMPA has granted waivers for all or part of trials and has stated that it will accept data generated abroad (even if not part of a global study), including early phase data, that meets its requirements. On July 6, 2018, the NMPA issued the Technical
131
Guidance Principles on Accepting Foreign Drug Clinical Trial Data (the “Guidance Principles”), as one of the implementing rules for the Innovation Opinion. According to the Guidance Principles, the data of non-PRC clinical trials must meet the authenticity, completeness, accuracy and traceability requirements and such data must be obtained consistent with the relevant requirements under the GCP of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”). Sponsors must be attentive to potentially meaningful ethnic differences in the subject population.
The NMPA now officially permits, and its predecessor agencies have permitted on a case-by-case basis in the past, drugs approved outside of China to be approved in China on a conditional basis without the need for pre-approval clinical trials inside China. Specifically, on October 23, 2018, the NMPA and the NHIC issued the Procedures for Reviewing and Approval of Clinical Urgently Needed Overseas New Drugs, which established a program permitting drugs that have been approved within the last ten years in the United States, EU or Japan and that i) treat orphan diseases, ii) prevent or treat serious life-threatening illnesses for which there is either no effective therapy or prevention in China, or iii) prevent or treat serious life-threatening illnesses and the non-PRC-approved drug would have clear clinical advantages. Applicants will be required to establish a risk mitigation plan and may be required to complete trials in China after the drug is marketed.
Clinical Trial Process and Good Clinical Practices
Pursuant to the DRR, a clinical trial consists of Phases I, II, III and IV clinical trial as well as a bioequivalence trial. Based on the characteristics of drugs and the research objective, the research contents shall include clinical pharmacology research, exploratory clinical trial, confirmatory clinical trial and post-marketing research. The NMPA requires that the different phases of clinical trials in China receive ethics committee approval and comply with the PRC’s GCP. The NMPA conducts inspections to assess the PRC’s GCP compliance and will cancel the CTA if it finds substantial issues.
To improve the quality of clinical trials, the CFDA promulgated the PRC’s GCP on August 6, 2003 which was further amended on April 23, 2020 and came into effect on July 1, 2020. In order to ensure the quality of clinical trials and the safety of human subjects, the PRC’s GCP provides comprehensive and substantive requirements on the design and conduct of clinical trials in China. In particular, the PRC’s GCP enhances the protection for study subjects and tightens the control over bio-samples collected under clinical trials. The PRC’s GCP stipulated that the sponsor shall bear the expenses for medical treatment and the corresponding compensation for any human subject who is harmed or dies due to reasons connected with the clinical trial. The sponsor and investigator shall pay the human subject the compensation or indemnification in a timely manner. Pursuant to the Innovation Opinion, the accreditation of the institutions for drug clinical trials shall be subject to record-filing administration. The conduct of clinical trials must adhere to the PRC’s GCP, and the protocols must be approved by the ethics committees of each study site. Pursuant to the newly amended DAL, and the Regulations on the Administration of Drug Clinical Trial Institution jointly promulgated by NMPA and NHC on November 29, 2019 and effective from December 1, 2019, drug clinical trial institutions shall be under filing administration. Entities that only conduct analysis of biological samples related to clinical trials of drugs do not need to be filed.
New Drug Application (NDA) and Approval
According to the DRR, the applicant may submit an application for drug marketing registration to CDE upon completion of relevant research on pharmacy, pharmacology, toxicology and drug clinical trials, determination the quality standards of the drug, validation of commercial-scale production processes and preparation for acceptance of verification and inspection conducted by professional technical institution designated by competent NMPA. The CDE will organize pharmaceutical, medical and other technicians to conduct comprehensive review of the safety, efficacy and quality controllability, among others, of the drug according to the application materials submitted by the applicant, the results of the verification and inspection conducted by professional technical institution, etc. If the comprehensive review conclusion is affirmative, the drug shall be approved for marketing and a drug registration certificate will be issued containing the information of the drug approval number, the marketing authorization holders and the manufacturer.
Pursuant to the Opinions on the Reform of Evaluation and Approval System for Drugs and Medical Devices and Equipment promulgated on August 9, 2015, the State Council published the policy for carrying out a pilot plan for the drug marketing authorization holder mechanism.
Pursuant to the newly amended DAL, under the drug marketing authorization holder mechanism, an enterprise obtained drug registration certificate and a research and development institution are eligible to be a drug marketing authorization holder, and this drug marketing authorization holder shall be responsible for nonclinical laboratory studies, clinical trials, production and distribution, post-market studies, and the monitoring, reporting, and handling of adverse reactions in connection with drugs in accordance with the provisions of the DAL. The drug marketing authorization holder
132
may engage contract manufacturers for manufacturing, provided that the contract manufacturers are licensed and may engage pharmaceutical distribution enterprises with drug distribution license for the distribution activities. Upon the approval of the medical products administrative department under the State Council, a drug marketing authorization holder may transfer the drug marketing authorization and the transferee shall have the capability of quality management, risk prevention and control, and liability compensation to ensure the safety, effectiveness and quality controllability of drugs, and fulfill the obligations of the drug marketing license holder. On December 29, 2022, the NMPA promulgated the Regulation on the Implementation of Primary Responsibilities for Drug Quality and Safety by Drug Marketing Authorization Holders, requiring drug marketing authorization holders to set up management departments with clear responsibilities, equip management personnel appropriate to the scale of drug production and operation, and establish a sound quality management system for the whole life cycle of drugs.
Manufacturing and Distribution
According to the newly amended DAL and the Implementing Measures of the DAL, all facilities that manufacture drugs in China must receive a Drug Manufacturing License with an appropriate “scope of manufacturing” from the local drug regulatory authority. This license must be renewed every five years. According to the Measures on the Supervision and Administration of the Manufacture of Drugs, promulgated on August 5, 2004 with the latest amendment being effective as of July 1, 2020, to the extent the marketing authorization holder does not manufacture the drug but through contract manufacturing organization, the marketing authorization holder shall apply for drug manufacturing license with the provincial counterpart of the NMPA, subject itself to inspections and other regulatory oversight by the agency.
Similarly, to conduct sales, importation, shipping and storage, or distribution activities, a company must obtain a Drug Distribution License with an appropriate “scope of distribution” from the local drug regulatory authority, subject to renewal every five years.
China has formed a “Two Invoice System” to control distribution of drugs. The “Two-Invoice System” generally requires that no more than two invoices may be issued throughout the distribution chain, with one from the manufacturer to a distributor and another from the distributor to the end-user hospital. This excludes the sale of products invoiced from the manufacturer to its wholly owned or controlled distributors, or for imported drugs, to their exclusive distributor, or from a distributor to its wholly owned or controlled subsidiary (or between the wholly owned or controlled subsidiaries). However, the system still significantly limits the options for companies to use multiple distributors to reach a larger geographic area in China. Compliance with the Two-Invoice System will become a prerequisite for pharmaceutical companies to participate in procurement processes with public hospitals, which currently provide most of China’s healthcare. Manufacturers and distributors that fail to implement the Two-Invoice System may lose their qualifications to participate in the bidding process.
Non-compliant manufacturers may also be blacklisted from engaging in drug sales to public hospitals in a locality.
The Two-Invoice System was first implemented in 11 provinces that are involved in pilot comprehensive medical reforms, but the program has expanded to nearly all provinces, which have their own individual rules for the program.
Human Cell Therapy
On March 20, 2003, the NMPA published the Technical Guidelines for Research on Human Cell Therapy and Quality Control of Preparations, which set some principles for the research of human cell therapy.
Pursuant to the DRR promulgated by the NMPA on July 10, 2007 and effective from October 1, 2007, human cell therapy and its products belong to biological products and the application for biological products shall be submitted as the process of new drug application.
On March 2, 2009, the MOH published the Management Measures for Clinical Application of Medical Technology, which came into effect on May 1, 2009 and prescribed that cell immunotherapy belongs to the Category 3 medical technology of which the clinical application shall be subject to the additional provisions of the MOH. In May, 2009, the MOH published the First List of Category 3 Medical Technologies Allowed for Clinical Application, or the Category 3 Medical Technologies which prescribed cell immunotherapy technology as Category 3 medical technologies were allowed for clinical application, and was abolished by the Notice on the Relevant Work Concerning Cancellation of the Category Three of Medical Technology Entry Approval of Clinical Application on June 29, 2015. The Notice on the Relevant Work Concerning Cancellation of the Category Three of Medical Technology Entry Approval of Clinical Application also cancelled the approval of Category 3 medical technology clinical application.
133
On November 30, 2017, the CFDA promulgated the Notice of Guidelines for Acceptance and Examination of Drug Registration (Trial), the application of clinical trials of therapeutic biological products and the production and listing application of therapeutic biological products shall be subject to the provisions thereof. On December 18, 2017, the CFDA promulgated the Technical Guiding Principles for Research and Evaluation of Cell Therapy Products (Trial) to regulate and guide the research and evaluation of cell therapy products that are researched on, developed and registered as drugs.
The Technical Guidelines for Clinical Trials of Immune Cell Therapy Products (Trial) (the “Technical Guidelines for Clinical Trials”), which was published by the CDE on February 10, 2021, provides that CAR-T, as a kind of immune cell therapy product, has the nature of gene therapy products. The Technical Guidelines for Clinical Trials, whose content is not mandatory, is intended to provide suggestions and recommendations on certain technical issues in clinical trials of immune cell therapy products, rather than to identify the regulatory nature or classification of immune cell therapy products. On December 3, 2021, the CDE published the Technical Guidelines for Non-clinical Research and Evaluation of Gene Therapy Products (Trial), or the Technical Guidelines for Gene Therapy Products, and Technical Guidelines for Non-clinical Research of Gene Modified Cell Therapy Products (Trial), the Technical Guidelines for Gene Modified Cell Therapy Products, which became effective as of the date of promulgation. The Technical Guidelines for Gene Modified Cell Therapy Products, which was formulated according to the Technical Guidelines for the Research and Evaluation of Cell Therapy Products (Trial), was issued to regulate and guide non-clinical research and evaluation of genetically modified cells therapy products, such as CAR-T cell therapy products. The CDE issued the Technical Guidelines for the Clinical Risk Management Plan on Application for Marketing Approval of Chimeric Antigen Receptor T Cell (CAR-T) Therapy Products on January 29, 2022, which became effective as of the date of promulgation, to regulate and guide the drafting of the clinical risk management plans on application for marketing approval of CAR-T therapy products.
Post-Marketing Surveillance
Pursuant to the newly amended DAL, the drug marketing authorization holder shall be responsible for the monitoring, reporting and handling of adverse reactions in connection with pharmaceuticals in accordance with the provisions of the DAL. Marketing authorization holders, pharmaceutical manufacturer, pharmaceutical distributors and medical institutions shall regularly inspect the quality, efficacy and adverse reactions of drugs manufactured, distributed and used by them. Cases of suspected adverse reactions shall be promptly reported to the drug administrative authorities and the competent health administrative authority. The drug marketing authorization holder shall forthwith stop selling, notify the relevant pharmaceutical distributors and medical institutions to stop sales and use, recall sold drugs, promptly announce recall information if the drugs have quality issues or other safety hazards.
Advertising and Promotion of Pharmaceutical Products
China has a strict regime for the advertising of approved drugs. No unapproved drugs may be advertised. The definition of an advertisement is very broad and it can be any media that directly or indirectly introduces the product to end users. There is no clear line between advertising and any other type of promotion.
Each advertisement for drugs requires an approval from a local drug regulatory authority, and the content of an approved advertisement may not be altered without filing a new application for approval. An enterprise seeking to advertise a prescription drug may do so only in medical journals jointly approved by NMPA and the NHC, and the advertisement for a prescription drug shall tag “this advertisement is for medical and pharmaceutical professionals reading only.”
Drug advertisements are subject to strict content restrictions, which prohibit recommendations by doctors and hospitals and guarantees of effectiveness. Advertising that includes content that is outside of the drug’s approval documentation, off-label content, is prohibited. False advertising can result in civil suits from end users and administrative liability, including fines. In addition to advertisements, non-promotional websites that convey information about a drug must go through a separate approval process by a local drug regulatory authority.
Product Liability
The Product Quality Law of the PRC (the “Product Quality Law”) promulgated by the Standing Committee of the NPC on February 22, 1993 and amended on July 8, 2000, August 27, 2009 and December 29, 2018, respectively, is the principal governing law relating to the supervision and administration of product quality. According to the Product Quality Law, manufacturers shall be liable for the quality of products produced by them, and sellers shall take measures to ensure the quality of the products sold by them. A manufacturer shall be liable for compensating for any bodily injuries or property damages, other than the defective product itself, resulting from the defects in the product, unless the manufacturer is able to prove that (1) the product has never been distributed; (2) the defects causing injuries or damages did not exist at the time when the product was distributed; or (3) the science and technology at the time when the product was distributed
134
was at a level incapable of detecting the defects. A seller shall be liable for compensating for any bodily injuries or property damages of others caused by the defects in the product if such defects are attributable to the seller. A seller shall pay compensation if it fails to indicate either the manufacturer or the supplier of the defective product. A person who is injured or whose property is damaged by the defects in the product may claim for compensation from the manufacturer or the seller.
Pursuant to the General Principles of the Civil Law of the PRC promulgated by the NPC on April 12, 1986 and amended on August 27, 2009, both manufacturers and sellers shall be held liable where the defective products result in property damages or bodily injuries to others. Pursuant to the Tort Liability Law of the PRC (the “Tort Law”), promulgated by the Standing Committee of the NPC on December 26, 2009 and effective from July 1, 2010, manufacturers shall assume tort liabilities where the defects in products cause damages to others. Sellers shall assume tort liabilities where the defects in products that have caused damages to others are attributable to the sellers. The aggrieved party may claim for compensation from the manufacturer or the seller of the defected product that has caused damage. The Civil Code of the PRC, which was promulgated on May 28, 2020 and became effective on January 1, 2021, amalgamated and replaced the General Principles of the Civil Law of the PRC and the Tort Law effective January 1, 2021. The rules on tort law in the Civil Code of the PRC are generally consistent with the General Principles of the Civil Law of the PRC and the Tort Law.
Commercial Bribery
Pharmaceutical companies involved in a criminal investigation or administrative proceedings related to bribery are listed in the Adverse Records of Commercial Briberies by their respective provincial health and family planning administrative department. Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales Industry which were promulgated by the NHFPC on December 25, 2013 and became effective on March 1, 2014, provincial health and family planning administrative departments formulate the implementing measures for establishment of Adverse Records of Commercial Briberies. Where a pharmaceutical company or its agent is listed in the Adverse Records of Commercial Briberies on one occasion, it will be prohibited from participating in the procurement bidding process or selling its products to public medical institutions located in the local provincial-level region for two years from the publication of the adverse records. Where a pharmaceutical company or its agent is listed in the Adverse Records of Commercial Briberies on two or more occasions within five years, it will be prohibited from participating in the procurement bidding process or selling its products to all public medical institutions in the PRC for two years from the publication of these adverse records.
Regulatory Intellectual Property Protections
Non-Patent Exclusivities New drug monitoring period
According to the Implementing Regulations of the DAL, the NMPA may, for the purpose of protecting public health, provide for an administrative monitoring period of five years for new drugs approved to be manufactured, commencing from the date of approval, to continually monitor the safety of those new drugs. During the monitoring period, the NMPA will not approve another CTA from another applicant for the same type of drug. In July 2020, the new DRR took effect, and the five-year monitoring period was removed accordingly.
Furthermore, the CDE issued the Guidelines for Acceptance and Review of Registration of Biological Products on July 2, 2020, and according to the Appendix II of such guidelines, the description of the monitoring period of the same type of therapeutic biological products was also removed.
Regulatory data protection
The Innovation Opinion also lays the foundation for the establishment of a system for regulatory data protection to protect innovators. This protection will be available to the undisclosed clinical trial data of drugs falling into the following categories: innovative drugs, innovative therapeutic biologics, drugs that treat orphan diseases, pediatric drugs, and drugs for which there has been a successful patent challenge.
On April 25, 2018, NMPA published a draft on Implementing Regulations for Pharmaceutical Study Data Protection for public comment that would set regulatory data protection for innovative small molecule drugs at six years and for innovative therapeutic biologics at 12 years; pediatric and orphan drugs would receive six years to run concurrently from their approval dates. Full terms of protection would require reliance on local trials or sites of multicenter trials in China and simultaneous submissions of marketing applications in China and other countries. Submissions in China that are up to six years after those made abroad would result in the term being reduced to 1-5 years. Submissions made in China over six years after those made abroad may not receive protection.
135
Patent-Related Protections Patent linkage
NMPA and China National Intellectual Property Administration (CNIPA) jointly issued the “Implementing Measures for Drug Patent Dispute Early Resolution Mechanism (Tentative)” in July 2021 which came into effect in the same day. The Drug Patent Dispute Early Resolution Mechanism is similar to the US patent linkage system established in Hatch-Waxman Act but with some differences. This mechanism allows the patentee or interested person of an innovative drug to sue the generic drug or biosimilar producers when they submit the ANDA or biosimilar BLA. If a suit is filed, an automatic 9 month stay of marketing approval is placed on the generic drug or biosimilar, while the stay is 30 months in the US patent linkage system.
Patent term extension
According to the Patent Law issued by the Standing Committee of the NPC on October 17, 2020, which became effective on June 1, 2021, the patent administration department under the State Council shall, upon request of the patentee, extend the patent term of relevant invention patents of the new drug that is approved to be listed on the market in China. The compensated extension shall not exceed five years, and the total valid patent term after the new drug is approved for the market shall not exceed 14 years. On December 21, 2023, the PRC State Council promulgated the amendment to Implementing Rules of Patent Law, which will become effective on January 20, 2024. The amendment details the provision by stipulating that the compensated extension shall be calculated based on the number of days between the filing of the patent application and the date on which the new drug is approved to be listed on the market in China, minus five years. During the patent term compensation period, the scope of protection of the patent is limited to the technical solutions related to the new drug and its approved indications.
Trademarks
Pursuant to the Trademark Law of the PRC promulgated by the Standing Committee of the NPC on August 23, 1982 and amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019, respectively and became effective from November 1, 2019, the period of validity for a registered trademark is ten years, commencing from the date of registration. The registrant shall go through the formalities for renewal within twelve months prior to the expiry date of the trademark if continued use is intended. Where the registrant fails to do so, a grace period of six months may be granted. The validity period for each renewal of registration is ten years commencing from the day immediately after the expiry of the preceding period of validity for the trademark. In the absence of a renewal upon expiry, the registered trademark shall be canceled. Industrial and commercial administrative authorities have the authority to investigate any behavior in infringement of the exclusive right under a registered trademark in accordance with the law. In case of a suspected criminal offense, the case shall be timely referred to a judicial authority and decided according to the law.
Domain names
Domain names are protected under the Administrative Measures on China Internet Domain Names promulgated by the Ministry of Information Industry on November 5, 2004 and effective from December 20, 2004, which was replaced by the Administrative Measures on the Internet Domain Names issued by the Ministry of Industry and Information Technology (“MIIT”), on August 24, 2017 and effective from November 1, 2017. The MIIT is the main regulatory authority responsible for the administration of PRC internet domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and the applicants become domain name holders upon successful registration.
Reimbursement and Pricing
China’s national medical insurance program was adopted pursuant to the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council in 1998, under which all employers in urban cities are required to enroll their employees in the basic medical insurance program. The insurance premium is jointly contributed by the employers and employees. In 2007, the State Council promulgated Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance, under which urban residents of the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance. Participants of the national medical insurance program and their employers, if any, are required to contribute to the payment of insurance premiums on a monthly basis. Program participants are eligible for full or partial reimbursement of the cost of medicines included in the NRDL. A pharmaceutical product listed in the NRDL must be clinically needed, safe, effective, reasonably priced, easy to use, and available in sufficient quantity.
136
Factors that affect the inclusion of a pharmaceutical product in the NRDL include whether the product is consumed in large volumes and commonly prescribed for clinical use in the PRC and whether it is considered to be important in meeting the basic healthcare needs of the general public. Since 2016, special consideration has been given to, among others, innovative drugs with high clinical value and drugs for serious diseases. In addition, the PRC Ministry of Human Resources and Social Security has also been negotiating with manufacturers of expensive drugs with high clinical demands and proven effectiveness for price cuts in exchange for inclusion into the NRDL. The latest version of the NRDL was released on December 13, 2023 and was implemented on January 1, 2024.
Government price controls
On May 4, 2015, the NDRC and six other ministries and commissions in the PRC issued the Opinion on Promoting Drug Pricing Reform, which lifted the government-prescribed maximum retail price for most drugs, including drugs reimbursed by government medical insurance funds, patented drugs, and some other drugs. The government regulates prices mainly by establishing a consolidated procurement mechanism, restructuring medical insurance reimbursement standards and strengthening regulation of medical and pricing practices as discussed below.
Centralized procurement and tenders
Under current regulations, public medical institutions owned by the government or owned by state-owned or controlled enterprises are required to purchase pharmaceutical products through centralized online procurement processes. There are exceptions for drugs on the National List of Essential Drugs, which must comply with their own procurement rules, and for certain drugs subject to the central government’s special control such as toxic, radioactive and narcotic drugs, and traditional Chinese medicines.
The centralized procurement process takes the form of public tenders operated by provincial or municipal- level government agencies. The centralized tender process is typically conducted once every year. The bids are assessed by a committee randomly selected from a database of experts. The committee members assess the bids based on a number of factors, including but not limited to bid price, product quality, clinical effectiveness, product safety, level of technology, qualifications and reputation of the manufacturer, after-sale services and innovation.
According to the Notice of Issuing Pilot Program of the Centralized Procurement and Use of Drugs Organized by the State issued by the General Office of the State Council in January 2019, in the 11 pilot cities drugs will be selected from generic brands for centralized medicine procurement. The selected drugs must pass the consistency evaluation on quality and effectiveness. The policy is aimed at lowering drug costs for patients, reducing transaction costs for enterprises, regulating drug use of institutions, and improving the centralized medicine procurement and pricing system. The centralized procurement is open to all approved enterprises that can produce drugs on the procurement list in China. Clinical effects, adverse reactions, and batch stability of the drugs will be considered, and their consistency will be the main criteria for evaluation, while production capacity and stability of the supplier will also be considered.
Other PRC National- and Provincial-Level Laws and Regulations
References to “foreign” in this section entitled “Other PRC National-and Provincial-Level Laws and Regulations” refer to countries or regions outside the PRC, unless the context indicates otherwise.
We are subject to changing regulations under many other laws and regulations administered by governmental authorities at the national, provincial and municipal levels, some of which are or may become applicable to our business. For example, regulations control the confidentiality of patients’ medical information and the circumstances under which patient medical information may be released for inclusion in our databases or released by us to third parties. The privacy of human subjects in clinical trials is also protected under regulations. For example, the case report forms must avoid disclosing names of the human subjects.
Privacy and Data Security Protections
These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future, including restrictions on transfer of healthcare data.
137
Scientific data
In March, 2018, the General Office of the State Council promulgated the Scientific Data Measures, which provide a broad definition of scientific data and relevant rules for the management of scientific data. Pursuant to the Scientific Data Measures, the scientific data involving state secrets, national security, social or public interests, trade secrets and individual privacy shall be kept confidential; where it is necessary to disclose such data, the purposes of utilization, qualifications of users and confidentiality conditions, among others, shall be examined, and the scope of those with access thereto shall be strictly controlled. Enterprises in the PRC must seek governmental approval before any scientific data involving a state secret is provided during foreign contacts and cooperation. Upon approval by the competent departments, corporate entities shall undergo the relevant formalities as required, and sign confidentiality agreements with users. Furthermore, any researcher conducting research funded in part or in whole by the PRC government is required to submit relevant scientific data for management by the entity to which such researcher is affiliated before that data may be published in any foreign academic journal.
Personal information
Pursuant to the Civil Code of the PRC, the personal information of an individual shall be protected by the law. Any organization or individual that needs to obtain personal information of others shall obtain such information legally and ensure the safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase or sell, provide or publish personal information of others. In addition, the processing of personal information shall follow the principles of lawfulness, appropriateness and necessity. The Personal Information Protection Law promulgated by the SCNPC on August 20, 2021, which became effective on November 1, 2021, outlines the main system framework of personal information protection and processing. The Personal Information Protection Law sets forth detailed rules on handling personal information and legal responsibilities, including but not limited to the scope of personal information and the ways of processing personal information, the establishment of rules for processing personal information, and the individual’s rights and the processor’s obligations in the processing of personal information. The Personal Information Protection Law also strengthens the punishment for those who illegally process personal information.
Data security
On November 7, 2016, the SCNPC promulgated the Cybersecurity Law of the PRC, which became effective on June 1, 2017, pursuant to which network operators are to fulfill their obligations to safeguard security of the network when conducting business and providing services. Network operators may not collect personal information irrelevant to the services they provide or collect or use the personal information in violation of the provisions of applicable laws or agreements concluded with their users, and CIIOs are required to store in the PRC all the personal information and important data collected and produced within the PRC.
On June 10, 2021, the SCNPC promulgated the China’s Data Security Law (the “Data Security Law”), which came into effect on September 1, 2021. The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The Data Security Law also provides for a national security review procedure for data activities that may affect national security.
The newly amended Measures for Cybersecurity Review, which was published by the CAC and 12 other relevant PRC government authorities on December 28, 2021, became effective on February 15, 2022. The Measures for Cybersecurity Review provides that, among other things, (i) the purchase of network products and services by a CIIO and the data processing activities of a “network platform operator” that affect or may affect national security shall be subject to the cybersecurity review; and (ii) if a “network platform operator” that possesses personal information of more than one million users intends to go public in a country other than Greater China, it must apply for a cybersecurity review with the cybersecurity review office.
The CAC published the Measures on Security Assessment of Cross-border Transfer of Data on July 7, 2022, which became into effect on September 1, 2022. The Measures on Security Assessment of Cross-border Transfer of Data provides that a data processor is required to apply for security assessment for cross-border data transfer in any of the following circumstances: (i) where a data processor provides critical data abroad; (ii) where a CIIO or a data processor which processes personal information of more than 1,000,000 individuals provides personal information abroad; (iii) where a data processor has provided personal information in the aggregate of 100,000 individuals or sensitive personal
138
information of 10,000 individuals abroad since January 1 of the previous year; or (iv) other circumstances prescribed by the CAC for which declaration for security assessment for cross-board transfer of data is required.
On February 24, 2023, the CAC officially released the final version of the Measures for Standard Contract for the Outbound Transfer of Personal Information (the "Measures"). These Measures, including a template standard contract, took effect on June 1, 2023. According to the Measures, personal information processors that choose to establish standard contracts for providing personal information to overseas parties should follow the relevant provisions for contract establishment. Specifically, personal information processors should fully communicate with overseas recipients, clarify their rights and obligations, and ensure that the export of personal information is legal, secure, and compliant. After signing the standard contract, personal information processors are required to file with the provincial internet information department within 10 working days of the standard contract's effectiveness. The filing materials should include the standard contract and the report on the impact of personal information protection. Furthermore, if personal information processors choose to establish standard contracts to provide personal information to overseas parties, during the effective period of the standard contract, if there are situations such as personal information exporting, changes in personal information protection policies and regulations in the country or region where the overseas recipient is located, personal information processors should re-evaluate the impact of personal information protection, supplement or re-sign standard contracts, and fulfill the corresponding filing procedures.
PRC Regulation of Foreign Investment
Investment activities in China by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment (the “Catalogue”), which was promulgated and is amended from time to time by the MOFCOM and the NDRC. The Special Administrative Measures for the Access of Foreign Investment (Negative List) (2021) issued by the MOFCOM and the NDRC on December 27, 2021 and took into effect from January 1, 2022. The Negative List is further divided into two sub-categories: restricted industries and prohibited industries. Establishment of wholly foreign-owned enterprises is generally allowed in industries outside of the Negative List. For the restricted industries within the Negative List, some are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations. The Encouraged Industry Catalogue for Foreign Investment (2022), or the 2022 Encouraged Industry Catalogue, which became effective on January 1, 2023, provides that foreign investment is encouraged in the development and production of cell therapy drugs except in areas where foreign investment is prohibited.
On March 15, 2019, the NPC approved the Foreign Investment Law of the PRC (the “Foreign Investment Law”), which became effective on January 1, 2020 and replaced the three old rules on foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperation Joint Venture Law and the Wholly Foreign- Owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition. According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or other organizations of a foreign country (collectively referred to as “foreign investor”) within China, and “investment activities” include the following activities: (i) a foreign investor, individually or together with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other similar rights and interests of an enterprise within China; (iii) a foreign investor, individually or together with other investors, invests in a new construction project within China; and (iv) investments in other means as provided by the laws, administrative regulations or the State Council. The Foreign Investment Law grants foreign invested entities the same treatment as PRC domestic entities, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the Negative List.
On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign Investment Law, which became effective on January 1, 2020. The implementation rules further clarified that the state encourages and promotes foreign investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment, and advances a higher-level opening.
On December 30, 2019, the MOFCOM and the SAMR jointly promulgated Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment, where a foreign investor carries out investment activities in China, the foreign investor or the foreign-invested enterprise shall submit the investment information to the competent commerce department.
139
M&A Rules
According to the M&A Rules jointly issued by the MOFCOM, the State Assets Supervision and Administration Commission of the State Council, the SAT, the State Administration for Industry and Commerce (now known as the SAMR), the CSRC and the SAFE, on August 8, 2006 and amended by the MOFCOM on June 22, 2009, among other things, (i) the purchase of an equity interest or subscription to the increase in the registered capital of non-foreign-invested enterprises, (ii) the establishment of foreign-invested enterprises to purchase and operate the assets of non-foreign-invested enterprises, or (iii) the purchase of the assets of non-foreign-invested enterprises and the use of such assets to establish foreign-invested enterprises to operate such assets, in each case, by foreign investors shall be subject to the M&A Rules. Particularly, application shall be made for examination and approval of the acquisition of any company in China affiliating to a domestic company, enterprise or natural person, which is made in the name of an oversea company established or controlled by such domestic company, enterprise or natural person.
Regulations Relating to Employee Stock Incentive Plan
On February 15, 2012, the SAFE promulgated the Stock Option Rules. In accordance with the Stock Option Rules and relevant rules and regulations, PRC citizens or non-PRC citizens residing in China for a continuous period of not less than one year, who participate in any stock incentive plan of a public company listed outside of the PRC, subject to a few exceptions, are required to register with the SAFE through a domestic qualified agent, which could be a PRC subsidiary of such company listed outside of the PRC, and complete certain procedures. We and our employees who are PRC citizens or who reside in China for a continuous period of not less than one year and who participate in our stock incentive plan will be subject to such regulation. In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax (the “IIT”). The PRC subsidiaries of a company listed outside of the PRC have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold IIT of those employees related to their share options or restricted shares. If the employees fail to pay, or the PRC subsidiaries fail to withhold, their IIT according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities.
Regulations Relating to Foreign Exchange
The PRC Foreign Exchange Administration Regulations promulgated by the State Council on January 29, 1996, which was amended on January 14, 1997 and August 5, 2008, respectively, are the principal regulations governing foreign currency exchange in China. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. In contrast, approval from or registration with appropriate government authorities or designated banks is required when RMB is to be converted into a foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
Under current regulations, the capital of a foreign-invested enterprise and capital in RMB obtained by the foreign-invested enterprise from foreign exchange settlement must not be used for the following purposes: directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; directly or indirectly used for investment in securities, unless otherwise provided by relevant laws and regulations; extending loans to non-related parties, unless permitted by the scope of business; and/or paying the expenses related to the purchase of real estate that is not for self-use, except for the real estate enterprises.
In 2017, new regulations were adopted which, among other things, relax the policy restriction on foreign exchange inflow to further enhance trade and investment facilitation and tighten genuineness and compliance verification of cross-border transactions and cross-border capital flows.
In 2019, SAFE promulgated SAFE Circular 28, which cancelled restrictions on domestic equity investments made with capital funds by non-investing foreign-funded enterprises. If a non-investing foreign-funded enterprise makes domestic equity investment with capital funds obtained from foreign exchange settlement, the investee shall undergo registration formalities for accepting domestic reinvestment and open the “capital account— account for settled foreign exchange to be paid” to receive the corresponding funds according to relevant provisions.
140
SAFE Circular 37
In July 2014, SAFE promulgated SAFE Circular 37, which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles (“SPVs”), are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any change of basic information or material events. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February 2015, SAFE promulgated SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE.
Regulations Relating to Dividend Distributions
The principal laws, rules and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the PRC Company Law, promulgated in 1993 and last amended in 2018 and the Foreign Investment Law and its Implementing Regulations, both came into effect on January 1, 2020. Under these requirements, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is required to allocate at least 10% of their respective accumulated after-tax profits each year, if any, to fund certain capital reserve funds until the aggregate amount of these reserve funds have reached 50% of the registered capital of the enterprises. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Labor Laws and Labor Contract Law
Pursuant to the PRC Labor Law promulgated by the Standing Committee of the NPC on July 5, 1994 and last amended on December 29, 2018 and the PRC Labor Contract Law promulgated by the Standing Committee of the NPC on June 29, 2007 and amended on December 28, 2012, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Employers must establish a comprehensive management system to protect the rights of their employees, including a system governing occupational health and safety to provide employees with occupational training to prevent occupational injury, and employers are required to truthfully inform prospective employees of the job description, working conditions, location, occupational hazards and status of safe production as well as remuneration and other conditions. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations.
Regulations Relating to Social Insurance and Housing Provident Funds
In addition, according to the PRC Social Insurance Law promulgated on October 28, 2010 by the Standing Committee of the NPC and amended on December 29, 2018, the Interim Regulations on the Collection and Payment of Social Security Funds promulgated by the State Council on January 22, 1999 and amended on March 24, 2019, and the Regulations on the Administration of Housing Provident Funds promulgated by the State Council on April 3, 1999 and amended on March 24, 2002 and March 24, 2019, respectively, employers like our PRC subsidiaries in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. These payments are made to local administrative authorities, and any employer who fails to contribute may be fined and ordered to pay the deficit amount within a stipulated time limit.
Regulations Relating to Enterprise Income Tax
Pursuant to the PRC Enterprise Income Tax Law effective as of January 1, 2008 and as amended on February 24, 2017 and December 29, 2018, respectively, the income tax rate for both domestic and foreign- invested enterprises is 25% with certain exceptions. To clarify certain provisions in the PRC Enterprise Income Tax Law, the State Council promulgated the Implementation Rules of the Enterprise Income Tax Law on December 6, 2007, which was amended and
141
became effective on April 23, 2019. Under the PRC Enterprise Income Tax Law and the Implementation Rules of the PRC Enterprise Income Tax Law, enterprises are classified as either “resident enterprises” or “non-resident enterprises.” Aside from enterprises established within the PRC, enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are subject to the uniform 25% enterprise income tax rate for their global income. In addition, the PRC Enterprise Income Tax Law provides that a non-resident enterprise refers to an entity established under foreign law whose “de facto management bodies” are not within the PRC, but has an establishment or place of business in the PRC, or does not have an establishment or place of business in the PRC but has income sourced within the PRC.
The Implementation Rules of the PRC Enterprise Income Tax Law provide that since January 1, 2008, an income tax rate of 10% shall normally be applicable to dividends declared to non-PRC resident enterprise investors that do not have an establishment or place of business in the PRC, or have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. The income tax on the dividends may be reduced pursuant to a tax treaty between China and the jurisdictions in which the non-PRC shareholders reside.
Rest of World Regulation
For other countries outside of the United States and the PRC, the requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to country. In all cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles having their origin in the Declaration of Helsinki.
Enforcement of Civil Liabilities
References to “foreign” in this section entitled “Enforcement of Civil Liabilities” refer to countries outside the PRC and the Cayman Islands, as the case may be, unless the context indicates otherwise.
Legend Biotech is incorporated as an exempted company in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:
•political and economic stability;
•an effective judicial system;
•a favorable tax system;
•the absence of exchange control or currency restrictions; and
•the availability of professional and support services.
However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include, but are not limited to:
•the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and
•Cayman Islands companies may not have standing to sue before the federal courts of the United States.
Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.
Certain of our assets and operations are located in China. Certain of our directors are nationals or residents of jurisdictions other than the United States that may have assets located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
Maples and Calder (Singapore) LLP, our legal counsel as to Cayman Islands law, and JunHe LLP, our legal counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and PRC, respectively, would:
•recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or
142
•entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
There is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands. Maples and Calder (Singapore) LLP have advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States, a judgment in personam obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment:
•is given by a competent foreign court with jurisdiction to give the judgment;
•imposes a specific positive obligation on the judgment debtor (such as an obligation to pay a liquidated sum or perform a specified obligation);
•is final and conclusive;
•is not in respect of taxes, a fine or a penalty; and
•was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.
However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
JunHe LLP has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in China will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or social public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders may originate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to China for a PRC court to have jurisdiction, and meet other procedural requirements, including, among others, the plaintiff must have a direct interest in the case, and there must be a concrete claim, a factual basis and a cause for the suit. However, it would be difficult for foreign shareholders to establish sufficient nexus to China by virtue only of holding our ADSs or ordinary shares.
In addition, it will be difficult for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding our ADSs or ordinary shares, to establish a connection to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.
Facilities
Our principal executive offices are currently located at 2101 Cottontail Lane, Somerset, New Jersey 08873, where Legend Biotech USA, Inc. owns an approximately 85,371 square foot facility, including approximately 32,039 square feet of office space and 53,332 square feet of warehouse space. We have completed the renovation of a significant portion of the warehouse space into GMP manufacturing space for the development and potential commercialization of our pipeline. We believe our current facilities are suitable and adequate to meet our current needs. If we need to add new facilities or expand existing facilities as we add employees, we believe that suitable additional space will be available to accommodate any such expansion of our operations.
143
C.Organizational Structure Chart
The following diagram illustrates our corporate structure, including our parent company, subsidiaries, and consolidated affiliated entities, as of the date of this Annual Report:
D.Property, Plants and Equipment
Principal Executive Offices
Our principal executive offices are currently located at 2101 Cottontail Lane, Somerset, New Jersey 08873, where Legend Biotech USA, Inc. owns an approximately 85,371 square foot facility, including approximately 32,039 square feet of office space and 53,332 square feet of warehouse space. We have recently completed the renovation of a significant portion of the warehouse space into GMP manufacturing space. We believe our current facilities are suitable and adequate to meet our current needs. If we need to add new facilities or expand existing facilities as we add employees, we believe that suitable additional space will be available to accommodate any such expansion of our operations.
Additional U.S. Facilities
We lease or expect to lease the following additional facilities in the United States:
•We have a research facility located at 10 Knightsbridge Road, Piscataway, New Jersey 08854, where we lease approximately 22,000 square feet from a subsidiary of Genscript.
•We are party to a lease with Janssen under which we expect to lease an approximately 106,000 square foot GMP manufacturing facility from Janssen located in Raritan, New Jersey. That lease will become effective on a future date in connection with our assumption of control of such facility in accordance with the Janssen collaboration and license agreement. CARVYKTI is manufactured at this facility.
144
European Union
We lease or expect to lease the following facilities in the European Union:
•Janssen currently leases two facilities in Ghent, Belgium that will be used primarily for GMP manufacturing. These facilities include approximately 180,900 and 30,000 square feet, respectively, one of which is under construction, and the other has started producing cilta-cel for clinical trials. We expect that these facilities will be subleased to us, effective as of a future date, in connection with our assumption of control of such facilities in accordance with the Janssen collaboration and license agreement. Once completed and all regulatory approvals have been obtained, we plan to use these facilities for the clinical and commercial manufacture of CARVYKTI.
•We have an administrative office facility located in Ghent, Belgium, where lease approximately 19,300 feet.
•We have a research and administrative facility located in Dublin, Ireland, where we lease approximately 8,300 square feet.
PRC
In Nanjing, we hold a land-use right for approximately 50,000 square meters situated at the North of Yuehua Road and West of Qiande Road, Jiangning Hi-Tech Development Zone, Nanjing, Jiangsu Province. We completed the construction of a GMP manufacturing facility on this land in July 2023, which has a footprint of approximately 3,800 square meters and a gross floor area of approximately 21,000 square meters. In addition, we lease the following facilities in the PRC for a variety of purposes, including for office space, warehousing, laboratory work, storage and GMP manufacturing:
| Address | Scheduled Lease Expiration | Leased Area | Use of Premises | ||||||||
1st, 2nd, 3rd and 4th Floors, Building 6, Nanjing Life Science Town, 568 Longmian Avenue, Jiangning District, Nanjing | 31-Dec-2026 | 3,592 square meters | Office and GMP manufacturing | ||||||||
3rd, 4th and 5th Floors, Building 3, Nanjing Life Science Town, 568 Longmian Avenue, Jiangning District, Nanjing | 30-May-2026 | 2,038 square meters | Office and laboratory | ||||||||
4th Floor, Block A, Production and Research Comprehensive Building, 33 Jingyou Road, Jiangning District, Nanjing | 23-Jul-2024 | 2,940.67 square meters | Office | ||||||||
4th Floor, Block E, Production and Research Comprehensive Building, 33 Jingyou Road, Jiangning District, Nanjing | 31-Dec-2028 | 7,250 square meters | Laboratory | ||||||||
1st Floor, Building 5, 28 Yongxi Road, Jiangning District, Nanjing* | 30-Jun-2025 | 1,000 square meters | Office and laboratory | ||||||||
1st Floor, Block B, Production and Research Comprehensive Building, 33 Jingyou Road, Jiangning District, Nanjing | 25-Aug-2024 | 1,279.8 square meters | Warehouse | ||||||||
| 3rd Floor, Block B, Production and Research Comprehensive Building, 33 Jingyou Road, Jiangning District, Nanjing | 14-Sept-2024 | 1,334.28 square meters | Laboratory and office | ||||||||
| Room 209, 2nd Floor, 298 Xiangke Road, Zhangjiang High-Tech Park, Shanghai | 30-June-2024 | 351.56 square meters | Office | ||||||||
| 17th Floor, Block B, Golden Land Center, 91 Jianguo Road, Chaoyang District, Bejing | 14-May-2025 | 327.87 square meters | Office | ||||||||
| Tennis Court, 33 Jinyou Road, Jiangning District, Tongfang Industrial Park, Nanjing | 23-July-2024 | 375 square meters | Storage of waste materials | ||||||||
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Cautionary Statement Regarding Forward-Looking Statements” in this
145
Annual Report. In evaluating our business, you should also carefully consider the information provided under “Item 3.D. Risk Factors” for a discussion of important factors that could cause our actual results to differ materially from those projected in the forward-looking statements.
Overview
We are primarily a global, clinical-stage biopharmaceutical company engaged in the discovery, development, manufacturing and commercialization of novel cell therapies for oncology and other indications. Our team of approximately 1,800 employees in the United States, China and Europe, our differentiated technology, global development and manufacturing strategy and expertise provide us with the ability to generate, test and manufacture next-generation cell therapies targeting indications with high unmet needs. Our lead product candidate, ciltacabtagene autoleucel, or cilta-cel (referred to as LCAR- B38M for purposes of our LEGEND-2 trial), is a chimeric antigen receptor T cell (“CAR-T”) therapy we are jointly developing with our strategic partner, Janssen, for the treatment of MM. Clinical trial results achieved to date demonstrate that cilta-cel has the potential to deliver deep and durable anti-tumor responses in relapsed and refractory multiple myeloma (“RRMM”) patients with a manageable safety profile.
Our lead product candidate, ciltacabtagene autoleucel, or cilta-cel, is a CAR-T cell therapy we are jointly developing with our strategic partner, Janssen Biotech, Inc. (“Janssen”), for the treatment of multiple myeloma (“MM”). Clinical trial results achieved to date demonstrate that cilta-cel has the potential to deliver deep and durable anti-tumor responses in relapsed or refractory multiple myeloma (“RRMM”) patients with a manageable safety profile. On February 28, 2022, the U.S. Food and Drug Administration (the “FDA”) approved our product CARVYKTI (cilta-cel) for the treatment of adults with RRMM who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. CARVYKTI was our first product approved by a health authority.
Since inception, we have incurred significant operating losses. Our net losses were $518.3 million and $446.3 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had accumulated losses of $1.5 billion. We expect to incur operating losses over the next several years as we advance the preclinical and clinical development of our research programs and product candidates. Based on our cash and cash equivalents, deposits and investments of $1.3 billion, as of December 31, 2023, we expect that we will be able to fund our planned operations and capital expenditure requirements through the end of 2025. We expect to need additional capital to fund our operations in 2026 and beyond, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
•continue our ongoing and planned research and development of cilta-cel for the treatment of RRMM;
•continue to invest in our manufacturing capabilities, including investments in our facilities in the United States, Europe and China;
•continue our ongoing and planned clinical development for our other product candidates;
•continue our ongoing and planned research and development activities;
•seek to discover and develop additional product candidates and further expand our clinical product pipeline;
•seek regulatory or marketing approvals for any product candidates that successfully complete clinical trials;
•continue to scale up internal and external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;
•establish sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain regulatory or marketing approval;
•develop, maintain, expand and protect our intellectual property portfolio;
•acquire or in-license other product candidates and technologies;
•hire additional clinical, quality control and manufacturing personnel;
•add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts;
•expand our operations globally; and
146
•incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.
Our Collaboration with Janssen
In December 2017, we entered into a collaboration and license agreement (the “Janssen Agreement”) with Janssen for the worldwide development and commercialization of cilta-cel.
Pursuant to the Janssen Agreement, we granted Janssen a worldwide, co-exclusive (with us) license to develop and commercialize cilta-cel. We and Janssen will collaborate to develop and commercialize cilta-cel for the treatment of MM worldwide pursuant to a global development plan and global commercialization plan.
Janssen will be responsible for conducting all clinical trials worldwide with participation by our team in the United States and Greater China for cilta-cel. We will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for Greater China, while Janssen will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for the rest of the world. We and Janssen will share development, production and commercialization costs and pre-tax profits or losses equally in all countries of the world except for Greater China, for which the cost-sharing and profit/loss split will be 70% for us and 30% for Janssen.
In consideration for the licenses and other rights granted to Janssen, Janssen has paid us an upfront fee and milestone payments, and we continue to be eligible to receive additional milestone payments. For a description of the upfront and milestone payments Janssen has made to us under the Janssen collaboration and license agreement and potential future milestone payments Janssen may make to us under that agreement, see “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreement with Janssen Biotech, Inc.”
Furthermore, until such time as our collaboration experiences its first profitable year, we are entitled to receive advances from Janssen if the collaboration’s estimated working capital for any year falls below $50 million. In such event, Janssen provides advances to us in an amount equal to the excess of $50 million over the collaboration’s working capital for the year. The total amount of such advances in any calendar year may not exceed $125 million and the total amount of such advances outstanding at any time may not exceed $250 million. The interest rate pursuant to the Janssen Agreement has transitioned in accordance with the LIBOR Act. Thus, outstanding advances accrue interest at 12 month CME term Secured Overnight Financing Rate (“SOFR”) plus LIBOR/SOFR adjustment (12 month) plus a margin of 2.5% . Janssen has the right to recoup such advances and interest from our share of the collaboration’s pre-tax profits and, subject to some limitations, from milestone payments due to us under the Janssen Agreement. We are not otherwise obligated to repay the advances or interest, except in connection with our change in control or a termination of the Janssen Agreement by Janssen due to our material breach of the agreement. We may at any time in our discretion voluntarily pre-pay any portion of the then outstanding advances or associated interest As of December 31, 2023, the aggregate outstanding principal amount of such advances and interest were approximately $250.0 million and $31.3 million, respectively.
Global Economic Conditions
Worldwide economic conditions remain uncertain and we continue to monitor the impact of macroeconomic conditions, including those related to the public health crises, the Russia-Ukraine war, the conflict between Israel and Hamas, the failure and instability of financial institutions and rising inflation rates.
Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the Russia-Ukraine war, the conflict between Israel and Hamas and steps taken by governments and central banks, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Our product manufacturing in both the U.S. and China has continued. Currently we have not experienced any material impact to our material supply chain or as a result of inflation and rising interest rates. Increased quantities of certain raw materials and consumables have been stocked as an appropriate safety measure. We believe we have established robust sourcing strategies for all necessary materials and do not expect any significant impact.
In addition, in China, although we experienced disruptions from COVID-19 during the year ended December 31, 2023, we do not believe they had a material impact to our business. There are still uncertainties of COVID-19’s future impact on our business in China, results of operations and financial condition, and the extent of the impact will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the development and progress of distribution of COVID-19 vaccines and other medical treatments, the speed of the anticipated recovery, and
147
governmental and business reactions to the pandemic. If COVID-19 resurges or if other public health crises create similar disruptions, our business, results of operations and financial condition could be materially and adversely affected. We will continue to monitor and assess the impact of the ongoing development of the pandemic on our financial position and operating results and respond accordingly.
If these changes in economic conditions continue or if they increase in severity, it could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Although we do not believe that these macroeconomic conditions have had a material impact on our financial position or results of operations to date, we may experience impacts in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises, the ongoing conflict between Russia and Ukraine and the conflict between Israel and Hamas, and employee availability and wage increases, which may result in additional stress on our working capital resources.
Components of Our Results of Operations
Revenue
Our revenue to date has primarily consisted of license revenue pursuant to the upfront payments and milestone payments received under the Janssen Agreement. In 2022, the collaboration with Janssen started to generate collaboration revenue from product sales of CARVYKTI. Our ability to generate product revenue and to become profitable will depend upon our ability to successfully develop, obtain regulatory approval and commercialize cilta-cel and our other product candidates.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with our research activities and include:
•personnel expenses, including salaries, benefits and share-based compensation expense;
•costs of funding research performed by third parties;
•costs of purchasing lab supplies and non-capital equipment used in designing, developing and manufacturing preclinical study and clinical trial materials;
•consultant fees;
•expenses related to regulatory activities, including filing fees paid to regulatory agencies;
•facility costs including rent, depreciation and maintenance expenses; and
•fees for maintaining licenses under our third-party licensing agreements.
Research and development costs are expensed as incurred. Costs for certain activities, such as manufacturing and preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.
We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by allocating these costs to either our B-cell maturation antigen (“BCMA”) program or to all our other non-BCMA programs, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or preclinical programs. For the years ended December 31, 2023 and 2022, our total research and development expenses were $265.0 million and $210.9 million, respectively, for our BCMA program and $117.2 million and $124.7 million, respectively, for all other non-BCMA programs.
From inception through December 31, 2023, we have incurred approximately $1.5 billion in research and development expenses to research and advance the development of our product candidates and preclinical programs. We expect our research and development expenses will increase for the foreseeable future as we seek to advance our preclinical programs and product candidates. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to
148
predict when, if ever, material net cash inflows will commence from sales of our product candidates. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:
•successful enrollment in and completion of clinical trials;
•establishing an appropriate safety profile;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•receipt of marketing approvals from applicable regulatory authorities;
•commercializing the product candidates, if approved, whether alone or in collaboration with others;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•continued acceptable safety profiles of products following approval; and
•retention of key research and development personnel.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.
Administrative Expenses
Administrative expenses consist primarily of expenses, including salaries, benefits and share- based compensation expense, for personnel in executive, finance, accounting, business development, IT, legal and human resource functions. Administrative expenses also include corporate facility costs not otherwise included in research and development expenses, legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.
We anticipate that our administrative expenses will increase in the future to support continued research and development activities, including our ongoing and planned research and development of cilta-cel for the treatment of RRMM and the initiation and continuation of our preclinical and clinical trials for our other product candidates. Following our initial public offering, our accounting, audit, legal, regulatory, investor and public relations, and compliance and director and officer insurance costs have increased, and we anticipate that they will continue to increase as we continue to further enhance our public company infrastructure.
Selling and Distribution Expenses
Selling and distribution expenses consist primarily of costs incurred in connection with our commercial function’s activities and include salaries and related costs for personnel, including share-based compensation, travel expenses, recruiting expenses, costs of sponsorships and consulting fees paid to external parties related to the marketing and development of cilta-cel.
Other Income and Gains
Other income and gains consist of finance income, fair value gains on financial assets at fair value change through profit or loss, government grants, foreign exchange gain.
Revenue recognition
Upfront fees
The transaction price is generally comprised of an upfront payment due at contract inception and variable consideration in the form of payments for our services and materials and milestone payments due upon the achievement of specified events.
Upfront payment is allocated to the single performance obligation in the Janssen Agreement. The upfront fees from Janssen of $350.0 million were included in the transaction price upon contract inception in 2017 and were recognized when the performance obligation to deliver the intellectual property, including a technology transfer service, was completed in 2018. The $350.0 million upfront fees were fully received by us in 2018.
149
Upfront payment is allocated to a single performance obligation in the Novartis Licensing Agreement. The $100.0 million upfront fees from Novartis were included in the transaction price upon contract inception in 2023 and will be recognized when the performance obligation to deliver the intellectual property and complete the Phase 1 trial are finished over time. The $100.0 million upfront fees were fully received by us in early 2024.
Milestone payments
Milestone payments represent a form of variable consideration which are included in the transaction price to the extent that it is highly probable that a significant reversal of accumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered highly probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is highly probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control, such as regulatory approvals, are not considered highly probable of being achieved until those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgement involved in determining whether it is highly probable that a significant reversal of cumulative revenue would not occur. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust our estimate of the overall transaction price.
Certain milestone payments were allocated to the single performance obligation in the Janssen Agreement to deliver the license of intellectual property, including a technology transfer service. We recognized license revenue of $50.0 million for the milestones included in the initial transaction price in 2018, the year in which the performance obligation was satisfied and it was highly probable a significant reversal of the cumulative revenue recognized for the IFRS 15 contract would not occur. The $50.0 million milestone fees were fully received by us in 2019.
Additionally, we are eligible to receive further milestone payments under the Janssen Agreement of up to $125 million for the achievement of specified manufacturing milestones and an additional $610 million consisting of $400 million for the achievement of specified future development and regulatory milestones and $210 million for the achievement of specified net trade sales milestones. Subsequent development, manufacturing and regulatory milestones will be recognized in full in the period in which it is highly probable a significant reversal of the cumulative revenue recognized for the IFRS 15 contract will not occur, as they are associated with the performance obligation to deliver the license of intellectual property, including a technology transfer service, that was satisfied in 2018. We will recognize revenue for sales-based milestones when the milestone is achieved pursuant to the royalty recognition constraint. We have assessed that achievement of the remaining milestones is highly uncertain and the related milestone payments are not included in the transaction price.
For a description of the upfront and milestone payments Janssen has made to us under the Janssen Agreement and potential future milestone payments Janssen may make to us under the Agreement, see “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreement with Janssen Biotech, Inc.”
With respect to the Novartis Licensing agreement we have concluded that that all potential future development, regulatory and sales milestones are considered fully constrained at the inception of the License Agreement since the Company could not conclude it was highly probable since we are not able to reasonably estimate the probability of success.
Licenses of intellectual property
In assessing whether a license is distinct from the other promises, we consider factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the counterparty can benefit from a license for its intended purpose without the receipt of the remaining promise(s) by considering whether the value of the license is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s), and whether it is separately identifiable from the remaining promise(s). We evaluate the nature of a promise to grant a license in order to determine whether the promise is satisfied over time or at a point in time. We evaluated that the license is a single performance obligation in the Janssen Agreement, including a technology transfer service, which represent a right to use our license as it exists at the point in time that the license is granted. Revenue from licenses is recognized when the control of the right to use of the license is transferred to the customer.
150
We have concluded that revenue associated with the Novartis Licensing Agreement will be recognized over time using the input method as the delivery of the license is not distinct from the Legend Phase 1 trial.
Collaboration cost of revenue
Collaboration cost of revenue relates to the sale of CARVYKTI and includes costs incurred by us as well as our pro-rata share of collaboration cost of revenue. Collaboration cost of revenue includes the cost of inventory sold, manufacturing costs, other costs attributable to production, and provisions to write down inventory, such as for excess and obsolete inventory or inventory that did not meet quality specifications.
Research and development costs
All research costs are charged to the statement of profit or loss and other comprehensive income as incurred.
Expenditures incurred on projects to develop new product candidates is capitalized and deferred only when we can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, our intention to complete and our ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product candidate development expenditure which does not meet these criteria is expensed when incurred.
Share-based compensation
We operate a share option scheme and a restricted share unit (“RSU”) scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of our operations. Our employees and directors can receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments, or equity-settled transactions.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of share option is determined by using a binomial model, and the fair value of each RSU is determined by reference to market price of our shares at the respective grant date. See note 26 and note 27 to our consolidated financial statements in this Annual Report for further details.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefit expense. The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.
Service and performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of our best estimate of the number of equity instruments that will ultimately vest.
We measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of grant and recognize the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options that include performance vesting conditions and are subject to forfeiture if the participants cannot meet certain performance targets set by our board of directors.
For awards that do not ultimately vest because performance and/or service conditions have not been met, no expense is recognized
151
A.Operating Results
Comparison of Fiscal Years Ended December 31, 2023 and 2022
The following table summarizes our results of operations for the fiscal years ended December 31, 2023 and 2022:
Fiscal Year Ended December 31, | Variance | ||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Consolidated Statement of Operations Data: | |||||||||||||||||
| Revenue | |||||||||||||||||
| License revenue | 35,160 | 50,000 | (14,840) | ||||||||||||||
| Collaboration revenue | 249,804 | 66,677 | 183,127 | ||||||||||||||
| Other revenue | 179 | 328 | (149) | ||||||||||||||
| Total revenue | 285,143 | 117,005 | 168,138 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Collaboration cost of revenue | (144,214) | (65,363) | (78,851) | ||||||||||||||
| Research and development expenses | (382,218) | (335,648) | (46,570) | ||||||||||||||
| Administrative expenses | (106,769) | (80,631) | (26,138) | ||||||||||||||
| Selling and distribution expenses | (94,158) | (93,417) | (741) | ||||||||||||||
| Other income and gains | 58,126 | 12,049 | 46,077 | ||||||||||||||
| Other expenses | (28,484) | (9,823) | (18,661) | ||||||||||||||
| Fair value (loss)/gain of warrant liability | (85,750) | 20,900 | (106,650) | ||||||||||||||
| Finance costs | (21,794) | (10,796) | (10,998) | ||||||||||||||
| Loss before tax | (520,118) | (445,724) | (74,394) | ||||||||||||||
| Income tax benefit/(expense) | 1,864 | (625) | 2,489 | ||||||||||||||
| Loss for the year | (518,254) | (446,349) | (71,905) | ||||||||||||||
Revenue
License Revenue
License revenue for the year ended December 31, 2023 was $35.2 million, compared to $50.0 million for the year ended December 31, 2022. This decrease of $14.8 million was primarily driven by nature of and timing of milestones achieved as outlined in the Global Development Plan under the Janssen Agreement for cilta-cel.
Collaboration Revenue
Collaboration revenue for the year ended December 31, 2023 was $249.8 million, compared to $66.7 million for the year ended December 31, 2022. This increase of $183.1 million was due to an increase in revenue generated from sales of CARVYKTI in connection with the Janssen Agreement.
Other Revenue
Other revenue for the year ended December 31, 2023 was $0.2 million, compared to $0.3 million for the year ended December 31, 2022. Other revenue mainly relates to the licensing of certain patents to Nanjing Probio Biotech Co., Ltd. and its affiliates.
152
Operating Expenses
Collaboration cost of revenue
Collaboration cost of revenue for the year ended December 31, 2023 were $144.2 million, compared to $65.4 million for the year ended December 31, 2022. This increase of $78.8 million was primarily due to our share of costs of sales of CARVYKTI as part of the Janssen Agreement and expenditures to support expansion in manufacturing capacity.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2023 were $382.2 million, compared to $335.6 million for the year ended December 31, 2022. This increase of $46.6 million was primarily due to research and development activities in cilta-cel, including higher patient enrollment for Phase 3 clinical trials for cilta-cel, and an increase in research and development activities for other pipeline items. Also, the increase in research and development expenses is due to personnel and start up costs to establish the manufacturing facility in Belgium for initial clinical production. The other pipeline expenses include continued investment in our solid tumor programs, which includes two Investigational New Drug (“IND”) approvals that advanced into Phase 1 development.
Administrative Expenses
Administrative expenses for the year ended December 31, 2023 were $106.8 million, compared to $80.6 million for the year ended December 31, 2022. This increase of $26.2 million was due to our expansion of supporting administrative functions to facilitate business growth and investment in building global information technology infrastructure.
Selling and Distribution Expenses
Selling and distribution expenses for the year ended December 31, 2023 were $94.2 million, compared to $93.4 million for the year ended December 31, 2022. This increase of $0.8 million was due to costs associated with commercial activities for cilta-cel.
Other Income and Gains
Other income and gains for the year ended December 31, 2023 was $58.1 million, compared to $12.0 million for the year ended December 31, 2022. This increase of $46.1 million was primarily driven by increases in interest income and gain on investments for the year ended December 31, 2023.
Other Expenses
Other expenses for the year ended December 31, 2023 was $28.5 million, compared to $9.8 million for the year ended December 31, 2022. The increase of $18.7 million was primarily due to unrealized foreign exchange loss.
Finance Costs
Finance costs for the year ended December 31, 2023 was $21.8 million, compared to $10.8 million for the year ended December 31, 2022. The increase of $11.0 million was primarily due to interest on advance funding, which is interest-bearing borrowings funded by Janssen under the Janssen Agreement and constituted by principal and applicable interests upon such principal.
Fair Value (Loss)/Gain of Warrant Liability
Fair value loss of warrant liability for the year ended December 31, 2023 was $85.8 million, compared to a fair value gain of $20.9 million for the year ended December 31, 2022. The $106.7 million increase was due to the fair value loss recorded on the full exercise of the warrant we issued to an institutional investor in May 2021, which warrant was fully exercised on May 11, 2023.
Income Tax (Expense)/Credit
153
Income tax credit for the year ended December 31, 2023 was $1.9 million compared to $0.6 million of income tax expense for the year ended December 31, 2022. The $2.5 million decrease in income tax expense was due to the reversal of previously accrued reserves for uncertain tax positions upon the expiration of the statute of limitations.
Comparison of Fiscal Years Ended December 31, 2022 and 2021
The following table summarizes our results of operations for the fiscal years ended December 31, 2022 and 2021:
Fiscal Year Ended December 31, | Variance | ||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Consolidated Statement of Operations Data: | |||||||||||||||||
| REVENUE | |||||||||||||||||
| License revenue | 50,000 | 65,402 | (15,402) | ||||||||||||||
| Collaboration revenue | 66,677 | — | 66,677 | ||||||||||||||
| Other revenue | 328 | 3,424 | (3,096) | ||||||||||||||
| Total revenue | 117,005 | 68,826 | 48,179 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Collaboration cost of revenue | (65,363) | — | (65,363) | ||||||||||||||
| Research and development expenses | (335,648) | (313,346) | (22,302) | ||||||||||||||
| Administrative expenses | (80,631) | (46,961) | (33,670) | ||||||||||||||
| Selling and distribution expenses | (93,417) | (102,542) | 9,125 | ||||||||||||||
| Other income and gains | 12,049 | 3,059 | 8,990 | ||||||||||||||
| Other expenses | (9,823) | (9,132) | (691) | ||||||||||||||
| Fair value (loss)/gain of warrant liability | 20,900 | (6,200) | 27,100 | ||||||||||||||
| Finance costs | (10,796) | (900) | (9,896) | ||||||||||||||
| Loss for the year | (445,724) | (407,196) | (38,528) | ||||||||||||||
| Income tax benefit/(expense) | (625) | 3,614 | (4,239) | ||||||||||||||
| Loss for the year | (446,349) | (403,582) | (42,767) | ||||||||||||||
Revenue
License Revenue
License revenue for the year ended December 31, 2022 was $50.0 million, compared to $65.4 million for the year ended December 31, 2021. This decrease of $15.4 million was primarily driven by nature of and timing of milestones achieved as outlined in the Global Development Plan under the Janssen Agreement for cilta-cel in the year ended December 31, 2022.
Collaboration Revenue
Collaboration revenue for the year ended December 31, 2022 was $66.7 million, compared to none for the year ended December 31, 2021. This increase of $66.7 million was due to the commercial launch of CARVYKTI in the U.S. in connection with the Janssen Agreement.
Other Revenue
Other revenue for the year ended December 31, 2022 was $0.3 million, compared to $3.4 million for the year ended December 31, 2021. This decrease of $3.1 million was due to lower license and royalty revenue generated in 2022 for the licensing of certain patents to Nanjing Probio Biotech Co., Ltd and its affiliates during the year ended December 31, 2022.
154
Operating Expenses
Collaboration cost of revenue
Collaboration cost of revenue for the year ended December 31, 2022 was $65.4 million, compared to none for the year ended December 31, 2021. This increase of $65.4 million was primarily due to our share of costs of sales incurred in the U.S. in connection with the commercial launch of CARVYKTI as part of the Janssen Agreement.
Research and Development Expenses
Research and development expenses for the year ended December 31, 2022 were $335.6 million, compared to $313.3 million for the year ended December 31, 2021. This increase of $22.3 million was primarily due to research and development activities in cilta-cel in earlier lines of therapy and increase in our pipeline expenditures as we filed two IND filings and began preparation for Phase 1 clinical development in the U.S. in the year ended December 31, 2022.
Administrative Expenses
Administrative expenses for the year ended December 31, 2022 were $80.6 million, compared to $47.0 million for the year ended December 31, 2021. This decrease of $33.6 million was due to our expansion of supporting administrative functions to facilitate business expansion. This increase is primarily driven by implementation of the final phase of separation of information technology infrastructure from GenScript Biotech Corporation (“GenScript” or “Genscript”), required enhancements for cybersecurity and privacy, along with the required IT infrastructure build to support the product candidate manufacturing facilities.
Selling and Distribution Expenses
Selling and distribution expenses for the year ended December 31, 2022 were $93.4 million, compared to $102.5 million for the year ended December 31, 2021. This decrease of $9.1 million was due to decreased costs associated with commercial activities for cilta-cel.
Other Income and Gains
Other income and gains for the year ended December 31, 2022 was $12.0 million, compared to $3.1 million for the year ended December 31, 2021. This increase of $8.9 million was primarily driven by increases in interest income, government grants and fair value gain from financial assets at fair value through profit and loss for the year ended December 31, 2022.
Other Expenses
Other expenses for the year ended December 31, 2022 was $9.8 million, compared to $9.1 million for the year ended December 31, 2021. The decrease of $0.7 million was primarily due to foreign exchange loss.
Finance Costs
Finance costs for the year ended December 31, 2022 was $10.8 million, compared to $0.9 million for the year ended December 31, 2021. The increase of $9.9 million was primarily due to of interest on advance funding, which is interest-bearing borrowings funded by Janssen under the Janssen Agreement and constituted by principal and applicable interests upon such principal. We elected to borrow an incremental $130.3 million as of December 31, 2022 in accordance with the terms of the Janssen agreement.
Fair Value Gain/(Loss) of Warrant Liability
Fair value gain of warrant liability for the year ended December 31, 2022 was $20.9 million caused by changes in fair value of a warrant that we issued to an institutional investor through a private placement transaction in May 2021 with an initial fair value of $81.7 million at the issuance date. Concurrently, ordinary shares were sold to the same institutional investor in a private placement transaction. The warrant was assessed as a financial liability with a fair value of $67.0 million as of December 31, 2022.
155
Income Tax (Expense)/ Credit
Income tax expense for the year ended December 31, 2022 was $0.6 million compared to $3.6 million of income tax credit for the year ended December 31, 2021.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. Our most critical accounting policies are summarized below. See note 2.4 to our consolidated financial statements included in this Annual Report for a description of our other significant accounting policies.
Revenue Recognition
Upfront fees
The transaction price is generally comprised of an upfront payment due at contract inception and variable consideration in the form of payments for our services and materials and milestone payments due upon the achievement of specified events.
Upfront payment is allocated to the single performance obligation in the Janssen Agreement. The upfront fees from Janssen of $350.0 million were included in the transaction price upon contract inception in 2017 and were recognized when the performance obligation to deliver the intellectual property, including a technology transfer service, was completed in 2018. The $350.0 million upfront fees were fully received by us in 2018.
Upfront payment is allocated to a single performance obligation in the Novartis Licensing Agreement. The $100.0 million upfront fees from Novartis were included in the transaction price upon contract inception in 2023 and will be recognized when the performance obligation to deliver the intellectual property and complete the Phase 1 trial are finished over time. The $100.0 million upfront fees were fully received by us in early 2024.
Milestone payments
Milestone payments represent a form of variable consideration which are included in the transaction price to the extent that it is highly probable that a significant reversal of accumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered highly probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is highly probable that a significant reversal of cumulative revenue would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control, such as regulatory approvals, are not considered highly probable of being achieved until those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgement involved in determining whether it is highly probable that a significant reversal of cumulative revenue would not occur. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust our estimate of the overall transaction price.
Certain milestone payments were allocated to the single performance obligation in the Janssen Agreement to deliver the license of intellectual property, including a technology transfer service. We recognized license revenue of $50.0 million for the milestones included in the initial transaction price in 2018, the year in which the performance obligation was satisfied and it was highly probable a significant reversal of the cumulative revenue recognized for the IFRS 15 contract would not occur. The $50.0 million milestone fees were fully received by us in 2019.
Additionally, we are eligible to receive further milestone payments under the Janssen Agreement of up to $125 million for the achievement of specified manufacturing milestones and an additional $610 million consisting of $400 million for the achievement of specified future development and regulatory milestones and $210 million for the
156
achievement of specified net trade sales milestones. Subsequent development, manufacturing and regulatory milestones will be recognized in full in the period in which it is highly probable a significant reversal of the cumulative revenue recognized for the IFRS 15 contract will not occur, as they are associated with the performance obligation to deliver the license of intellectual property, including a technology transfer service, that was satisfied in 2018. We will recognize revenue for sales-based milestones when the milestone is achieved pursuant to the royalty recognition constraint. We have assessed that achievement of the remaining milestones is highly uncertain and the related milestone payments are not included in the transaction price.
For a description of the upfront and milestone payments Janssen has made to us under the Janssen Agreement and potential future milestone payments Janssen may make to us under the Agreement, see “Item 4. Information on the Company—B. Business Overview—Collaboration and License Agreement with Janssen Biotech, Inc.”
With respect to the Novartis License Agreement, we have concluded that that all potential future development, regulatory and sales milestones are considered fully constrained at the inception of the License Agreement since the Company could not conclude it was highly probable since we are not able to reasonably estimate the probability of success.
Licenses of intellectual property
In assessing whether a license is distinct from the other promises, we consider factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the counterparty can benefit from a license for its intended purpose without the receipt of the remaining promise(s) by considering whether the value of the license is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s), and whether it is separately identifiable from the remaining promise(s). We evaluate the nature of a promise to grant a license in order to determine whether the promise is satisfied over time or at a point in time. With respect to arrangements containing a license to our intellectual property that is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from amounts allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.
We evaluated that the license is a single performance obligation in the Janssen Agreement, including a technology transfer service, which represent a right to use our license as it exists at the point in time that the license is granted. Revenue from licenses is recognized when the control of the right to use of the license is transferred to the customer.
We evaluated that the license (inclusive of know-how) and the delivery of the Handover Package Documents which includes performing the Legend Phase 1 trial, is a single performance obligation in the Novartis Licensing Agreement, which represents a right to use our license over time after the license is granted and the Legend Phase 1 trial is ongoing.
Input Method
We use input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
We have concluded that revenue associated with the Novartis Licensing Agreement will be recognized over time using the input method as the delivery of the license is not distinct from the Legend Phase 1 trial.
Research and development costs
All research costs are charged to the statement of profit or loss and other comprehensive income as incurred.
Expenditures incurred on projects to develop new product candidates is capitalized and deferred only when we can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the
157
availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product candidate development expenditure which does not meet these criteria is expensed when incurred.
Share-Based Compensation
We operate a share option scheme and a RSU scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of our operations. Our employees and directors can receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments, or equity-settled transactions.
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of share option is determined by an using a binomial model, and the fair value of each RSU is determined by reference to market price of our shares at the respective grant date. See note 26 and note 27 to our consolidated financial statements in this Annual Report for further details.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefit expense. The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.
Service performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of our best estimate of the number of equity instruments that will ultimately vest. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.
The following table lists the inputs to the model used:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Expected life of options (years) | 10 | 10 | |||||||||
| Expected volatility | 66.1 | % | 73.0% - 87.1% | ||||||||
| Risk-free interest rate | 3.40%-4.84% | 0.52% - 3.11% | |||||||||
| Dividend yield | 0 | % | 0 | % | |||||||
We measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of grant and recognize the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options that include performance vesting conditions and are subject to forfeiture if the participants cannot meet certain performance targets set by our board of directors.
We estimate the fair value of each stock option grant using the binomial option-pricing model, which uses as inputs the fair value of our ordinary shares, exercise price of our stock options, expected volatility of our ordinary shares based on historical volatility of comparable companies, the expected terms of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, the post-vesting forfeit rate and our expected dividend yield.
Issued But Not Yet Effective International Financial Reporting Standards
See note 2.3 to our consolidated financial statements in this Annual Report for a description of recent accounting pronouncements applicable to our consolidated financial statements.
158
B.Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred significant operating losses. We expect to incur operating losses over the next several years as we advance the preclinical and clinical development of our research programs and product candidates. Based on our cash and cash equivalents, deposits and investments of $1.3 billion, as of December 31, 2023, we expect that we will be able to fund our planned operations and capital expenditure requirements through the end of 2025. We expect to need additional capital to fund our operations in 2026 and beyond, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements or other sources.
With the exception of our first product, CARVYKTI, which was approved by the FDA on February 28, 2022 for the treatment of adults with RRMM who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody, we do not currently have any approved products and we have not generated any revenue from product sales for other products. From inception through December 31, 2023, we have funded our operations primarily with approximately:
•$3.9 million in capital contributions from Genscript;
•$160.5 million in gross proceeds from the sale of our Series A preference shares;
•$685.0 million in upfront and milestone payments from Janssen under our collaboration and license agreement;
•$450.1 million in net proceeds from our U.S. initial public offering and an additional $12.0 million from a concurrent private placement with Genscript;
•$300.0 million in net proceeds from our private placement to an investor and related warrant issuance in May 2021;
•$323.4 million in net proceeds from our public offering of ADSs that closed in December 2021
•$250.0 million in advances from Janssen under our the Janssen Agreement;
•$377.6 million in net proceeds from our public offering of ADSs that closed in July 2022;
•$234.4 million in net proceeds from private placements to certain investors in May and June 2023;
•$349.3 million in net proceeds from our public offering of ADS that closed in May 2023; and
•$199.7 million in net proceeds from the exercise in full of a warrant held by one of our investors.
As of December 31, 2023, we had approximately $1.28 billion of cash and cash equivalents, approximately $34.7 million of time deposits, and accumulated losses of $1.48 billion.
Certain of our subsidiaries, including those registered as wholly foreign-owned enterprises in the People's Republic of China (the "PRC"), are required to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their registered capital. Under PRC regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Although we do not currently require any such dividends from our PRC subsidiaries to fund our operations, should we require additional sources of liquidity in the future, such restrictions may have a material adverse effect on our liquidity and capital resources. For more information, see “Item 4.B-Business Overview - Government Regulation - PRC Regulation - Other PRC National- and Provincial-Level Laws and Regulations - Regulations Relating to Dividend Distributions.”
159
Cash Flows
The following table shows a summary of our cash flows:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Net cash used in operating activities | (393,276) | (201,281) | (198,465) | ||||||||||||||
| Net cash provided by/(used in) investing activities | 92,786 | (77,092) | (194,983) | ||||||||||||||
| Net cash provided by financing activities | 791,490 | 377,976 | 626,663 | ||||||||||||||
| Net increase in cash and cash equivalents | 491,000 | 99,603 | 233,215 | ||||||||||||||
Operating Activities
Net cash used in operating activities for the year ended December 31, 2023 was $393.3 million, primarily as a result of net loss before tax of $520.1 million after adjusting for non-cash items, changes in operating assets and liabilities, and cash items. Non-cash items mainly include $54.5 million of finance income, $21.8 million of finance cost, $3.6 million for the provision for the inventory reserves, $10.7 million of depreciation expense of property, plant and equipment, $1.9 million of amortization expense of intangible assets, $7.8 million of depreciation of right-of-use assets, $85.8 million of fair value gain of warrant liability, $28.2 million of foreign exchange loss and $47.7 million of equity-settled share-based compensation expenses. Changes in operating assets and liabilities mainly include an increase in trade receivables of $99.0 million primarily resulted from a $100 million receivable in connection with the Novartis License Agreement which was received after December 31 2023, increase in prepayment, other receivable and other assets of $8.7 million, increase in collaboration inventories of $12.7 million, decrease in trade payables of $12.7 million, increase in other payables and accruals of $38.8 million, increase in contract liabilities (current) of $52.5 million and an increase in contract liabilities (non-current) of $47.5 million. Cash items primarily include Interest income received of $47.3 million, income tax received of $1.0 million, which is a refund of prior year's income tax return previously paid partially offset by interest on lease payments $1.4 million.
Net cash used in operating activities for the year ended December 31, 2022 was $201.3 million, primarily as a result of net loss before tax of $445.7 million after adjusting for non-cash items, changes in operating assets and liabilities, and cash items. Non-cash items mainly include $8.2 million of finance income, $10.8 million of finance cost, $10.2 million of depreciation expense of property, plant and equipment, $2.5 million of amortization expense of intangible assets, $5.7 million of depreciation of right-of-use assets, $20.9 million of fair value gain of warrant liability, $9.2 million of foreign exchange loss and $34.3 million of equity-settled share-based compensation expenses. Changes in operating assets and liabilities mainly include a decrease in trade receivables of $50.3 million primarily resulted from receipt of two milestone payments, increase in prepayment, other receivable and other assets of $50.6 million, decrease in other non-current assets of $3.7 million, increase in collaboration inventories of $8.6 million, increase in deferred government grant of $6.2 million, increase in trade payables of $25.9 million, increase in other payables and accruals of $165.9 million and an increase of $0.2 million in other non-current liabilities. Cash items primarily include finance income received of $5.6 million and income tax received of $3.7 million, which is a refund of prior year's income tax return previously paid.
Net cash used in operating activities for the year ended December 31, 2021 was $198.5 million, primarily as a result of net loss before tax of $361.4 million after adjusting for non-cash items, and changes in operating assets and liabilities. Non-cash items mainly include $6.2 million of fair value loss of warrant liability and $20.2 million of equity-settled share-based compensation expenses. Changes in operating assets and liabilities mainly include a decrease in trade receivables of $24.6 million primarily resulted from receipt of a milestone payment of $75.0 million offset by an increase of $50.0 million in milestone payments achieved and an increase of $0.4 million in royalty revenue receivable during the year; an increase of $140.7 million in other payables and accruals mainly due to an increase in collaboration expenses payables; and offset by an increase of $3.0 million in prepayments, other receivables and other assets.
Investing Activities
Net cash provided by investing activities for the year ended December 31, 2023 was $92.8 million, consisting primarily of Cash received from withdrawal of financial assets measured at fair value through profit or loss of $185.0 million, a decrease in time deposits of $19.6 million and cash receipt of investment income of $8.8 million partially offset
160
by prepayment to collaborator for collaboration assets of $98.8 million, purchases of property, plant and equipment of $20.1 million and purchase of intangible assets of $2.6 million.
Net cash used in investing activities for the year ended December 31, 2022 was $77.1 million, consisting primarily of purchases of property, plant and equipment of $20.9 million, purchase of intangible assets of $1.3 million, prepayment to collaborator for collaboration assets of $14.8 million, net purchase of financial assets at fair value through profit and loss of $185.0 million, partially offset by a decrease in time deposits of $113.6 million, redemption of financial asset measured at amortized cost of $30.0 million and cash receipt of investment income of $1.3 million.
Net cash used in investing activities for the year ended December 31, 2021 was $195.0 million, consisting primarily of purchases of property, plant and equipment of $42.2 million, purchase of intangible assets of $3.2 million, prepayment to collaborator for collaboration assets of $1.7 million, purchase of financial assets measured at amortized cost of $29.8 million and purchases of time deposits of $298.1 million, partially offset by a decrease in time deposits of $180.0 million.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 was $791.5 million, consisting primarily of net proceeds from issuance of ordinary shares for follow-on public offering of $349.3 million in July, proceeds from issuance of ordinary shares for institutional investors, net of issuance cost of $234.4 million, proceeds from exercise of warrant by warrant holder, net of issuance cost of $199.7 million and proceeds from exercise of share option of $11.8 million, partially offset by principal portion of lease payments of $3.8 million.
Net cash provided by financing activities for the year ended December 31, 2022 was $378.0 million, consisting primarily of net proceeds from issuance of ordinary shares for follow-on public offering of $377.6 million in July, proceeds from exercise of share option of $2.9 million, partially offset by principal portion of lease payments of $2.6 million.
Net cash provided by financing activities for the year ended December 31, 2021 was $626.7 million, consisting primarily of net proceeds from issuance of ordinary shares for follow-on public offering of $323.4 million in December, issuance of ordinary shares and warrant to an institutional investor of $300.0 million in May and proceeds from exercise of share option of $4.6 million, partially offset by principal portion of lease payments of $1.4 million.
Capital Expenditure
Our capital expenditures for the years ended December 31, 2023, 2022 and 2021 amounted to $104.0 million, $70.3 million and $44.5 million, respectively. These expenditures primarily consisted of property, plant, equipment and collaboration assets.
As of December 31, 2023 and 2022, we had commitments for capital expenditures of approximately $11.3 million and $22.7 million, respectively, primarily for contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. We anticipate our capital expenditure in 2024 to be financed from our cash and cash equivalents on hand. Primarily, these capital expenditures will be made both in the United States and China, where our principal research and development facilities are currently located.
Funding Requirements
The following table sets forth our contractual obligations and commitments as of December 31, 2023:
Less than 1 Year | 1 to 3 Years | 4 to 5 Years | More than 5 Years | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Lease obligations | $ | 5,060 | $ | 9,367 | $ | 8,098 | $ | 43,988 | $ | 66,513 | |||||||||||||||||||
| Capital commitment | 8,640 | 2,630 | — | — | 11,270 | ||||||||||||||||||||||||
| Total | $ | 13,700 | $ | 11,997 | $ | 8,098 | $ | 43,988 | $ | 77,783 | |||||||||||||||||||
This includes capital commitments, as well as payments due under operating leases for our facilities in New Jersey, Ireland and China.
161
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.
We also enter into cancelable contracts in the normal course of business with contract research organizations (“CROs”) for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, following FDA’s approval of CARVYKTI, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of potential collaborators. For example, in addition to investing in our own facilities, we expect to supplement our manufacturing capabilities and infrastructure by entering into agreements with one or more CMOs. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
Although consequences of the macroeconomic conditions, including global conflicts and inflation, and resulting economic uncertainty could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed below, we currently expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including:
•the scope, progress, results and costs of product discovery, preclinical studies and clinical trials;
•the scope, prioritization and number of our research and development programs;
•the costs, timing and outcome of regulatory review of our product candidates;
•our ability to establish and maintain collaborations on favorable terms, if at all;
•the achievement of milestones or occurrence of other developments that trigger payments under the Janssen Agreement and any other collaboration agreements we enter into;
•the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under collaboration agreements, if any;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•the extent to which we acquire or in-license other product candidates and technologies;
•the costs of securing manufacturing arrangements for commercial production; and
•the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates.
In addition to cilta-cel, we have a broad portfolio of earlier-stage product candidates. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time- consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales for such product candidates. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, holders of our ADSs will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
162
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market that we would otherwise prefer to develop and market ourselves.
Under the Janssen Agreement, until such time as our collaboration experiences its first profitable year, we are entitled to receive advances from Janssen if the collaboration’s estimated working capital for any year falls below $50 million. In such event, Janssen provides advances to us in an amount equal to the excess of $50 million over the collaboration’s working capital for the year. The total amount of such advances in any calendar year may not exceed $125 million and the total amount of such advances outstanding at any time may not exceed $250 million. The interest rate pursuant to the Janssen Agreement has transitioned in accordance with the LIBOR Act. Thus, outstanding advances accrue interest at 12 month CME term Secured Overnight Financing Rate (“SOFR”) plus LIBOR/SOFR adjustment (12 month) plus a margin of 2.5% . Janssen has the right to recoup such advances and interest from our share of the collaboration’s pre-tax profits and, subject to some limitations, from milestone payments due to us under the Janssen Agreement. We are not otherwise obligated to repay the advances or interest, except in connection with our change in control or a termination of the Janssen Agreement by Janssen due to our material breach of the agreement. We may at any time in our discretion voluntarily pre-pay any portion of the then outstanding advances or associated interest. As of December 31, 2023, the aggregate outstanding principal amount of such advances and interest were approximately $250.0 million and $31.3 million, respectively.
C.Research and Development, Patents and Licenses, etc
Full details of our research and development activities and expenditures and patents and licenses are given in the “Item 4.B.— Information on the Company—Business Overview” and “Item 5— Operating and Financial Review and Prospects” sections of this Annual Report above.
D.Trend Information
Other than as described elsewhere in this Annual Report, including under Item 5.A—Operating Results” and “Item 5.B. —Liquidity and Capital Resources,” we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition.
E.Critical Accounting Estimates
See notes 2 and 3 to our consolidated financial statements elsewhere in this Annual Report for a description of our significant accounting policies, including significant accounting judgements and estimates.
163
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Directors and Senior Management
The following table sets forth certain information relating to our current directors and executive officers as of March 1, 2024:
| Name | Age | Position | ||||||||||||
| Executive Officers | ||||||||||||||
| Ying Huang, Ph.D. | 51 | Chief Executive Officer and Director | ||||||||||||
| Lori Macomber, CPA | 53 | Chief Financial Officer | ||||||||||||
| Non-Employee Directors | ||||||||||||||
| Fangliang Zhang, Ph.D. | 59 | Chairman of the Board of Directors | ||||||||||||
| Ye (Sally) Wang, M.S. | 55 | Director | ||||||||||||
| Li Zhu Ph.D. | 74 | Director | ||||||||||||
| Darren Xiaohui Ji, M.D., Ph.D. | 62 | Independent Director | ||||||||||||
| Corazon D. Sanders Ph.D. | 67 | Independent Director | ||||||||||||
| Yau Wai Man Philip, CPA | 48 | Independent Director | ||||||||||||
| Patrick Casey, Ph.D. | 68 | Independent Director | ||||||||||||
| Li Mao, MD | 67 | Independent Director | ||||||||||||
| Tomas Heyman | 68 | Independent Director | ||||||||||||
Executive Officers
Ying Huang, Ph.D., has served as our chief executive officer since September 2020 and previously served as our chief financial officer from July 2019 until May 2022. Dr. Huang has also been a director of Quanta Therapeutics, Inc., a privately-held company, since February 2022. Prior to joining us, Dr. Huang was a Managing Director and Head of Biotech Equity Research at BofA Securities, Inc. from August 2014 to July 2019, where he led a team of analysts covering more than 30 biotechnology companies including Amgen, Gilead, Celgene, Biogen and others that encompass a wide range of therapeutic areas. Dr. Huang has been a biotechnology analyst since 2007 and previously worked at Wells Fargo (formerly Wachovia), Credit Suisse, Gleacher and Barclays before joining BofA Securities, Inc. Prior to his Wall Street career, Dr. Huang was a Principal Scientist at Schering-Plough (now Merck & Co.) in the Department of Chemical Research focusing on small molecule drug discovery in the therapeutic areas of cardiovascular and central nervous system. He is also the co-author of multiple patents and peer-reviewed publications. Dr. Huang holds a Ph.D. in Bio-organic Chemistry from Columbia University. Dr. Huang also studied at Columbia Business School and in the Special Class for the Gifted Young at the University of Science and Technology of China. In December 2021, Dr. Huang was appointed to our board of directors as a Class I director.
Lori Macomber, CPA, has served as our chief financial officer since May 2022, in which capacity Ms. Macomber serves as our principal financial officer and principal accounting officer. Ms. Macomber previously served as our vice president, finance from March 2021 to May 2022 and as our vice president of supply chain finance and controller from September 2019 to March 2021. Prior to joining us, Ms. Macomber served as Business Unit Controller at Ametek PDS, a leading supplier of components and systems for the aerospace and defense industries, from March 2018 to September 2019 and as U.S. CFO and Controller of Cello Health from April 2017 until February 2018. Before this Ms. Macomber held various positions, most recently AVP Finance Site Leader, at Eli Lilly & Company where she was employed from May 2010 until April 2017. Ms. Macomber holds a Bachelor of Science in Accounting from Pennsylvania State University and is a Certified Public Accountant.
Non-Employee Directors
Fangliang Zhang, Ph.D., has served as our director and chairman of our board of directors since August 2022. Dr. Zhang has been an executive director of GenScript since December 2022 and, prior that, was a non-executive director of GenScript from May 2022 to December 2022. Prior to that time, he was chairman and an executive director of GenScript from 2015 to 2020. He also serves as the general manager of several companies within the Genscript group. He co-founded the GenScript group in 2002 and has been the director of various group companies prior to GenScript becoming
164
the holding company of the group companies pursuant to the corporate reorganization for GenScript’s initial public offering in 2015. In 2015, Dr. Zhang founded the Company as a subsidiary of GenScript, expanding GenScript’s business goal to research, manufacture and commercialize a broad range of immunotherapy treatments. Dr. Zhang served as Chairman of our board of directors from 2015 to November 2020 and served as our Chief Executive Officer from August 2020 to September 2020. In 2018, Dr. Zhang was awarded Person of the Year at the China Healthcare Summit in recognition of his contribution to and significant impact on the healthcare field. Before founding GenScript, Dr. Zhang worked as a Principal Scientist at Schering-Plough from 1995 to 2002 where he received its Presidential Award. Dr. Zhang holds a Ph.D. in biochemistry from Duke University, a Master’s degree from Nanjing University and a Bachelor’s degree from Chengdu Institute of Geology.
Ye (Sally) Wang, M.S., has served as our director since May 2015 and from November 2020 to August 2022 was the chairwoman of our board of directors. Ms. Wang served as the Chief Operating Officer of Genscript from April 2014 to November 2017, has served on Genscript’s board of directors since 2009 and has served as Genscript’s President since December 2017, responsible for Genscript’s strategies and overall operational management. She co-founded the Genscript group in 2002 and has taken various managerial positions in Genscript Corporation before Genscript became the holding company of the Genscript group of companies. Prior to joining Genscript, she worked as an Environmental Monitoring Engineer at Shenzhen Futian Environment Protection Surveillance Station. Ms. Wang is a Partner for Nanjing Genbest Enterprise Management Center and is a Trustee and President of Ren-Shiu Foundation, Inc. Ms. Wang holds an M.S. degree from Wuhan University, a Master’s degree in Computer Sciences from the University of Bridgeport and an Executive M.B.A degree from the China Europe International Business School.
Li Zhu, Ph.D., has served as our director since November 2020. Dr. Zhu is the Chief Strategy Officer for Genscript since November 2020. Previously, Dr. Zhu was the Vice President of Strategy of Genscript from 2010 to February 2017, served as Chief Strategy Officer of Genscript from February 2017 to July 2019 and served as a consultant for Genscript from July 2019 to November 2020. Before joining Genscript, Dr. Zhu worked at Clontech Laboratories, Inc. as a Director of Molecular Biology from 1990 to 2000. Dr. Zhu founded Genetastix Corporation, Inc., a biotech company focused on yeast-based antibody discovery, and served as President and Chief Executive Officer from 2000 to 2005. Dr. Zhu then worked at biotech companies in China, serving as Vice President of Research at Cathay Biotech, Inc. from 2006 to 2008, and as vice president of HUYA Biomedical Technology (Shanghai) Co., Limited from 2009 to 2009. Dr. Zhu has served as a director of Genscript since November 2020. Dr. Zhu holds a B.S. in biology from the East China Normal University and a Ph.D. in molecular biology and immunology from Stanford University.
Darren Xiaohui Ji, M.D., Ph.D., has served as our director since May 2020. Dr. Ji currently serves as chief executive officer and chairman of Elpiscience Biopharmaceuticals, Inc., a clinical stage immunotherapy company that he co-founded in June 2017. He also served as a Venture Partner of Lilly Asia Ventures (LAV), a position he held from January 2017 to December 2019. Prior to that, Dr. Ji was Global Head and Vice President of Business Development in Asia and Emerging Markets at F. Hofmann-La Roche Ltd. from 2013 to December 2016. Dr. Ji started his career at Procter & Gamble Pharmaceuticals with responsibilities in drug R&D and business development from 1997 to 2007. He then co-founded and managed as CEO PharmaLegacy Laboratories in Shanghai in 2008. From 2008 to 2013, he served as a board member of the BayHelix Group, a community of business leaders of Chinese Heritage in life science. Dr. Ji holds an M.D. from China Medical University, a Ph.D. from University of Sheffield in the United Kingdom and an M.B.A. from the University of Chicago.
Corazon (Corsee) Sanders, Ph.D., has served as our director since May 2020. Dr. Sanders has been a member of the board of directors of Molecular Templates, Inc. since December 2019, of AltruBio Inc. (f/k/a AbGenomics Holdings Inc.) since March 2020, of Beigene, Ltd since August 2020, and of Ultragenyx Pharmaceuticals, Inc. since June 2021. Dr. Sanders previously served as a Strategic Advisor to the Office of the Celgene Chief Medical Officer from March 2018 to November 2019. Prior to that, Dr. Sanders was a Member of the Juno Therapeutics Executive Committee as Executive Vice President of Development Operations, with responsibilities for strategic operations, quantitative sciences, biosample and clinical operations from January 2017 to March 2018. Dr. Sanders was a Member of the Genentech/Roche Late Stage Portfolio Committee from 2009 to 2017, and Global Head of the Genentech/Roche Late Stage Clinical Operations from 2012 to 2017. Dr. Sanders also served on the Board of Trustees of the Fred Hutchinson Cancer Research Center and has been the co-chair of the board of Advisors of the newly created Fred Hutchinson Research Center since 2022. Dr. Sanders holds a B.S. and M.S. in statistics, graduating Magna Cum Laude from the University of the Philippines, and an M.A. and Ph.D. in statistics from the Wharton Doctoral Program at the University of Pennsylvania.
Yau Wai Man Philip, CPA, has served as our director since May 2020. Mr. Yau has been the chief financial officer of C. & J. Clarks International Limited since October 2021. Prior to that, he was the non-executive vice chairman of
165
AMTD Group, at which he led strategy development, corporate finance and investment functions from 2016 to December 2019. From 2011 to March 2016, he worked at Ernst & Young China Practice as a partner, risk advisory China South market leader, serving clients in Greater China, where he advised on finance, management, and business issues. From 2006 to 2011, he worked at Protiviti Shanghai Co., Ltd. as a managing director and Shenzhen office leader, where he was primarily responsible for overall management of the company. From 1997 to 2006, he worked at PricewaterhouseCoopers and Arthur Andersen & Co., his most recent position being senior manager in the risk consulting practice. Mr. Yau served as a director of China General Education Group Limited, an education services company, from June 2021 until April 2022. Mr. Yau is a certified public accountant in the United States, a fellow member of the Hong Kong Institute of Certified Public Accountants, and a certified internal auditor with the Institute of Internal Auditors. Mr. Yau holds a B.A. in accounting from the Lundquist College of Business of University of Oregon in the United States and an Executive M.B.A. from a joint school program by Kellogg School of Management, Northwestern University and the Hong Kong University of Science and Technology.
Patrick Casey, Ph.D., has served as our director since December 2020. Dr. Casey has been the Senior Vice Dean of Research at the Duke-NUS Medical School and a James B. Duke Professor of Pharmacology and Cancer Biology at Duke University since 2005. Dr. Casey also serves as an Assistant Professor of Molecular Cancer Biology and Biochemistry at Duke University Medical Center, a position he has held since 1990. He was also the founding director of the Duke Center for Chemical Biology, an organization of Duke scientists dedicated to research and training in the application of fundamental chemical principles to the study of biology and the basis of disease and therapies. Dr. Casey holds a B.A. in biology and chemistry from Augustana University, a Ph.D. in biochemistry from the Brandeis University and did postdoctoral work at the University of Texas Southwestern Medical Center in Dallas.
Li Mao, M.D., has served as our director since August 2022. Dr. Mao currently serves as Chief Medical Officer for SciClone Pharmaceuticals, Inc., a position he has held since June 2022. Prior to that, Dr. Mao served as Chief Medical Officer of Sino Biopharmaceutical Co., Ltd. from May 2021 to June 2022, Chief Executive Officer of Livzon Bio from March 2021 to April 2021 and Chief Executive Officer of Xcovery Holdings, Inc. from November 2018 to March 2021. Dr. Mao also served as Senior Vice President and Chief Medical Officer of Betta Pharmaceuticals Co., Ltd. from March 2018 to March 2021 and Vice President at Johnson & Johnson from June 2016 to February 2018. In addition, he served as a Professor at the MD Anderson Cancer Center from 2004 to March 2009 and a Professor at the University of Maryland, Baltimore from March 2009 to June 2016. Dr. Mao also served as a member of the board of directors of Betta Pharmaceuticals Co., Ltd, which is publicly listed on the Shenzhen Stock Exchange, from April 2018 to March 2021. Dr. Mao holds a Medical Doctor’s degree from Nanjing Medical University. Dr. Mao also completed a postdoctoral fellowship in cancer genetics at The John Hopkins University School of Medicine.
Tomas J. Heyman, has served as our director since August 2022. Mr. Heyman previously served as the President of Johnson & Johnson’s Corporate Venture Capital Group, the venture capital arm of Johnson & Johnson, a Global Healthcare Company from 2015 to September 2019 and as the Global Head of Business Development for Johnson & Johnson’s Pharmaceutical Group from 1992 to 2015. In addition, Mr. Heyman previously served as Chief Executive Officer of Janssen Pharmaceutica N.V., a pharmaceutical company, from 2008 to 2016. Mr. Heyman has served as a director of OptiNose, Inc., a specialty pharmaceutical company, since December 2020, a director of Akero Therapeutics, Inc., a biotechnology company, since June 2020, a director of Invivyd Inc. (formerly known as Adagio Therapeutics Inc.), a biopharmaceutical company, since June 2021, and Xilio Therapeutics, Inc., a biotechnology company, since September 2022. Mr. Heyman graduated as Master of Law from the K.U. Leuven in Belgium. He continued with post-graduate studies in International Law in Geneva, Switzerland, and post-graduate studies in business management at the University of Antwerp in Belgium.
Family Relationships
There are no family relationships among any of our executive officers or directors.
B.Compensation
Compensation of Directors and Executive Officers
For the year ended December 31, 2023, we paid an aggregate of $2.7 million in cash and benefits to our executive officers, which also includes $0.5 million that we paid to our our non-employee directors .
Our board of directors has adopted a non-employee director compensation policy, pursuant to which each of our directors who is not an employee of our company or affiliated with an entity that beneficially owns 5% or more of our
166
outstanding ordinary shares, which are Dr. Ji, Dr. Sanders, Mr. Yau, Dr. Casey, Mr. Heyman and Dr. Mao is eligible to receive compensation for service on our board of directors and committees of our board of directors. Each eligible director receives an annual cash retainer of $75,000 for serving on our board of directors. The Chair of the Audit Committee and the Chair of the Compensation Committee receive an additional $25,000 and $20,000, respectively, each year. All annual cash compensation amounts are payable in equal quarterly installments in advance within the first 30 days of each quarter in which the service will occur.
Each new eligible director who joins our board of directors will be granted an option to purchase 30,000 ordinary shares, with one-fifth of the shares vesting on the first anniversary of the date of grant and the remaining shares vesting in four equal annual installments thereafter, subject to continued service as a director through the applicable vesting date. Each new eligible director who joins our board of directors will also receive a restricted share unit award for a number of ordinary shares equal to $200,000 divided by one half of the closing price of our ADSs on the date of grant.
Additionally, on the date of each annual general shareholders meeting, each eligible director who continues to serve as a director following the meeting will be granted a restricted share unit award for a number of ordinary shares equal to $200,000 divided by one half of the closing price of our ADSs on the date of grant. The Chair of the Audit Committee and the Chair of the Compensation Committee each receives an additional restricted share unit award for a number of ordinary shares equal to $70,000 divided by one half of the closing price of our ADSs on the date of grant. The restricted share unit awards granted pursuant to our non-employee director compensation policy will vest one-third on the first anniversary of the date of grant and the remaining shares vest in eight equal quarterly installments thereafter, subject to continued service as a director through the applicable vesting date.
For additional information about share incentive grants to our officers and directors, see Item 6.B. “Directors, Senior Management and Employees — Compensation — Equity Incentive Plans.” We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors.
Employment Agreements and Indemnification Agreements
We have employment agreements with each of our executive officers and each of our executive officers has executed a form of our standard intellectual property rights assignment, non-competition and confidentiality agreement, with modifications thereto addressed in their respective employment agreements. Each executive officer has also agreed that Dr. Frank Zhang has voting power over any ordinary shares issued pursuant to the exercise of share options under an irrevocable proxy. The material terms of each agreement are described below.
Amended and Restated Employment Agreement with Dr. Ying Huang, Our Chief Executive Officer
Under the terms of the amended and restated employment agreement, Dr. Huang’s annual base salary is $700,000 and Dr. Huang is eligible for a discretionary annual cash bonus with a target of 75% (the “CEO Annual Bonus”) of Dr. Huang’s then-current base salary (the “CEO Target Amount”). In March 2024, our board of directors approved an increase to Dr. Huang’s annual base salary to $750,750, to be effective as of March 31, 2024. Dr. Huang’s eligibility for the CEO Annual Bonus will be based upon the board of director’s assessment of the attainment of individual and corporate performance goals as determined by the board of directors in its sole discretion.
Pursuant to the terms of the employment agreement, Dr. Huang’s employment is at will and may be terminated at any time by us. If Dr. Huang’s employment is terminated by us without Cause (as defined in the employment agreement) or by Dr. Huang for Good Reason (as defined in the employment agreement) in either case not in connection with a Change in Control (as defined in the employment agreement), then Dr. Huang would be eligible to receive the following severance benefits, less applicable tax withholding (the “CEO Non-CIC Severance Benefits”):
•payment of Dr. Huang’s then-current base salary in accordance with normal payroll procedures for 18 months;
•payment of Dr. Huang’s annual bonus earned for the year prior to the year in which his termination occurs if unpaid as of the date such termination is effective (the “CEO Date of Termination”), calculated based on the attainment of applicable corporate performance metrics and, with respect to individual metrics, the average of Dr. Huang’s individual performance ratings over the two years prior to such performance year shall apply (the “CEO Prior Year Bonus”);
167
•pro-rated portion of Dr. Huang’s CEO Target Amount for the year in which the Date of Termination occurs, without regard to whether service or performance metrics or ratings have been established or achieved (whether corporate or individual) (the “CEO Pro Rata Bonus”);
•payment or reimbursement of continued health coverage for Dr. Huang and his dependents under COBRA for up to 18 months (the “CEO COBRA Payments”);
•with respect to equity awards granted to Dr. Huang, that portion of any equity awards held by Dr. Huang that would have vested during the 18-month period following Dr. Huang’s Date of Termination shall be accelerated, such that such then-unvested equity awards immediately vest and become fully exercisable or non-forfeitable without regard to any performance-based requirements, but only so long as any applicable corporate performance goals are achieved;
•the post-termination exercise period attributable to any stock options will extend up to 18 months from Dr. Huang’s Date of Termination; and
•outplacement services with a nationally recognized provider or executive coaching services for a period of 12 months for up to $40,000 in annual fees (the “CEO Coaching Services”).
Under the employment agreement, if Dr. Huang’s employment is terminated by us without Cause or if Dr. Huang resigns for Good Reason, in either case within 3 months before or 18 months following the effective date of a Change in Control, then Dr. Huang would be entitled to the following severance benefits, less applicable tax withholding (the “CEO CIC Severance Benefits,” together with the Non-CIC Severance Benefits, the “CEO Severance Benefits”):
•payment of his then-current base salary in accordance with normal payroll procedures for 24 months;
•payment of the CFO Prior Year Bonus if unpaid as of the Date of Termination;
•the CEO Pro Rata Bonus;
•Payment of two times the CEO Target Amount for the year in which the Date of Termination occurs;
•the CEO COBRA Payments;
•all equity awards held by Dr. Huang shall be accelerated, such that such then-unvested equity awards immediately vest and become fully exercisable or non-forfeitable as of the Date of Termination without regard to any performance-based requirements;
•if the options are assumed or converted, the post-termination exercise period attributable to any stock option shall be extended up to 18 months from the Date of Termination; and
•the CEO Coaching Services.
Payment of the CEO Severance Benefits is subject to Dr. Huang signing and delivering to us a separation agreement containing a general release of claims in favor of us. Under the employment agreement, if Dr. Huang’s employment is terminated for Cause or Dr. Huang resigns without Good Reason, Dr. Huang will not receive any CEO Severance Benefits.
Amended and Restated Employment Agreement with Ms. Lori Macomber, Our Chief Financial Officer
Under the terms of the amended and restated employment agreement with Ms. Macomber’s annual base salary is $400,000 and Ms. Macomber is eligible for a discretionary annual cash bonus with a target of 35% (the “CFO Annual Bonus”) of her then-current base salary (the “CFO Target Amount”). In March 2023, our board of directors approved an increase to Ms. Macomber’s CFO Target Amount to 45% of her then-current base salary. In March 2024, our board of directors approved an increase to Ms. Macomber’s annual base salary to $412,000, to be effective as of March 31, 2024. Ms. Macomber’s eligibility for the CFO Annual Bonus of up to 45% of her base salary will be based upon her performance, business conditions at Legend Biotech, and the terms of any applicable bonus plan and, to the extent required by the Compensation Committee of the board of directors, the achievement of performance targets as established by the board of directors or the Compensation Committee, based on the recommendations of our Chief Executive Officer.
168
Pursuant to the terms of the employment agreement, Ms. Macomber’s employment is at will and may be terminated at any time by us. If Ms. Macomber’s employment is terminated without Cause (as defined in the employment agreement) or by Ms. Macomber for Good Reason (as defined in the employment agreement) in either case not in connection with a Change in Control (as defined in the employment agreement), then Ms. Macomber would be eligible to receive the following severance benefits, less applicable taxes withholdings (the “CFO Non-CIC Severance Benefits”):
•payment of Ms. Macomber’s then-current base salary in accordance with normal payroll procedures for 12 months;
•payment of Ms. Macomber’s annual bonus earned for the year prior to the year in which her termination occurs if unpaid as of the Date of Termination, calculated based on the attainment of applicable corporate performance metrics and, with respect to individual metrics, the average of Ms. Macomber’s individual performance ratings over the two years prior to such performance year (the “CFO Prior Year Bonus”);
•a pro-rated portion of Ms. Macomber’s Target Amount for the year in which the Date of Termination occurs, without regard to whether service or performance metrics or ratings have been established or achieved (whether corporate or individual) (the “CFO Pro Rata Bonus”);
•payment or reimbursement of continued health coverage for Ms. Macomber and her dependents under COBRA for up to 12 months;
•with respect to equity awards granted to Ms. Macomber, that portion of any equity awards held by Ms. Macomber that would have vested during the 12-month period following Ms. Macomber’s Date of Termination shall be accelerated, such that such then-unvested equity awards immediately vest and become fully exercisable or non-forfeitable without regard to any performance-based requirements, but only so long as any applicable corporate performance goals are achieved;
•the post-termination exercise period attributable to any stock options will extend to 12 months from Ms. Macomber’s Date of Termination; and
•outplacement services with a nationally recognized provider or executive coaching services for a period of 12 months (the “CFO Coaching Services”).
Under the Employment Agreement, if Ms. Macomber’s employment is terminated by Legend Biotech without Cause or if Ms. Macomber resigns for Good Reason, in either case within 3 months before or 18 months following the effective date of a Change in Control, then Ms. Macomber would be entitled to the following severance benefits, less applicable tax withholding (the “CFO CIC Severance Benefits,” together with the Non-CIC Severance Benefits, the “CFO Severance Benefits”):
•payment of her then-current base salary in accordance with normal payroll procedures for 18 months;
•the CFO Prior Year Bonus if unpaid as of the Date of Termination;
•the CFO Pro Rata Bonus;
•Payment of 1.5 times the CFO Target Amount for the year in which the Date of Termination occurs;
•payment or reimbursement of continued health coverage for Ms. Macomber and her dependents under COBRA for up to 18 months;
•all equity awards held by Ms. Macomber shall be accelerated, such that such then-unvested equity awards immediately vest and become fully exercisable or non-forfeitable as of the Date of Termination without regard to any performance-based requirements;
•if the options are assumed or converted, the post-termination exercise period attributable to any stock option shall be extended to 18 months from the Date of Termination; and
•the CFO Coaching Services.
169
Payment of the CFO Severance Benefits is subject to Ms. Macomber signing and delivering to us a separation agreement containing a general release of claims in favor of us. Under the employment agreement, if Ms. Macomber’s employment is terminated for Cause or Ms. Macomber resigns without Good Reason, Ms. Macomber will not receive any CFO Severance Benefits.
Indemnification Agreements
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Third Amended and Restated Memorandum and Articles of Association provides that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with each of our directors and executive officers that provide such persons with additional indemnification beyond that provided in our Third Amended and Restated Memorandum and Articles of Association. Under these agreements, we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
Equity Incentive Plans
Share Option Scheme
On December 2, 2017, our shareholders approved (and on December 21, 2017, Genscript’s shareholders approved) our share option scheme, or the Share Option Scheme, under which, subject to the approval of our board of directors, we may grant options to eligible participants. The material terms of the Share Option Scheme are set forth below.
The Share Option Scheme provides for the grant of share options, which for participants in the United States is represented by the grant of incentive options and nonstatutory options. Incentive options may be granted only to our employees and to employees of our subsidiaries. All other options may be granted to our employees and directors and to employees and directors of Genscript and subsidiaries, subject to applicable law.
The initial Share Option Scheme was sized at 20,000,000 shares, representing 10% of our authorized share capital as of the time the Share Option Scheme was approved. The overall limit on the number of ordinary shares that may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes that we may establish may not exceed 30% of our authorized share capital. The total number of ordinary shares issued and to be issued upon exercise of options to any one participant (including exercised, cancelled and outstanding options) in any 12-month period may generally not exceed 1% of our authorized share capital in issue.
As of December 31, 2023, options covering 6,366,538 ordinary shares with a weighted-average exercise price of
$9.33 per share were outstanding, and 3,394,334 ordinary shares remained available for the future option grants.
Administration. Our board of directors administers our Share Option Scheme and has the power to, among other things, determine the eligible persons to whom, and the times at which, options will be granted, to determine the terms and conditions of each option (including the number of shares subject to the option, the exercise price of the option, if any, and when the option will vest and become exercisable), to accelerate the time at which an option may vest or be exercised, and to construe and interpret the terms of our Share Option Scheme and options granted thereunder. Certain grants to directors and employees of Genscript are subject to the approval of Genscript’s independent directors and/or Genscript’s shareholders.
170
Options. The exercise price of options granted under the Share Option Scheme is no less than the fair market value of an ordinary share on the date of grant. Subject to the provisions of the Share Option Scheme, the board of directors determines the other terms of options, including any vesting and exercisability requirements, the method of payment of the option exercise price, the option expiration date, and the period following termination of service during which options may remain exercisable.
Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a share split or reverse share split, appropriate adjustments will be made to the number of shares covered by, and the exercise price of, each outstanding option granted under the Share Option Scheme.
Plan Amendment or Termination. Subject to Hong Kong Stock Exchange listing rules applicable to Genscript and certain amendments requiring approval of Genscript shareholders, the board of directors may amend the Share Option Scheme at any time. An amendment that adversely affects the terms of options previously granted or agreed to be granted must generally be approved by at least three-fourths in nominal value of all shares then subject to options granted under the Share Option Scheme. The Share Option Scheme will terminate on December 21, 2027 and may be terminated prior to that date by the board of directors.
Restricted Share Unit Incentive Plan 2020 Restricted Shares Plan
On May 26, 2020, our shareholders approved our 2020 Restricted Shares Plan, or the RSU Scheme, under which, subject to the approval of our board of directors, we may grant restricted shares and restricted share units to eligible participants. The material terms of the RSU Scheme are set forth below.
The RSU Scheme provides for the grant of restricted shares and restricted share units (referred to as awards). Awards may be granted to our employees, consultants and directors, as well as to employees, consultants and directors of Genscript’s other subsidiaries, subject to applicable law.
The maximum aggregate number of shares that may be issued pursuant to all awards granted under the RSU Scheme is 11,000,000 shares. As of December 31, 2023, restricted share units covering 4,948,956 ordinary shares were outstanding, and 3,286,355 ordinary shares remained available for future grant under the RSU Scheme.
Administration. Our board of directors or the compensation committee thereof (the administrator) administers our RSU Scheme and has the power to, among other things, determine the eligible persons to whom, and the times at which, awards will be granted, to determine the terms and conditions of each award (including the number of shares subject to the award, and when the award will vest), to accelerate the time at which an award may vest, and to construe and interpret the terms of our RSU Scheme and awards granted thereunder.
Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a share split or reverse share split, appropriate adjustments will be made to the aggregate number and type of shares that may be issued; the terms and conditions of any outstanding awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and the grant or exercise price per share for any outstanding awards.
Amendment or Termination. The administrator may terminate, amend or modify the RSU Scheme; provided, however, that (a) to the extent necessary and desirable to comply with applicable laws or stock exchange rules, the Company must obtain shareholder approval of any amendment in such a manner and to such a degree as required, unless the Company decides to follow home country practice, and (b) unless the Company decides to follow home country practice, shareholder approval is required for any amendment to the RSU Scheme that (i) increases the number of shares available under the RSU Scheme, (ii) permits the compensation committee to extend the term of the RSU Scheme, or (iii) results in a material increase in benefits or a change in eligibility requirements. Generally, no termination, amendment, or modification of the RSU Scheme may adversely affect in any material way any award previously granted pursuant to the RSU Scheme without the prior written consent of the participant.
C.Board Practices
Board of Directors
Our board of directors consists of ten directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract or any proposed contract or arrangement in which he or she is interested, and if he or she does so his or her vote shall be counted and he or she may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered,
171
provided that (a) such director has declared the nature of his or her interest at the meeting of the board at which the question of entering into the contract or arrangement is first considered if he or she knows his or her interest then exists, or in any other case at the first meeting of the board after he or she knows that he or she is or has become so interested, either specifically or by way of a general notice and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to raise or borrow money, to mortgage or charge its undertaking, property assets (present or future) and uncalled capital or any part thereof, and to issue debentures, debenture stock, bonds or other securities whether outright or as collateral security for any debt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service. In accordance with the Nasdaq listing requirements, as a foreign private issuer, we may rely on home country governance requirements and certain exemptions thereunder rather than relying on the Nasdaq governance requirements. However, our board of directors has undertaken a review of the independence of the directors. Based upon information requested from and provided by each director concerning such director’s background, employment and affiliations, including family relationships, our board of directors determined that Darren Xiaohui Ji, Corazon D. Sanders, Yau Wai Man Philip, Patrick Casey, Li Mao and Tom Heyman, representing six of our ten directors, are “independent directors” as defined under current rules and regulations of the SEC and Nasdaq. In making such determination, our board of directors considered whether any director has a material relationship with us that could compromise their ability to exercise independent judgment in carrying out their responsibilities.
We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with Nasdaq rules, we comply with home country governance requirements and certain exemptions thereunder rather than complying with Nasdaq corporate governance standards. While we expect to voluntarily follow most Nasdaq corporate governance rules, we may choose to take advantage of the following limited exemptions:
•exemption from filing quarterly reports on Form 10-Q containing unaudited financial and other specified information or current reports on Form 8-K upon the occurrence of specified significant events;
•exemption from Section 16 rules requiring insiders to file public reports of their securities ownership and trading activities and providing for liability for insiders who profit from trades in a short period of time;
•exemption for the Nasdaq listing rules applicable to domestic issuers requiring disclosure within four business days of any determination to grant a waiver of the code of business conduct and ethics to directors and officers;
•exemption from the requirement to obtain shareholder approval for certain issuances of securities, including shareholder approval of share option plans;
•exemption from the requirement that our audit committee have review and oversight responsibilities over all “related party transactions,” as defined in Item 7.B. of Form 20-F;
•exemption from the requirement that our board have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
•exemption from the requirements that director nominees are selected, or recommended for selection by our board of directors, either by (1) independent directors constituting a majority of our board of directors’ independent directors in a vote in which only independent directors participate, or (2) a committee comprised solely of independent directors, and that a formal written charter or board resolution, as applicable, addressing the nominations process is adopted.
We currently rely on foreign private issuer exemptions to Nasdaq Rules 5605(d) and 5605(e), as currently only two of the three members of each of our compensation committee and nominating and corporate governance committee are independent directors. Additionally, we may in the future rely on additional foreign private issuer exemptions, including exemptions allowing for less than a majority of our board of directors to consist of independent directors, and so fewer board members would be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result.
172
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly and in good faith with a view to our best interests. Our directors also have a duty to exercise skills they actually possess and the care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
•conducting and managing the business of our company;
•representing our company in contracts and deals;
•appointing attorneys for our company;
•selecting and removing senior management;
•providing employee benefits and pensions;
•managing our company’s finance and bank accounts;
•evaluating the performance and determining the compensation level of chief executive officer;
•exercising the borrowing powers of our company and mortgaging the property of our company; and
•exercising any other powers conferred by the shareholders meetings or under our amended and restated memorandum and articles of association.
Terms of Directors and Executive Officers
In accordance with our amended and restated memorandum and articles of association, our board of directors is divided into three classes, each of which consists, as nearly as possible, of one-third of the total number of directors constituting our entire board and which serve staggered three-year terms. At each annual meeting of shareholders, the successors to directors whose terms then expire are elected to serve from the time of election and qualification until the election and qualification of successor directors at the third annual meeting following election, or until the director’s earlier removal, resignation or death. Our directors are divided among the three classes as follows:
•Class I, which consists of Ye Wang, Darren Xiaohui Ji, Ying Huang, and Tomas Heyman, and their term expires at our annual meeting of shareholders in 2024;
•Class II, which consists of Patrick Casey, Yau Wai Man Philip, and Fangliang Zhang and their term expires at our annual meeting of shareholders in 2025; and
•Class III, which consists of Li Zhu, Corazon D. Sanders, and Li Mao and their term expires at our annual meeting of shareholders in 2026.
Our amended and restated memorandum and articles of association provides that the authorized number of directors may be changed only by resolution approved by a majority of our board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.
The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control.
A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his or her creditors, (ii) is found to be or becomes of unsound mind, (iii) resigns his or her office by notice in writing to the company, (iv) without special leave of absence from the board of directors, is absent from meetings of the board for three (3) consecutive meetings and the board of directors resolves that his or her office be vacated; (v) is removed from office pursuant to any other provision of the Third Amended and Restated Memorandum and Articles of Association; or (vi) by reason of an order made under any provisions of any law or enactment. Our officers are elected by and serve at the discretion of the board of directors.
173
Board and Management Committees
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the committees. Each committee’s members and functions are described below.
Audit Committee
Our audit committee consists of Darren Xiaohui Ji, Corazon D. Sanders and Yau Wai Man Philip. Mr. Yau is the chairperson of our audit committee. Mr. Yau satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Each of Dr. Ji, Dr. Sanders and Mr. Yau satisfies the requirements for an “independent director” within the meaning of Rule 5605(a)(2) of the Nasdaq listing rules and meets the criteria for independence set forth in Rule 10A-3 of the Exchange Act.
The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things:
•selecting the independent auditor;
•pre-approving auditing and non-auditing services permitted to be performed by the independent auditor;
•annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and our company;
•review responsibilities, budget, compensation and staffing of our internal audit function;
•reviewing with the independent auditor any audit problems or difficulties and management’s response;
•reviewing and, if material, approving all related party transactions on an ongoing basis;
•reviewing and discussing the annual audited financial statements with management and the independent auditor;
•reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations;
•reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments;
•discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies;
•reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on our financial statements;
•discussing policies with respect to risk assessment and risk management with management and internal auditors, including those in environmental, social and governance and cybersecurity;
•timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within IFRS that have been discussed with management and all other material written communications between the independent auditor and management;
•establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
•such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and
•meeting separately, periodically, with management, internal auditors and the independent auditor.
174
Compensation Committee
Our compensation committee consists of Darren Xiaohui Ji, Corazon D. Sanders and Ye Wang. Dr. Ji is the chairperson of our compensation committee. Each of Dr. Ji and Dr. Sanders satisfies the requirements for an “independent director” within the meaning of Rule 5605(a)(2) of the Nasdaq listing rules.
Our compensation committee is responsible for, among other things:
•reviewing, evaluating and, if necessary, revising our overall compensation policies;
•reviewing and evaluating the performance of our directors and relevant senior officers and determining the compensation of relevant senior officers;
•reviewing and approving our senior officers’ employment agreements with us;
•setting performance targets for relevant senior officers with respect to our incentive compensation plan and equity-based compensation plans;
•administering our equity-based compensation plans in accordance with the terms thereof; and
•such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Ye Wang, Yau Wai Man Philip and Patrick Casey.
Ms. Wang is the chairperson of our nominating and corporate governance committee.
The nominating and corporate governance committee is responsible for, among other things:
•selecting and recommending to our board of directors nominees for election by the shareholders or appointment by the board of directors;
•reviewing annually with our board of directors the current composition of our board of directors with regards to characteristics such as independence, knowledge, skills, experience and diversity;
•making recommendations on the frequency and structure of our board of directors meetings and monitoring the functioning of the committees of our board of directors; and
•advising our board of directors periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board of directors on all matters of corporate governance and on any remedial action to be taken.
Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this Annual Report.
175
| Board Diversity Matrix | ||||||||||||||
| Total Number of Directors | 10 | |||||||||||||
| Female | Male | Non- Binary | Did Not Disclose Gender | |||||||||||
| Part I: Gender Identity | ||||||||||||||
| Directors | 2 | 8 | 0 | 0 | ||||||||||
Part II: Number of Directors Who Identify in Any of the Categories Below: | ||||||||||||||
| African American or Black | 0 | 0 | 0 | 0 | ||||||||||
| Alaskan Native or Native American | 0 | 0 | 0 | 0 | ||||||||||
| Asian | 2 | 6 | 0 | 0 | ||||||||||
| Hispanic or Latinx | 0 | 0 | 0 | 0 | ||||||||||
| Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 | ||||||||||
| White | 0 | 2 | 0 | 0 | ||||||||||
| Two or More Races or Ethnicities | 0 | 0 | 0 | 0 | ||||||||||
| LGBTQ+ | 0 | |||||||||||||
| Persons with Disabilities | 0 | |||||||||||||
The information regarding the diversity of our board of directors as of March 31, 2023 is available in our Annual Report on Form 20-F for the year ended December 31, 2022.
D.Employees
As of December 31, 2023, we had approximately 1,800 employees, 161 of whom hold Ph.D. and/or M.D. degrees. Of these approximately 1,800 employees, 305 are engaged in research and development activities and the remainder are engaged in business development, finance, information systems, facilities, human resources, administrative support or other business functions. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good. The average number of temporary employees during the most recent financial year was approximately 200.
At each date shown, we had the following number of employees engaged in either administrative or research and development functions, as indicated below.
| As of December 31, | |||||||||||||||||
2023 | 2022 | 2021 | |||||||||||||||
| Function: | |||||||||||||||||
| General and administrative | 179 | 175 | 121 | ||||||||||||||
| Research and development | 305 | 305 | 371 | ||||||||||||||
| Sales and marketing | 62 | 57 | 60 | ||||||||||||||
| Others | 1,280 | 850 | 519 | ||||||||||||||
| Total | 1,826 | 1,387 | 1,071 | ||||||||||||||
| Geography: | |||||||||||||||||
| United States | 1,016 | 739 | 475 | ||||||||||||||
| Asia-Pacific | 544 | 563 | 582 | ||||||||||||||
| Europe | 266 | 85 | 14 | ||||||||||||||
| Total | 1,826 | 1,387 | 1,071 | ||||||||||||||
176
E.Share Ownership
For information regarding the share ownership of our directors and executive officers, see “Item 6.B Directors, Senior Management and Employees—Compensation” and “Item 7.A Major Shareholders and Related Party Transactions—Major Shareholders.”
F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation
None.
177
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.Major Shareholders
We had 363,822,069 ordinary shares outstanding as of December 31, 2023. Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of December 31, 2023:
•Each of our directors and executive officers;
•All of our directors and executive officers as a group; and
•Each person known to us to beneficially own more than 5% of our ordinary shares.
Except as otherwise indicated, the business addresses of the persons listed in the table is c/o Legend Biotech Corporation, 2101 Cottontail Lane, Somerset, New Jersey, 08873.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of December 31, 2023, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
Number of ordinary shares beneficially owned | Percentage of Shares Beneficially Owned | ||||||||||
5% or Greater Shareholders: | |||||||||||
Genscript Biotech Corporation (1) | 174,497,556 | 48.0 | % | ||||||||
AquaPoint L.P(2) | 30,300,000 | 8.3 | % | ||||||||
Entities affiliated with FMR LLC(3) | 25,595,988 | 7.0 | % | ||||||||
Entities affiliated with BlackRock, Inc.(4) | 21,064,752 | 5.8 | % | ||||||||
T. Rowe Price Associates, Inc. (5) | 21,616,432 | 5.9 | % | ||||||||
Executive Officers and Directors: | |||||||||||
Ying Huang, Ph.D.(6) | 191,516 | * | |||||||||
Lori Macomber, M.S.(7) | 11,258 | * | |||||||||
Fangliang Zhang, Ph.D.(8) | 1,067,386 | * | |||||||||
Ye (Sally) Wang, M.S. (9)(2) | 16 | * | |||||||||
Darren Xiaohui Ji, M.D., Ph.D. (10) | 18,427 | * | |||||||||
Corazon D. Sanders, Ph.D (11) | 28,885 | * | |||||||||
Yau Wai Man Philip, CPA (12) | 3,756 | * | |||||||||
Li Zhu, Ph.D | — | * | |||||||||
Patrick Casey, Ph.D (13) | 25,334 | * | |||||||||
| Li Mao, MD | 6,934 | * | |||||||||
| Tomas Heyman | 4,070 | * | |||||||||
All Current Executive Officers and Directors as a Group (11 persons) | 1,357,582 | * | |||||||||
*Represents beneficial ownership of less than 1% of our total outstanding shares.
1.This information is based solely on a Schedule 13G/A filed with the SEC on February 14, 2024 by GenScript Biotech Corporation reporting its beneficial ownership as of December 31, 2023. The Schedule 13G/A reports that these holdings consist of (i) 169,680,000 ordinary shares held by GenScript before our initial public offering completed in June 2020, (ii) 1,043,478 ordinary shares issued to GenScript in a private placement transaction that closed concurrently with our initial public offering, which was reduced by 725,922 ordinary shares that were distributed by GenScript to its shareholders in connection with our initial public offering to effect an assured entitlement distribution pursuant to the rules of the Hong Kong Stock Exchange and (iii) 2,250,000 American Depositary Shares that were purchased in connection with our follow-on offering
178
completed in December 2021. The address for Genscript is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands.
2.This information is based solely on a Schedule 13G/A filed with the SEC on February 14, 2023 by AquaPoint L.P. reporting its beneficial ownership as of December 31, 2022. The Schedule 13G/A reports that these holdings consist of 30,300,000 ordinary shares held by AquaPoint L.P. (in official liquidation) ("AquaPoint"). Pursuant to an order and judgment of the Financial Services Division of the Grand Court of the Cayman Islands (the “Court”), case number FSD 157 of 2021 (DDJ) In the Matter of AquaPoint L.P. (the “AquaPoint Judgment”), AquaPoint was ordered to be wound up and joint official liquidators were appointed by the Court over AquaPoint. The winding up of AquaPoint was subsequently upheld on appeal. Accordingly, pending the completion of the liquidation, all voting and dispositive power with respect to the 30,300,000 ordinary shares for which AquaPoint is the registered owner is held by the joint official liquidators pursuant to the AquaPoint Judgment. The address for AquaPoint is c/o The R&H Trust Co. Ltd., P.O. Box 897, Windward 1, Regatta Office Park, West Bay Road, Grand Cayman, KY1-1103, Cayman Islands.
3.This information is based solely on a Schedule 13G/A filed with the SEC on February 9, 2024 by FMR LLC and Abigail P. Johnson, reporting the beneficial ownership of FMR LLC and certain of its subsidiaries and affiliates including FIAM LLC, IA, Fidelity Institutional Asset Management Trust Company BK, Fidelity Management & Research (Japan) Limited IA, Fidelity Management & Research Company LLC * IA, Fidelity management Trust Company BK and Strategic Advisors LLC IA (together, the “FMR Reporters”) as of December 29, 2023. The Schedule 13G reports that the FMR LLC has the sole voting and dispositive power with respect to the 25,582,794 ordinary shares. The address for the FMR Reporters is 245 Summer Street, Boston, Massachusetts 02210. Abigail P. Johnson is a Director, the Chairman and the Chief Executive Officer of FMR LLC. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC.
4.This information is based solely on a Schedule 13G filed with the SEC on January 29, 2024 by BlackRock, Inc. reporting that BlackRock, Inc. has sold voting power over 9,892,358 ADS (the equivalent of 19,784,716 ordinary shares) and sole dispositive power over 10,532,376 ADS (the equivalent of 21,064,752 ordinary shares). The principal business office of BlackRock, Inc. is 50 Hudson Yards, New York, New York 10001.
5.This information is based solely on a Schedule 13G filed with the SEC on February 14, 2024 by T. Rowe Price Associates, Inc. reporting that T. Rowe Price Associates, Inc. has sole voting power over 5,179,343 ADS (the equivalent of 10,358,686 ordinary shares) and sole dispositive power over 10,808,216 ADS (the equivalent of 21,616,432 ordinary shares). The principal business office of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202.
6.Consists of 64,246 ADSs (the equivalent of 128,492 ordinary shares) directly held by Dr. Huang. Also includes options to acquire 31,512 ADSs (the equivalent of 63,024 ordinary shares) exercisable as of March 1, 2023, over which Dr. Huang has dispositive power but not voting power.
7.Consists of 5,629 ADSs (the equivalent of 11,258 ordinary shares) directly held by Ms. Macomber. Consists of 1,067,386 ordinary shares as of January 31, 2023 over which Dr. Zhang has voting power pursuant to an irrevocable proxy, which became effective upon the exercise of the stock options pursuant to which such ordinary shares were issued and terminates with respect to any such ordinary shares sold by their registered owner in a public market sale. Dr. Zhang is shareholder of Genscript Biotech Corporation, a publicly traded company on the Hong Kong Stock Exchange, but does not have voting or dispositive power over the ordinary shares held by Genscript Biotech Corporation. Excludes 30,300,000 ordinary shares for which AquaPoint is the registered owner (the “AquaPoint Shares”). Pending the completion of AquaPoint’s liquidation, all voting and dispositive power with respect to the AquaPoint Shares is held by the joint official liquidators pursuant to the AquaPoint Judgment. Upon completion of the liquidation, Dr. Zhang will not beneficially own the AquaPoint Shares. See note 2.
8.Through a family trust, Ms. Wang and her family hold 32.98% of AquaPoint L.P., whose general partner is Genscript Corporation, the largest holder of our majority shareholder, Genscript Biotech Corporation. Ms.
179
Wang does not hold any voting or dispositive power over the AquaPoint Shares. Pending the completion of AquaPoint L.P.’s liquidation, all voting and dispositive power with respect to the AquaPoint Shares is held by the joint official liquidators pursuant to the AquaPoint Judgment. See note 2.
9.Consists of 9,213.5 ADSs (the equivalent of 18,427 ordinary shares) directly held by Dr. Ji.
10.Consists of 14,442.5 ADSs (the equivalent of 19,376 ordinary shares) directly held by Dr. Sanders.
11.Consists of 1,878 ADSs (the equivalent of 3,756 ordinary shares) directly held by Mr. Yau.
12.Consists of 12,667 ADSs (the equivalent of 25,334 ordinary shares) directly held by Dr. Casey.
None of our principal shareholders has voting rights different than our other shareholders.
As of December 31, 2023, we estimate that 159,779,270 of our outstanding ordinary shares (including ordinary shares in the form of ADSs) were held in the United States by three holders of record, which represents in the aggregate 43.8% of our outstanding ordinary shares as of December 31, 2023. The actual number of holders is greater than these numbers of record holders and includes beneficial owners whose ordinary shares or ADSs are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.
B.Related Party Transactions
The following is a description of related party transactions we have entered into or been a participant in since January 1, 2023, and in which any of our then directors, executive officers or holders of more than 5% of any class of our voting securities at the time of such transaction, or any members of their immediate family, had or will have a direct or indirect material interest.
Transactions with our Largest Shareholder Genscript
Genscript is our largest shareholder, owning approximately 48% of our outstanding ordinary shares as of December 31, 2023. Below are a summary of the other transactions we are party to with Genscript. As we continue to grow and execute on our business strategy, we anticipate that from time to time we will likely continue to enter into similar and other transactions with Genscript where we can take advantage of the resources and expertise that Genscript can provide. Any future transaction we enter into with Genscript would be evaluated at an arms’ length basis and approved in accordance with our related person transaction policy described below.
Master Products, Services and Related Agreements
Master Products and Services Agreement
On October 1, 2022, Legend Biotech USA Inc. entered into a Master Products and Services Agreement with Genscript USA Inc., a subsidiary of Genscript (the “Master Products and Services Agreement”). All materials and services that we (including any of our subsidiaries) purchase from Genscript (and any of its affiliates, other than Legend Biotech and our subsidiaries) in the ordinary course of business (including any such services or materials that were otherwise purchased pursuant to other agreements between Legend Biotech and Genscript), are within the scope of, and subject to the Master Products and Services Agreement. Such services and materials include (i) services relating to gene synthesis, plasmid preparation, oligo synthesis, peptides, protein expression, reagent antibodies, GMP plasmid and viral vectors, biology discovery and development and other customized services and (ii) materials related to protein detection and cell isolation and activation. The parties may contract for additional products and services under separate statements of work under the Master Products and Services Agreement. During 2023, we incurred expenses of approximately $2.7 million under this agreement. The Master Products and Services Agreement had an initial term of one year, was automatically extended for an additional year, and will automatically extend for one additional year unless earlier terminated by either party. Under the agreement, aggregate purchases by Legend Biotech are capped at $7.3 million per calendar year.
Probio Exclusive License Agreement
180
We entered into the Exclusive License Agreement dated as of August 18, 2021 with Nanjing Probio Biotech Co., Ltd (“Probio”), a related party controlled by Genscript, pursuant to which we granted to Probio and its affiliates an exclusive license under specified patents and related know-how in exchange for Probio’s payment to us of $1.5 million and its agreement to provide, within two years of the date of the agreement, $1.5 million in the form of CDMO services to us. Under this agreement, Probio is responsible for paying us a 10.0% royalty on any revenue generated by Probio as a result of Probio’s sublicense of such specified patents and related know-how to third parties. During 2023, we recognized revenue of approximately $167,000 for royalties pursuant to this agreement.
Government Affairs Service Agreement
In January 2020, Legend Nanjing and entered into a Government Affairs Services Framework Agreement with Genscript Nanjing pursuant to which Genscript performed services relating to the establishment and maintenance of relationships with government agencies and institutions, government grant application, and assistance, advice, and support services with respect to centrally operated government affairs. The agreement has a scheduled expiration date of December 2025. During 2023, we incurred expenses of approximately $209,000 under this agreement.
Pay-on-behalf-of Services Agreement
In January 2020, Legend Nanjing entered into a Pay-on-behalf-of Agreement with Genscript Nanjing, pursuant to which Legend reimburses Genscript for payments Genscript makes on Legend’s behalf to certain vendors who provide services to both Legend Biotech and Genscript. These services include domestic shipping, engineering maintenance, software licenses, electricity and waste expense, IT services, postal service, HR training, security, cafeteria services and other related services. The agreement has a scheduled expiration date of December 2025. During 2023, we incurred expenses of approximately $1.21 million under this agreement.
Facilities
Piscataway - Legend Biotech USA Inc., as tenant, was party to a lease agreement with Genscript USA Holdings, Inc. ("Genscript USA"), effective January 1, 2022, for an approximately 22,000 square foot facility in Piscataway, New Jersey. This lease agreement expired on December 31, 2023. Legend continues to occupy the leased premises in Piscataway on a month-to-month basis under the same terms of the recently expired lease agreement, and is currently negotiating a new lease with Genscript USA. Under the expired lease agreement, we agreed to pay $36,919 per month for rent during 2023. In addition, we agreed to pay Genscript USA $19,309 per month during 2023 for common area maintenance expenses, including allocations for (i) real estate taxes against the building and surrounding area, (ii) casualty and liability insurance, (iii) cleaning, landscaping, snow removal and similar expenses. There is an annual reconciliation of these payments against actual common area maintenance expenses, with any additional payment required by Legend Biotech capped at 20% of these scheduled payments. During 2023, we incurred expenses of approximately $832,000 under this lease agreement, which includes payments for rent, common area maintenance expenses, and utilities.
Animal Facility Lease and Services Agreements - We are party to an animal facility lease agreement with Genscript Nanjing, under which we lease a 1,000 square meter animal facility in Nanjing, China, at a cost of approximately RMB 51,000 per month ($7,234 per month, based on the conversion rate of RMB 7.05 to $1.00, which was the exchange rate on December 31, 2023) (value-added tax included). The lease expires in June 2025. In addition, we entered into an Animal Technical Service Agreement with Genscript Nanjing during April 2021, which we renewed in January 2022, pursuant to which Genscript Nanjing provides facility operation, animal procurement, quarantine, animal feeding and care, and animal testing compliance services to us. During 2023, we incurred expenses of approximately $994,000 under this Animal Technical Service Agreement, which has a scheduled expiration date of December 31, 2024.
Dublin - In 2018, we entered into a lease agreement with Tango Medic SLU, under which we lease an approximately 8,300 square foot facility in Dublin, Ireland at a cost of approximately 13,000 Euro (€) per month. The term of this lease is from August 2018 to August 2028. Genscript has guaranteed our obligations under this lease.
ROFR and Co-Sale Agreement
In March 2020 and April 2020, we issued and sold an aggregate of 20,591,629 Series A Preference Shares to new investors at a price of $7.792 per share, resulting in aggregate gross proceeds of $160.5 million. In connection with the sale of the Series A Preference Shares, we entered into a Right of First Refusal and Co-Sale Agreement on March 30, 2020 with
181
Genscript, AquaPoint L.P. and the new investors. Under the agreement, Genscript and AquaPoint L.P. granted (i) us a right of first refusal to purchase all or any portion of our ordinary shares that they may propose to transfer, at the same price and on the same terms and conditions as those offered to the prospective transferee and (ii) the new investors a secondary right of first refusal to purchase all or any portion of the shares not purchased by us pursuant to our right of first refusal. In the event that a new investor does not exercise its secondary refusal right, such investor has a right of co-sale to participate in such sale on the same terms and conditions.
Share Option and Restricted Stock Unit Grants to Directors and Executive Officers
We have granted share options and restricted stock units to certain of our directors and executive officers. For more information regarding the share options and restricted stock units granted to our directors and named executive officers see “Item 6.B. Directors, Senior Management and Employees — Compensation— Compensation of Directors and Executive Officers.” and “Item 6.B Directors, Senior Management and Employees—Compensation—Employment Agreements and Indemnification Agreements.”
Employment Agreements and Indemnification Agreements
We have entered employment agreements with each of our executive officers, and have entered into indemnification agreements with each of our executive officers and directors. For more information see “Item 6.B. Directors, Senior Management and Employees— Compensation— Employment Agreements and Indemnification Agreements.”
Policies and Procedures for Related Person Transactions
On May 27, 2020, we adopted a related person transaction policy setting forth the policies and procedures for the identification, review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and a related person were or will be participants, including purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness and guarantees of indebtedness. Our audit committee charter provides that the audit committee shall review and approve or disapprove any related party transactions. In reviewing and approving any such transactions, our audit committee will consider all relevant facts and circumstances as appropriate, such as the purpose of the transaction, the availability of other sources of comparable products or services, whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction, management’s recommendation with respect to the proposed related person transaction, and the extent of the related person’s interest in the transaction.
C.Interests of Experts and Counsel
Not Applicable.
ITEM 8. FINANCIAL INFORMATION
A.Consolidated Statements and Other Financial Information
See “Item 18 Financial Statements.”
Legal and Administrative Proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Dividend Policy
Our board of directors has discretion on whether to distribute dividends, subject to the Third Amended and Restated Memorandum and Articles of Association of our company and certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by
182
our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or the credit standing in our company’s share premium account, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business immediately following the date on which the distribution or dividend is paid. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
If we pay any dividends on our ordinary shares, we will pay those dividends, which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12.D. Description of Securities Other than Equity Securities—American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
B.Significant Changes
Not Applicable.
ITEM 9. THE OFFER AND LISTING
A.Offer and Listing Details
Our ADSs are listed under the symbol “LEGN” for trading on the Nasdaq Global Select Market.
B.Plan of Distribution
Not Applicable.
C.Markets
Our ADSs have been listed under the symbol “LEGN” for trading on the Nasdaq Global Select Market since June 5, 2020.
D.Selling Shareholders
Not Applicable.
E.Dilution
Not Applicable.
F.Expenses of the Issue
Not Applicable.
ITEM 10. ADDITIONAL INFORMATION
A.Share Capital
Not Applicable.
B.Memorandum and Articles of Association
We are a Cayman Islands exempted company incorporated with limited liability and our affairs are governed by our Third Amended and Restated Memorandum and Articles of Association, the Companies Act (As Revised) of the Cayman
183
Islands, which we refer to as the Companies Act (As Revised) below and the common law of the Cayman Islands. We incorporate by reference into this Annual Report the description of our Third Amended and Restated Memorandum and Articles of Association contained in our Registration Statement on Form F-1 (File No. 333-238232), as amended, initially filed with the SEC on May 29, 2020. Our shareholders adopted our Third Amended and Restated Memorandum and Articles of Association by a special resolution on May 26, 2020, which became effective upon completion of our initial public offering of ordinary shares represented by our ADSs.
For summaries of material provisions of our amended and restated memorandum and articles of association, and of the Companies Act (As Revised), insofar as they relate to the material terms of our ordinary shares, please refer to Exhibit 2.4 filed with this Annual Report.
C.Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” "Item 6. Directors, Senior Management and Employees," “Item 7.B. Related Party Transactions” or elsewhere in this Annual Report.
D.Exchange Controls
See “Item 4.B. Information On The Company—Business Overview— Government Regulation—PRC Regulation — Other PRC National- and Provincial-Level Laws and Regulations—Regulations Relating to Foreign Exchange.” and “Item 4.B. Information on the Company—Business Overview—Government Regulation—PRC Regulation—Other PRC National- and Provincial-Level Laws and Regulations—Regulations Relating to Dividend Distributions.”
E.Taxation
The following is a general summary of certain Cayman Islands, People’s Republic of China and United States federal income tax consequences relevant to an investment in our ADSs and ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular prospective purchaser. The discussion is based on laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. You should consult your tax advisors with respect to the consequences of acquisition, ownership and disposition of our ADSs and ordinary shares.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty.
No other taxes are likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of dividends or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax.
No stamp duty is payable in respect of the issue of our ordinary shares or on an instrument of transfer in respect of our ordinary shares.
Material U.S. Federal Income Tax Consequences to U.S. Holders
The following discussion describes the material U.S. federal income tax consequences relating to the ownership and disposition of our ADSs by U.S. Holders (as defined below). This discussion applies to U.S. Holders that purchase ADSs
184
pursuant to this offering and hold such ADSs as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances (such as the effects of Section 451(b) of the Code conforming the timing of certain income accruals to financial statements) or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, broker-dealers and traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, persons who hold ADSs as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment, persons who received their ADSs as compensatory payments, persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through attribution 10% or more of our shares by vote or value, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities and arrangements that are classified as partnerships for U.S. federal income tax purposes, and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of ADSs that is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ADSs, the U.S. federal income tax consequences relating to an investment in the ADSs will depend in part upon the status and activities of such entity or arrangement and the particular partner. Any such entity or arrangement should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of ADSs.
Persons considering an investment in ADSs should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of ADSs, including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Passive Foreign Investment Company Consequences
In general, a corporation organized outside the United States will be treated as a passive foreign investment company, or PFIC, for any taxable year in which either (1) at least 75% of its gross income is “passive income ” (the “PFIC income test”), or (2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income (the “PFIC asset test”). Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
Our status as a PFIC will depend on the nature and composition of our income and the nature, composition and value of our assets (which may be determined based on the fair market value of each asset, with the value of goodwill and going concern value being determined in large part by reference to the market value of our ADSs, which may be volatile). Our status may also depend, in part, on how quickly we utilize the cash proceeds from our initial public offering and other fundraising activities in our business. Based on our operating history and the projected composition of our income and valuation of our assets, including goodwill, we do not believe we were a PFIC for our taxable year ending December 31, 2023. There can be no assurance that the IRS will agree with our conclusion and that the IRS would not successfully challenge our position. Our status as a PFIC is a fact-intensive determination made on an annual basis after the end of each taxable year, including the current taxable year. Accordingly, our U.S. counsel expresses no opinion with respect to our
185
PFIC status for our taxable year ending December 31, 2023, and expresses no opinion with regard to our expectations regarding our PFIC status for the current or future taxable years.
If we are a PFIC in any taxable year during which a U.S. Holder owns ADSs, the U.S. Holder could be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the ADSs, and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of the ADSs, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for ADSs. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.
If we are a PFIC for any year during which a U.S. Holder holds ADSs, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds the ADSs, unless we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to the ADSs. If the election is made, the U.S. Holder will be deemed to sell the ADSs it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s ADSs would not be treated as shares of a PFIC unless we subsequently become a PFIC.
If we are a PFIC for any taxable year during which a U.S. Holder holds ADSs and one of our non-U.S. corporate subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from the disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to our non-U.S. subsidiaries.
If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on ADSs if such U.S. Holder makes a valid “mark-to-market” election for our ADSs. A mark-to-market election is available to a U.S. Holder only for “marketable stock.” Our ADSs will be marketable stock as long as they remain listed on The Nasdaq Global Select Market and are regularly traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. If a mark-to-market election is in effect, a U.S. Holder generally would take into account, as ordinary income for each taxable year of the U.S. Holder, the excess of the fair market value of ADSs held at the end of such taxable year over the adjusted tax basis of such ADSs. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such ADSs over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in ADSs would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of ADSs in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss.
A mark-to-market election will not apply to ADSs for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any non-U.S. subsidiaries that we may organize or acquire in the future. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to any lower-tier PFICs that we may organize or acquire in the future notwithstanding the U.S. Holder’s mark-to-market election for the ADSs.
The tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able to make a valid qualified electing fund (" QEF") election. At this time, we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election. Prospective investors should assume that a QEF election will not be available.
186
Each U.S. person that is an investor of a PFIC is generally required to file an annual information return on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.
The U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. Holders are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of ADSs, the consequences to them of an investment in a PFIC, any elections available with respect to the ADSs and the IRS information reporting obligations with respect to the purchase, ownership and disposition of ADSs of a PFIC.
Distributions
As described in the section “Item 8.A. Consolidated Statements and Other Financial Information—Dividend Policy,” we do not anticipate declaring or paying dividends to holders of our ADSs in the foreseeable future. However, if we make a distribution contrary to the expectation, subject to the discussion above under “Item 10.E. Additional Information—Taxation—Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution with respect to ADSs generally will be required to include the gross amount of such distribution in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s ADSs. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s ADSs, the remainder will be taxed as capital gain. Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be reported to them as dividends.
Distributions on ADSs that are treated as dividends generally will constitute income from sources outside the United States for foreign tax credit purposes and generally will constitute passive category income. Subject to certain complex conditions and limitations, taxes withheld on any distributions on ADSs may be eligible for credit against a U.S. Holder’s federal income tax liability. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
Distributions on ADSs that are treated as dividends generally will not be eligible for the “dividends received” deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations. Dividends paid by a “qualified foreign corporation” are eligible for taxation to non-corporate U.S. Holders at a reduced capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that certain requirements are met. A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information provision, or (b) with respect to any dividend it pays on shares that are readily tradable on an established securities market in the United States. Our ADSs will generally be considered to be readily tradable on an established securities market in the United States for so long as they are listed on The Nasdaq Global Select Market. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends with regard to its particular circumstances.
Sale, Exchange or Other Disposition of ADSs
Subject to the discussion above under “Item 10.E. Additional Information—Taxation—Passive Foreign Investment Company Consequences,” a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of ADSs in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the ADSs. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the ADSs were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses
187
is subject to limitations. Any gain or loss recognized from the sale or other disposition of ADSs will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of ADSs. If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of this Medicare tax to your income and gains in respect of your ownership and disposition of ADSs.
Information Reporting and Backup Withholding
U.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in ADSs, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Item 10.E. Additional Information—Taxation—Passive Foreign Investment Company Consequences,” each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying more than $100,000 for ADSs may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting. In addition to these requirements, U.S. holders may be required to annually file FinCEN Report 114 (Report of Foreign Bank and Financial Accounts) with the U.S. Department of Treasury. U.S. holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of the ADSs.
Dividends on and proceeds from the sale or other disposition of ADSs may be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder (1) fails to provide an accurate United States taxpayer identification number or otherwise establish a basis for exemption (usually on IRS Form W-9), or (2) is described in certain other categories of persons. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
U.S. Holders should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ADSS IN LIGHT OF THE INVESTOR’S OWN CIRCUMSTANCES.
PRC Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside China with “de facto management body” within China is considered as a Tax Resident Enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. The implementation rules of the PRC Enterprise Income Tax Law define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the SAT issued SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC or non-PRC individuals, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel located in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (iv) at least 50% of board members with voting rights or senior executives habitually reside in China.
188
We believe that we should not be considered as a PRC resident enterprise for PRC tax purposes as (i) we are incorporated outside of China and not controlled by a PRC enterprise or PRC enterprise group; and (ii) we do not meet all of the conditions above. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that PRC tax authorities will ultimately not take a different view.
If the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, our worldwide income could be subject to 25% enterprise income tax; and any dividends payable to non-resident enterprise holders of our ordinary shares or ADSs may be treated as income derived from sources within China and therefore, subject to a 10% withholding tax (or 20% in the case of non-resident individual holders) unless an applicable income tax treaty provides otherwise. In addition, capital gains realized by non-resident enterprise shareholders (including our ADS holders) upon the disposition of our ordinary shares or ADSs may be treated as income derived from sources within PRC and therefore, subject to 10% income tax (or 20% in the case of non-resident individual shareholders or ADS holders) unless an applicable income tax treaty provides otherwise. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. See Item 3.D. “Risk Factors—Risks Related to Doing Business in China—If we are classified as a “resident enterprise” of China under the PRC Enterprise Income Tax Law, we and our non-PRC shareholders could be subject to unfavorable tax consequences, and our business, financial condition and results of operations could be materially and adversely affected.”
F.Dividends and Paying Agents
Not Applicable.
G.Statement by Experts
Not Applicable.
H.Documents on Display
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC.
We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.investors.legendbiotech.com. The information contained on our website is not incorporated by reference in this Annual Report.
With respect to references made in this Annual Report to any contract or other document of Legend Biotech, such references are not necessarily complete and you should refer to the exhibits incorporated by reference to this Annual Report for copies of the actual contract or document.
I.Subsidiary Information
Not Applicable.
J. Annual Report to Security Holders
We intend to submit any annual report provided to security holders in electronic format as an exhibit to a report on Form 6-K.
189
190
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash is held in readily available operating accounts and short to medium term deposits and securities. These securities are principal secured and not adversely impacted by interest rate fluctuations. As a result, a change in market interest rates would not have any significant impact on our cash balance.
The interest rate pursuant to our collaboration and license agreement with Janssen, has transitioned in accordance with the LIBOR Act. Thus, outstanding advances accrue interest at 12 month CME term SOFR plus LIBOR/SOFR adjustment (12 month) plus a margin of 2.5%. Accordingly, changes in SOFR could result in fluctuations in our cash flow. For example, based on the $250.0 million aggregate principal amount of advances outstanding from Janssen as of December 31, 2023, a 0.5% (fifty basis point) per annum increase in SOFR would result in an additional $1.3 million per year in interest payable by the Company.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2023 and 2022.
We also do not believe that we are exposed to any material foreign currency exchange rate risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.Debt Securities
Not Applicable.
B.Warrants and Rights
Not Applicable.
C.Other Securities
Not Applicable.
D.American Depositary Shares
JPMorgan Chase Bank, N.A. (" JPMorgan"), as depositary for our ADSs, registers and delivers the ADSs. Each ADS represents an ownership interest in a designated number of shares which we deposit with the custodian, as agent of the depositary. Each ADS represents two ordinary shares. The ADS to share ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated by the form of ADR). The depositary’s office is located at 383 Madison Avenue, Floor 11, New York, NY 10179.
A deposit agreement among ourselves, the depositary, yourself as an ADR holder and all other ADR holders, and all beneficial owners of an interest in the ADSs evidenced by ADRs from time to time sets out the ADR holder rights as well as rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs. A copy of the deposit agreement is incorporated by reference as an exhibit to this Annual Report.
Fees and Payments from the Depositary to Us
Our depositary has agreed to share with us certain fees payable to the depositary by holders of ADSs. We anticipate that the fees shared with us by the depositary, after deduction of applicable U.S. taxes, will be approximately $0.4 million.
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a share dividend or share split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, canceled or surrendered, or upon which a share distribution or elective distribution is made or offered,
191
as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a share dividend or share split declared by us or an exchange of share regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
•a fee of $0.05 or less per ADS held for any cash distribution made, or for any elective cash/share dividend offered, pursuant to the deposit agreement;
•an aggregate fee of $0.05 or less per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision);
•a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of ADR holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against ADR holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such ADR holders or by deducting such charge from one or more cash dividends or other cash distributions);
•a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those ADR holders entitled thereto;
•share transfer or other taxes and other governmental charges;
•cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of shares, ADRs or deposited securities;
•transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and
•fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement.
To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A. (the “Bank”), and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars. For certain currencies, foreign exchange transactions are entered into with the Bank or an affiliate, as the case may be, acting in a principal capacity. For other currencies, foreign exchange transactions are routed directly to and managed by an unaffiliated local custodian (or other third party local liquidity provider), and neither the Bank nor any of its affiliates is a party to such foreign exchange transactions.
The foreign exchange rate applied to a foreign exchange transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity provider, in each case plus or minus a spread, as applicable. The depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the “Disclosure” page (or successor page) of www.adr.com. Such applicable foreign exchange rate and spread may (and neither the depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency pair on the date of the foreign exchange transaction. Additionally, the timing of execution of a foreign exchange transaction varies according to local market dynamics, which may include regulatory requirements, market hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a manner they deem appropriate without regard to the impact of such activities on the depositary, us, holders or
192
beneficial owners. The spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
Notwithstanding the foregoing, to the extent we provide U.S. dollars to the depositary, neither the Bank nor any of its affiliates will execute a foreign exchange transaction as set forth herein. In such case, the depositary will distribute the U.S. dollars received from us.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of foreign exchange transactions will be provided by the depositary on ADR.com. Each holder and beneficial owner by holding or owning an ADR or ADS or an interest therein, and we, each acknowledge and agree that the terms applicable to foreign exchange transactions disclosed from time to time on ADR.com will apply to any foreign exchange transaction executed pursuant to the deposit agreement.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary.
The right of the depositary to receive payment of fees, charges and expenses survives the termination of the deposit agreement, and shall extend for those fees, charges and expenses incurred prior to the effectiveness of any resignation or removal of the depositary.
The fees and charges described above may be amended from time to time by agreement between us and the depositary.
The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.
193
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A. Not Applicable.
B. Not Applicable.
C. Not Applicable.
D. Not Applicable.
E. Not Applicable.
ITEM 15. CONTROLS AND PROCEDURES
A.Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report, as required by Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that, as of December 31, 2023, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
B.Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management, with the participation of the Chief Executive Officer and the Chief Financial Officer has assessed the effectiveness of internal control over financial reporting as of December 31, 2023. Management’s assessment was based on the framework in “Internal Control – Integrated Framework (2013)” (“2013 framework”), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on that assessment, management concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements for external purposes, in accordance with generally accepted accounting principles.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, and can only provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of the Company’s internal control over financial reporting has been audited by Ernst & Young LLP, independent registered public accounting firm, as stated in their report on the Company’s internal control over financial reporting as of December 31, 2023, which is included herein. See paragraph (c) of the present Item 15, below.
194
C.Attestation Report of Independent Registered Public Accounting Firm
See report of Ernst & Young LLP, independent registered public accounting firm, included under “Item 18. Financial Statements” on page F-4.
D.Changes in Internal Control Over Financial Reporting
Other than disclosed below, there were no changes in our internal control over financing reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation of Previously Identified Material Weaknesses
In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2022 and 2021, we and our independent registered public accounting firm identified two material weaknesses in our internal control over financial reporting where we:
•lacked adequate review and monitoring of controls over complex agreements, specifically, the Janssen Agreement, and our disclosure controls and procedures were not effective, (the "2021 Material Weakness") and
•lacked adequate information technology general controls ("ITGCs") in the area of privileged and regular user access and change management over key information technology ("IT") systems that support our financial reporting processes and as a result, the related process-level IT dependent controls and application controls were also ineffective, (the "2022 Material Weakness")
In response to the 2021 Material Weakness, we implemented the following:
•additional responsive review and monitoring controls for complex agreements, including the Janssen Agreement, which includes additional review by the Chief Financial Officer and other senior finance staff over critical accounting judgements and estimates, reporting and disclosures
•expanded the capabilities of existing financial reporting personnel through specific continuous training and education in the application of IFRS standards, with a focus on complex agreements, including the Janssen Agreement
•hired additional financial reporting & technical accounting personnel as well as a Corporate Controller with relevant and appropriate IFRS accounting experience, including complex agreements. We also engaged additional external resources to aid and supplement our internal resources in executing this remediation plan.
In response to the 2022 Material Weakness, we implemented the following:
•we initially deployed in February 2023 a governance, risk and compliance tool ("GRC tool"), which automated previously manual processes within our ITGC environment. The GRC tool facilitates a more robust, timely, and precise execution of ITGCs, with a particular emphasis over privileged and regular user access and change management controls over key IT systems that support our financial reporting processes. This GRC tool was fully implemented and operating effectively as of fiscal year ended December 31, 2023.
•strengthened our IT governance, risk, and compliance oversight by adding additional personnel in in that function.
•developed and implemented additional training and awareness programs addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on user access
•strengthened the ITGC review processes, including user access reviews, by adding enhanced guidance on executing ITGCs and adding additional reviews
As of December 31, 2023, based on the assessment performed by our management on the performance of the remediation measures described above, we determined that the material weaknesses previously identified in our internal
195
control over financial reporting had been remediated. Although we have determined that the previously identified material weaknesses have been remediated as of December 31, 2023, we cannot assure you that we will not identify other material weaknesses or deficiencies, which could negatively impact our results of operations in future periods.
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Philip Wai Man Yau, an independent director (under the standards set forth in Nasdaq Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert as defined in Item 16A(b) of Form 20-F.
ITEM 16B. CODE OF ETHICS
We adopted a Code of Business Conduct and Ethics that is applicable to the directors, officers and employees of Legend Biotech and our subsidiaries and affiliates, in accordance with applicable federal securities laws and Nasdaq rules. Our Code of Business Conduct and Ethics is available on our website at https://legendbiotech.com/compliance. We expect that any amendment to this code, or any waivers of its requirements, will be disclosed on our website. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young LLP has served as our independent auditor since May 2022 and has audited our consolidated financial statements for the years ended December 31, 2022 and December 31, 2023. The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young LLP for the periods indicated. We did not pay any other fees to Ernst & Young LLP during the periods indicated below.
For the Years Ended December 31, US$’000 | |||||||||||
2023 | 2022 | ||||||||||
Audit Fees1 | 3,478 | 4,509 | |||||||||
Audit-related Fees2 | — | — | |||||||||
| Total | 3,478 | 4,509 | |||||||||
1.“Audit Fees” means the aggregate fees billed or to be billed for each of the fiscal years listed for professional services rendered by Ernst & Young LLP for the audit of our annual financial statements, as well as assistance with and review of documents filed with the SEC and other statutory and regulatory filings.
2.“Audit-related Fees” represents the aggregate fees billed in each of the fiscal years listed for the assurance and related services rendered by our principal auditor that are reasonably related to the performance of the audit or review of our financial statements and not reported under “Audit Fees.”
Audit Committee Pre-approved Policies and Procedures
Currently, all audit services and permissible non-audit services to be provided by our independent registered public accountant, Ernst & Young LLP, must be approved by our audit committee, other than those for de minimis services which are approved by the audit committee prior to the completion of the audit, in accordance with paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. All of the services related to us provided by Ernst & Young LLP during the year ended December 31, 2023 were pre-approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not Applicable.
196
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not Applicable.
ITEM 16G. CORPORATE GOVERNANCE
The Nasdaq listing rules include certain accommodations in the corporate governance requirements that allow foreign private issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of the Nasdaq listing rules. While we expect to voluntarily follow most Nasdaq corporate governance rules, we may choose to take advantage of the following limited exemptions:
•exemption from filing quarterly reports on Form 10-Q containing unaudited financial and other specified information or current reports on Form 8-K upon the occurrence of specified significant events;
•exemption from Section 16 rules requiring insiders to file public reports of their securities ownership and trading activities and providing for liability for insiders who profit from trades in a short period of time;
•exemption for the Nasdaq listing rules applicable to domestic issuers requiring disclosure within four business days of any determination to grant a waiver of the code of business conduct and ethics to directors and officers;
•exemption from the requirement to obtain shareholder approval for certain issuances of securities, including shareholder approval of share option plans;
•exemption from the requirement that our audit committee have review and oversight responsibilities over all “related party transactions,” as defined in Item 7.B. of Form 20-F;
•exemption from the requirement that our board have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
•Exemption from the requirements that director nominees are selected, or recommended for selection by our board of directors, either by (1) independent directors constituting a majority of our board of directors’ independent directors in a vote in which only independent directors participate, or (2) a committee comprised solely of independent directors, and that a formal written charter or board resolution, as applicable, addressing the nominations process is adopted.
We currently rely on foreign private issuer exemptions to Nasdaq Rules 5605(d) and 5605(e), as currently only two of the three members of each of our compensation committee and nominating and corporate governance committee are independent directors. Additionally, we may in the future rely on additional foreign private issuer exemptions, including exemptions allowing for less than a majority of our board of directors to consist of independent directors, and so fewer board members would be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. The foreign private issuer exemptions do not modify the independence requirements for the audit committee.
ITEM 16H. MINE SAFETY DISCLOSURE
Not Applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
197
ITEM 16J. INSIDER TRADING POLICIES
Not Applicable.
ITEM 16K. CYBERSECURITY
Risk management and strategy
We have implemented and maintain various information security processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property, confidential information that is proprietary, strategic or competitive in nature, and trade secrets, data we may collect about trial participants in connection with clinical trials, sensitive third-party data, business plans, transactions, and financial information (“Information Systems and Data”).
Our security management and legal departments work with the information security function within the Company and third-party service providers to help identify, assess and manage the Company’s cybersecurity threats and risks. Our information security function identifies and assesses risks from cybersecurity threats by monitoring and evaluating our threat environment using various methods including, for example, manual and automated tools, internal or external audits, subscribing to and analyzing reports and intelligence feeds that identify cybersecurity threats and threat actors, conducting third party threat assessments, evaluating our and our industry’s risk profile, conducting vulnerability assessments to identify vulnerabilities, conducting scans of the threat environment, dark web monitoring, scans for cyber insurance purposes, coordinating with law enforcement concerning threats, and evaluating threats reported to us.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, standards and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, for example: incident detection and response (including through an incident response plan), data encryption, network security controls, a vendor risk management program, access controls, system monitoring, penetration testing, an employee focused on cybersecurity, employee training, policies to address cyber issues (including a Cybersecurity Policy, an Acceptable Use Policy, and a Data Governance Policy, risk assessments, cyber insurance, and physical security mechanisms.
The information security function works with senior management to evaluate material risks from cybersecurity threats against our overall business objectives and prioritize our risk management processes and mitigate cybersecurity threats that are more likely to lead to a material impact to our business.
We use third-party service providers to assist us from time to time to identify, assess, and manage material risks from cybersecurity threats, including for example professional services firms (including legal counsel), threat intelligence service providers, cybersecurity consultants, cybersecurity software providers, managed cybersecurity service providers, pen testing firms, and dark web monitoring services.
We also use third-party service providers to perform a variety of functions throughout our business, such as application providers, hosting companies, contract research organizations, contract manufacturing organizations, management consultants, transportation services, insurance and benefits providers, distributors, and supply chain resources. We manage cybersecurity risks associated with our use of these providers by reviewing their security assessments and questionnaires, analyzing vulnerability scans related to the vendor, conducting security assessment calls with the vendor's security personnel, imposing information contractual obligations on the vendor, and reviewing their written security program and applicable reports.
Depending on the nature of the services provided, the sensitivity of the Information Systems and Data at issue, and the identity of the provider, our vendor management process may also involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and impose contractual obligations related to cybersecurity on the provider.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see our risk factors under “Item 3D – Risk Factors – Risks Related to Our Business Operations”, including “Our internal information technology systems, or those of our third-party vendors, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a significant disruption of our product development programs, expose us to regulatory investigations, give rise to significant liability, subject us to costly and protracted litigation, cause significant reputational harm and interfere with our ability to operate our business effectively,” and “We are or may become subject to a variety of stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security, and our failure or failure of our third-party vendors, collaborators, contractors or consultants to comply with existing or future laws and regulations related to privacy
198
or data security could lead to government enforcement actions, which could include civil or criminal fines or penalties, private litigation, other liabilities, disruptions of our business operations, reputational harm, and/or adverse publicity. Compliance or the failure to comply with such laws could increase the costs, could limit their use or adoption, and could otherwise negatively affect our operating results and business”.
Governance
Our board of directors addresses the Company's cybersecurity risk management as part of its general oversight function. The audit committee of the board of directors of the Company has primary responsibility for overseeing the Company's cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain Company management, including (1) our Senior Director of Information Security, who has over 20 years of experience leading a variety of functions, including cybersecurity, security governance, risk and compliance, and security audit, holds degrees and certifications, including MBA, CISA, CFE, and CDPSE, and is our Security Officer; (2) our Assistant Director, Cybersecurity Cloud Architect, who is responsible for a variety of functions, including identity and access management and information assurance governance and who has over 20 years of experience in cybersecurity, hold certifications in ISSAP, CEHv11, CISSP, CCSP, CMMC; and (3) our Network Security Engineer, who runs our Security Operations Center (SOC) and has over 15 years of experience in network security and incident response.
Our information security function is responsible for hiring appropriate personnel, helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy, and communicating key priorities to relevant personnel. Our CFO is responsible for approving budgets, our information security function, and prepares for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
Our response process to cybersecurity incidents is designed to escalate certain incidents to members of management depending on the circumstances, including our CEO and CFO. In the event of a cybersecurity incident, our CEO and CFO and others would work with the Company's incident response team to help the Company mitigate and remediate cybersecurity incidents of which they are notified. In addition, the Company's incident response policy includes reporting to the board of directors committee responsible for certain cybersecurity incidents.
The audit committee receives periodic reports from our information security function (including our Chairman of the Board of Directors and Head of IT) concerning the Company's significant cybersecurity threats and risk and the processes the Company has implemented to address them. The audit committee also has access to various reports, summaries or presentations related to cybersecurity threats, risk and mitigation.
199
PART III
ITEM 17. FINANCIAL STATEMENTS
See “Item 18. Financial Statements”
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Legend Biotech Corporation and its subsidiaries are included at the end of this Annual Report.
ITEM 19. EXHIBITS
Exhibit Index
(Incorporated by Reference)
| Description of Documents | ||||||||
| 1.1*** | ||||||||
| 2.1*** | ||||||||
| 2.2*** | ||||||||
| 2.3*** | ||||||||
| 2.5*** | ||||||||
| 2.6*** | ||||||||
2.7*** | ||||||||
2.8*** | ||||||||
2.9*** | ||||||||
200
4.1***^ | ||||||||
| 4.2*** | ||||||||
4.3+*** | Amended and Restated Employment Agreement, by and among the Registrant, Legend Biotech USA Inc. and Ying Huang, effective August 3, 2022 (incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 6-K (File No. 001-39307), filed with the SEC on August 4, 2022 | |||||||
4.4+* | ||||||||
4.5+*** | ||||||||
4.6+* | ||||||||
4.7+*** | ||||||||
4.8*** | ||||||||
4.9+*** | ||||||||
4.10***^ | ||||||||
4.11* | ||||||||
4.12***^ | ||||||||
4.13*** | Amendment No. 2 to Interim Product Supply Agreement, dated as of October 17, 2022, between Legend Biotech USA Inc. and Janssen Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Report on Form 6-K (File No. 001-39307), filed with the SEC on November 22, 2022) | |||||||
4.14*** | Amendment No. 3 to Interim Product Supply Agreement, dated as of November 16, 2022, between Legend Biotech USA Inc. and Janssen Pharmaceuticals, Inc. (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Report on Form 6-K (File No. 001-39307), filed with the SEC on November 22, 2022) | |||||||
201
202
15.2* | ||||||||
| 101* | The following materials from Legend Biotech Corp.’s Report on Form 20.F formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Profit or Loss and Other Comprehensive Income, (ii) the Consolidated Statements of Financial Position, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows, (v) Notes to the Consolidated Financial Statements. | |||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Filed with this Annual Report on Form 20-F.
** Furnished with this Annual Report on Form 20-F.
***Previously filed.
+ Indicates management contract or compensatory plan
^ Certain portions of this exhibit have been redacted because they are both not material and is the type that the Registrant treats as private or confidential. The Registrant hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, an unredacted copy of this exhibit.
# Pursuant to Item 601(a)(5) of Regulation S-K promulgated by the Securities and Exchange Commission, certain exhibits and schedules to this agreement have been omitted. The Company hereby agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, any or all of such omitted exhibits or schedules.
203
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| Legend Biotech Corporation | |||||
| /s/ Ying Huang | |||||
| Name: Ying Huang | |||||
| Title: Chief Executive Officer | |||||
Date: March 19, 2024 | |||||
204
LEGEND BIOTECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page(s) | |||||
| AUDITED CONSOLIDATED FINANCIAL STATEMENTS | |||||
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED December 31, 2023, 2022 AND 2021 | F-6 | ||||
F-7 | |||||
F-8 – F-8 | |||||
F-9 – F-11 | |||||
F-12 – F-65 | |||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Legend Biotech Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Legend Biotech Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 19, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
| Collaboration and license agreement with Janssen Biotech, Inc. | ||||||||
| Description of the matter | As discussed in Note 2 to the consolidated financial statements, the Company entered into a collaboration and license agreement (“collaboration agreement”) with Janssen Biotech, Inc. ("Janssen"). Under the collaboration agreement, the Company granted Janssen a worldwide, co-exclusive (with the Company) license to develop and commercialize cilta-cel. The Company and Janssen share equally revenue, expenses and profits of CARVYKTI in all areas other than the People's Republic of China. Auditing the Company’s accounting for the collaboration agreement was challenging because the agreement is complex, and the Company exercised significant judgment in applying the existing accounting standards to the collaboration agreement, including as they relate to collaboration revenue, collaboration cost of revenue, collaboration inventories, and leases of collaboration assets. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of the authoritative guidance applicable to the collaboration agreement and related accounting treatment for collaboration revenue, collaboration cost of revenue, collaboration inventories, and leases of collaboration assets. Our audit procedures to test the Company’s application of the authoritative guidance to the collaboration agreement included, among others, reading the contractual agreement and amendments, testing the completeness of management’s identified significant terms and assessing the terms of the agreement and amendments for relevant accounting implications, including the identification of the customer. We also evaluated the appropriateness of management’s selection and application of the authoritative guidance and the determination and consistency of its accounting policies, and we compared amounts recorded for consistency with the Company’s accounting policies and underlying documentation. | |||||||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2022.
March 19, 2024
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Legend Biotech Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Legend Biotech Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Legend Biotech Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated statement of financial position of the Company as of December 31, 2023, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended December 31, 2023, and the related notes and our report dated March 19, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Iselin, New Jersey
March 19, 2024
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Legend Biotech Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows of Legend Biotech Corporation (the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Hua Ming LLP
We served as the Company’s auditor from 2020 to 2022.
Shanghai, the People’s Republic of China
March 31, 2022, except for the effects on the consolidated financial statements of the correction of an error, as to which the date is February 17, 2023
F-5
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
| Notes | 2023 | 2022 | 2021 | ||||||||||||||||||||
| US$’000, except per share data | US$’000, except per share data | US$’000, except per share data | |||||||||||||||||||||
| REVENUE | 5 | ||||||||||||||||||||||
| License revenue | |||||||||||||||||||||||
| Collaboration revenue | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Collaboration cost of revenue | ( | ( | |||||||||||||||||||||
| Other income and gains | 5 | ||||||||||||||||||||||
| Research and development expenses | ( | ( | ( | ||||||||||||||||||||
| Administrative expenses | ( | ( | ( | ||||||||||||||||||||
| Selling and distribution expenses | ( | ( | ( | ||||||||||||||||||||
| Other expenses | ( | ( | ( | ||||||||||||||||||||
| Fair value (loss)/gain of warrant liability | ( | ( | |||||||||||||||||||||
| Finance costs | 7 | ( | ( | ( | |||||||||||||||||||
| LOSS BEFORE TAX | 6 | ( | ( | ( | |||||||||||||||||||
| Income tax benefit/(expense) | 8 | ( | |||||||||||||||||||||
| LOSS FOR THE YEAR | ( | ( | ( | ||||||||||||||||||||
| Attributable to: | |||||||||||||||||||||||
| Ordinary equity holders of the parent | ( | ( | ( | ||||||||||||||||||||
| LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT | 9 | ||||||||||||||||||||||
| Basic | ( | ( | ( | ||||||||||||||||||||
| Diluted | ( | ( | ( | ||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME | |||||||||||||||||||||||
| Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | |||||||||||||||||||||||
| Exchange differences: | |||||||||||||||||||||||
| Exchange differences on translation of foreign operations | |||||||||||||||||||||||
| Net other comprehensive income that may be reclassified to profit or loss in subsequent periods | |||||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX | |||||||||||||||||||||||
| TOTAL COMPREHENSIVE LOSS FOR THE YEAR | ( | ( | ( | ||||||||||||||||||||
| Attributable to: | |||||||||||||||||||||||
| Ordinary equity holders of the parent | ( | ( | ( | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT DECEMBER 31, 2023 AND 2022
| Notes | December 31, 2023 | December 31, 2022 | ||||||||||||||||||
| US$’000 | US$’000 | |||||||||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||||||
| Property, plant and equipment | 10 | |||||||||||||||||||
| Advance payments for property, plant and equipment | ||||||||||||||||||||
| Right-of-use assets | 13 | |||||||||||||||||||
| Time deposits | 17 | |||||||||||||||||||
| Intangible assets | 11 | |||||||||||||||||||
| Collaboration prepaid leases | 13 | |||||||||||||||||||
| Other non-current assets | 12 | |||||||||||||||||||
| Total non-current assets | ||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||
| Collaboration inventories | 14 | |||||||||||||||||||
| Trade receivables | 15 | |||||||||||||||||||
| Prepayments, other receivables and other assets | 16 | |||||||||||||||||||
| Financial assets at fair value through profit or loss | 32 | |||||||||||||||||||
| Pledged deposits | 17 | |||||||||||||||||||
| Time deposits | 17 | |||||||||||||||||||
| Cash and cash equivalents | 17 | |||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Total assets | ||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||
| Trade payables | 18 | |||||||||||||||||||
| Other payables and accruals | 19 | |||||||||||||||||||
| Government grants | 22 | |||||||||||||||||||
| Lease liabilities | 13 | |||||||||||||||||||
| Tax payable | ||||||||||||||||||||
| Warrant liability | 21 | |||||||||||||||||||
| Contract liabilities | 5 | |||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||||||||||
| Collaboration interest-bearing advanced funding | 23 | |||||||||||||||||||
| Lease liabilities long term | 13 | |||||||||||||||||||
| Government grants | 22 | |||||||||||||||||||
| Contract liabilities | 5 | |||||||||||||||||||
| Other non-current liabilities | ||||||||||||||||||||
| Total non-current liabilities | ||||||||||||||||||||
| Total liabilities | ||||||||||||||||||||
| EQUITY | ||||||||||||||||||||
| Share capital | 24 | |||||||||||||||||||
| Reserves | 27 | |||||||||||||||||||
| Total ordinary shareholders’ equity | ||||||||||||||||||||
| Total equity | ||||||||||||||||||||
| Total liabilities and equity | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Attributable to equity holders of the parent | |||||||||||||||||||||||||||||||||||
| Share capital | Share premium* | Share-based compensation reserves* | Foreign currency translation reserve* | Retained earnings/ (accumulated losses)* | Total equity | ||||||||||||||||||||||||||||||
| US$‘000 | US$‘000 | US$‘000 | US$‘000 | US$‘000 | US$‘000 | ||||||||||||||||||||||||||||||
| As at January 1, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Loss for the year | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Exchange differences on translation of foreign operations | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Issuance of ordinary shares relating to private placement for an institutional investor | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares for follow-on public offering, net of issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of share options | — | ( | — | — | |||||||||||||||||||||||||||||||
| Reclassification of vested restricted share units | — | ( | — | — | |||||||||||||||||||||||||||||||
| Equity-settled share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| As at December 31, 2021 | * | * | * | ( | * | ||||||||||||||||||||||||||||||
| Loss for the year | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Exchange differences on translation of foreign operations | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Issuance of ordinary shares relating to private placement for an institutional investor | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Issuance of ordinary shares for follow-on public offering, net of issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of share options | — | ( | — | — | |||||||||||||||||||||||||||||||
| Reclassification of vested restricted share units | — | ( | — | — | |||||||||||||||||||||||||||||||
| Equity-settled share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| As at December 31, 2022 | * | * | * | ( | * | ||||||||||||||||||||||||||||||
| Loss for the year | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss: | — | ||||||||||||||||||||||||||||||||||
| Exchange differences on translation of foreign operations | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive loss for the year | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Issuance of ordinary shares relating to private placement for institutional investors, net of issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares relating to registered direct offering, net of issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares relating to the exercise of warrant | — | — | — | ||||||||||||||||||||||||||||||||
| Exercise of share options | — | ( | — | — | |||||||||||||||||||||||||||||||
| Reclassification of vested restricted share units | — | ( | — | — | |||||||||||||||||||||||||||||||
| Equity-settled share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| As at December 31, 2023 | * | * | * | ( | * | ||||||||||||||||||||||||||||||
*These reserve accounts comprise the consolidated reserves of US$1,251 million, US$744 million and US$766 million in the consolidated statements of financial position as at December 31, 2023, 2022 and 2021, respectively
F-8
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
| Notes | 2023 | 2022 | 2021 | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||||||||
| Loss before tax | ( | ( | ( | ||||||||||||||||||||
| Adjustments for: | |||||||||||||||||||||||
| Finance income | 5 | ( | ( | ( | |||||||||||||||||||
| Finance costs | 7 | ||||||||||||||||||||||
| Provision for inventory reserve* | |||||||||||||||||||||||
| Depreciation of property, plant and equipment | 10 | ||||||||||||||||||||||
| Loss on disposal of property, plant and equipment | |||||||||||||||||||||||
| Amortization of intangible assets | 11 | ||||||||||||||||||||||
| Depreciation of right-of-use assets | 13 | ||||||||||||||||||||||
| Fair value loss/(gain) of warrant liability | 21 | ( | |||||||||||||||||||||
| Fair value gains on financial assets measured at fair value change through profit or loss | 5 | ( | ( | ||||||||||||||||||||
| Foreign currency exchange loss/(gain), net | |||||||||||||||||||||||
| Equity-settled share-based compensation expense | |||||||||||||||||||||||
| Deferred government grant | ( | ( | ( | ||||||||||||||||||||
| ( | ( | ( | |||||||||||||||||||||
| (Increase)/decrease in trade receivables | ( | ||||||||||||||||||||||
| (Increase)/decrease in prepayments, other receivables and other assets | ( | ( | ( | ||||||||||||||||||||
| Decrease/(increase) in other non-current assets | ( | ||||||||||||||||||||||
| (Increase)/decrease in collaboration inventories* | ( | ( | |||||||||||||||||||||
| Government grant received | |||||||||||||||||||||||
| (Decrease)/increase in trade payables | ( | ||||||||||||||||||||||
| (Decrease)/increase in other payables and accruals | ( | ||||||||||||||||||||||
| Increase/(decrease) in other non-current liabilities | ( | ( | ( | ||||||||||||||||||||
| Increase/(decrease) in contract liabilities (current) | |||||||||||||||||||||||
| Increase/(decrease) in contract liabilities (non-current) | |||||||||||||||||||||||
| Increase in pledged deposits, net | ( | ( | |||||||||||||||||||||
| Cash used in operations | ( | ( | ( | ||||||||||||||||||||
| Income tax paid | ( | ||||||||||||||||||||||
| Interest income received | |||||||||||||||||||||||
| Income tax received | |||||||||||||||||||||||
| Interest on lease payments | ( | ( | ( | ||||||||||||||||||||
| Net cash used in operating activities | ( | ( | ( | ||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
*2022 increase/decrease in collaboration inventories has been reclassified to break out the provision for inventory reserve for comparative purposes in the 2023 presentation.
F-9
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
| Note | 2023 | 2022 | 2021 | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||||||||||||
| Purchase of property, plant and equipment | ( | ( | ( | ||||||||||||||||||||
| Purchase of intangible assets | ( | ( | ( | ||||||||||||||||||||
| Prepayment to collaborator for collaboration assets | ( | ( | ( | ||||||||||||||||||||
| Purchase of financial assets measured at fair value through profit or loss | ( | ( | |||||||||||||||||||||
| Cash received from withdrawal of financial assets measured at fair value through profit or loss | |||||||||||||||||||||||
| Cash received from withdrawal of financial assets measured at amortized cost | |||||||||||||||||||||||
| Cash receipts of investment income | |||||||||||||||||||||||
| Proceeds from disposal of property, plant and equipment | |||||||||||||||||||||||
| Addition in time deposits | ( | ( | ( | ||||||||||||||||||||
| Decrease in time deposits | |||||||||||||||||||||||
| Decrease in pledged deposits | |||||||||||||||||||||||
| Purchase of financial assets measured at amortized cost | ( | ||||||||||||||||||||||
| Net cash provided by/(used in) investing activities | ( | ( | |||||||||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||||||||||
| Proceeds from issuance of ordinary shares for institutional investors, net of issuance cost | |||||||||||||||||||||||
| Proceeds from issuance of ordinary shares for follow on public offering, net of issuance costs | |||||||||||||||||||||||
| Proceeds from exercise of warrant by warrant holder, net of issuance cost | |||||||||||||||||||||||
| Proceeds from issuance of ordinary shares and warrant relating to private placement for an institutional investor | |||||||||||||||||||||||
| Proceeds from exercise of share options | |||||||||||||||||||||||
| Principal portion of lease payments | ( | ( | ( | ||||||||||||||||||||
| Net cash provided by financing activities | |||||||||||||||||||||||
F-10
LEGEND BIOTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
| Note | 2023 | 2022 | 2021 | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | |||||||||||||||||||||||
| Effect of foreign exchange rate changes, net | ( | ||||||||||||||||||||||
| Cash and cash equivalents at beginning of year | 17 | ||||||||||||||||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | 17 | ||||||||||||||||||||||
| ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS | |||||||||||||||||||||||
| Cash and bank balances | |||||||||||||||||||||||
| Less: Pledged deposits | |||||||||||||||||||||||
| Time deposits | |||||||||||||||||||||||
| Cash and cash equivalents as stated in the statement of financial position | 17 | ||||||||||||||||||||||
| Cash and cash equivalents as stated in the statement of cash flows | |||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-11
LEGEND BIOTECH CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021
1. CORPORATE INFORMATION
Legend Biotech Corporation, (the "Company"), was incorporated on May 27, 2015 as an exempted company in the Cayman Islands with limited liability under the Companies Act (As Revised) of the Cayman Islands. The registered office address of the Company is PO Box 10240, Harbour Place, 103 South Church Street, George Town, Grant Cayman KY1-1002, Cayman Islands.
Legend Biotech Corporation is an investment holding company. The Company’s subsidiaries are principally engaged in the discovery, and development, manufacturing and commercialization of novel cell therapies for oncology and other indications.
In the opinion of the Company's Board of Directors, the ultimate holding company of Legend Biotech Corporation, a Cayman Islands corporation, is Genscript Corporation (“Genscript Corp”), which was incorporated in the United States of America.
Information about subsidiaries
| Company | Place and date of incorporation | Issued ordinary shares/paid-up capital | Percentage of equity interest attributable to the Company | Principal activities | ||||||||||||||||||||||||||||
| Direct % | Indirect % | |||||||||||||||||||||||||||||||
| US$ | — | |||||||||||||||||||||||||||||||
| US$ | — | |||||||||||||||||||||||||||||||
| US$ | — | |||||||||||||||||||||||||||||||
| — | — | |||||||||||||||||||||||||||||||
| US$ | — | |||||||||||||||||||||||||||||||
| US$ | — | |||||||||||||||||||||||||||||||
| — | — | |||||||||||||||||||||||||||||||
** The People’s Republic of China (the “PRC” or “China”), including the Hong Kong Special Administrative Region of China (“Hong Kong”).
F-12
2.1 BASIS OF PREPARATION
The consolidated financial statements of Legend Biotech Corporation and its subsidiaries (collectively referred to as “the Company”) have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board which comprise all standards and interpretations.
The consolidated financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities, which have been measured at fair value. The consolidated financial statements are presented in U.S. dollars (“$”) and all values are rounded to the nearest thousand except when otherwise indicated.
Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results of operations, total assets, total liabilities, or cash flows.
Basis of consolidation
The consolidated financial statements include the financial statements of the Company for each of the three years ended December 31, 2023. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Company the current ability to direct the relevant activities of the investee).
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases.
Profit or loss and each component of other comprehensive income or loss are attributed to the equity holders of the Company. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between the Company are eliminated in full on consolidation.
2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
2.3 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair value measurement
The Company measures its financial assets at fair value through profit or loss and warrant liability at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
F-13
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than contract assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.
An assessment is made at the end of each reporting period as to whether there is an indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.
Related parties
A party is considered to be related to the Company if:
(a)the party is a person or a close member of that person’s family and that person
(i)has control or joint control over the Company;
(ii)has significant influence over the Company; or
(iii)is a member of the key management personnel of the Company or of a parent of the Company;
or
(b)the party is an entity where any of the following conditions applies:
(i)the entity and the Company are members of the same Company;
(ii)one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii)the entity and the Company are joint ventures of the same third party;
(iv)one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
F-14
(v)the entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company;
(vi)the entity is controlled or jointly controlled by a person identified in (a);
(vii)a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii)the entity, or any member of a Company of which it is a part, provides key management personnel services to the Company or to the parent of the Company.
Property, plant and equipment, and depreciation
Property, plant and equipment, other than construction in progress, are stated at cost (or valuation) less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss and other comprehensive income in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
| Freehold land | Not depreciated | ||||
| Building | |||||
| Leasehold improvements | lesser of the lease term or the asset life | ||||
| Machinery and equipment | |||||
| Computer and office equipment | |||||
| Transportation equipment | |||||
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.
An item of property, plant and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in the statement of profit or loss and other comprehensive income in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents equipment under installation, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of installation. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The useful lives of intangible assets are assessed to be either finite. Intangible assets with finite lives are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end.
F-15
Intangible assets are amortized on the straight-line basis over the following useful economic lives:
| Software | |||||
Patents | up to | ||||
Research and development costs
All research costs are charged to the statement of profit or loss and other comprehensive income as incurred.
Expenditures incurred on projects to develop new product candidates is capitalized and deferred only when the Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product candidate development expenditure which does not meet these criteria is expensed when incurred.
Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. The Company elected to allocate the consideration in the contract to the lease and non-lease components on the basis of the relative standalone price of each component.
(a)Right-of-use assets
Right-of-use assets are recognized at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follow;
| Leasehold land | |||||
| Building | up to | ||||
| Machinery and equipment | |||||
| Computer and office equipment | |||||
If ownership of the leased asset transfers to the Company by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
(b)Lease liabilities
Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for termination of a lease, if the lease term reflects the Company exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs. The lease term includes the period of any lease extension that management assess as reasonably certain to be exercised by the Company.
F-16
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.
(c)Short-term leases
The Company applies the short-term lease recognition exemption to its short-term leases, which are those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option.
Lease payments on short-term leases are recognized as an expense on a straight-line basis over the lease term.
Company as a lessor
When the Company acts as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income is accounted for on a straight-line basis over the lease term and is included in revenue in the statement of profit or loss and other comprehensive income due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.
Leases of collaboration assets
The Company and its collaboration partner purchase assets to be used for their collaboration and share the associated costs in accordance with the terms and conditions of the Janssen Agreement. The Company accounts for leases to and by the collaboration by applying the guidance in IFRS 16 on joint arrangements by analogy.
If the Company’s collaboration partner owns the asset, and on the basis of the terms and conditions of the collaboration agreement, there is a lease from the Company’s collaboration partner to the collaboration, the Company recognizes a right-of-use asset and lease liability for its share of the asset leased from the collaboration partner to the collaboration. This is usually the case when the collaboration, through the Joint Steering Committee ("JSC") and other governance committees, has the right to direct the use and obtains substantially all of the economic benefits from using the asset. Lease payments the Company makes prior to lease commencement are recorded as prepaid rent within other non-current assets and will be reclassified to a right-of-use asset upon lease commencement.
If the Company owns the asset, and on the basis of the terms and conditions of the collaboration agreement, there is a lease from the Company to the collaboration, the Company recognizes a finance lease for the asset it leases to the collaboration. In such cases, the Company’s share of the asset that is jointly controlled by the collaboration is recorded in property, plant and equipment, and a lease receivable is recognized for the collaboration partner’s share of the asset on the consolidated statements of financial position within prepayments, other receivables and other assets.
The Company recognizes the full lease liability, rather than its share, for leases entered into on behalf of the collaboration if the Company has the primary responsibility for making the lease payments. This may be the case when the Company, as a lead operator of the collaboration, is the sole signatory to the lease. A finance sublease is subsequently recognized if the related right-of-use asset is subleased to the collaboration.
Investments and other financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not
F-17
contain a significant financing component or for which the Company has applied the practical expedient of not adjusting the effect of a significant financing component, the Company initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15 in accordance with the policies set out for “Revenue recognition” below.
In order for a financial asset to be classified and measured at amortized cost, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows.
All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Subsequent measurement
Financial assets measured at amortized cost (debt instruments)
Financial assets measured at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in the statement of profit or loss and other comprehensive income when the asset is derecognized, modified or impaired.
Financial assets measured at fair value through profit or loss
Financial assets measured at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss and other comprehensive income.
The Company's financial assets measured at fair value through profit or loss comprise of money market funds, which are classified as level 1 in the fair value hierarchy.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company’s consolidated statement of financial position) when:
•the rights to receive cash flows from the asset have expired; or
•the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
F-18
Impairment of financial assets
The Company recognizes an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
General approach
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
At each reporting date, the Company assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.
The Company considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
Financial assets measured at amortized cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs, except for trade receivables and contract assets which apply the simplified approach as detailed below.
Stage 1 – Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs.
Simplified approach
For trade receivables and contract assets that do not contain a significant financing component or when the Company applies the practical expedient of not adjusting the effect of a significant financing component, the Company applies the simplified approach in calculating ECLs. Under the simplified approach, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company’s financial liabilities include trade payables, other payables, warrant liability, collaboration interest-bearing advanced funding, and lease liabilities.
F-19
Subsequent measurement
Financial liabilities measured at amortized cost (Loans and borrowings)
After initial recognition, collaboration interest-bearing advanced funding are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in the statement of profit or loss and other comprehensive income when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in the statement of profit or loss and other comprehensive income.
Collaboration inventories
Collaboration inventories include finished goods manufactured, items in the process of being manufactured, and the materials to be used in the manufacturing process associated with goods that are to be sold to the Company's collaboration partner. Finished goods represent manufactured product that are pending quality release. Upon quality release, the product is delivered to the Company's collaboration partner to distribute to the customer.
Collaboration inventories are stated at the lower of cost and the collaboration inventory's net realizable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labor and an appropriate proportion of overheads. Net realizable value is based on the estimated selling prices the collaboration sells the product to customers less any estimated costs to be incurred to completion and disposal.
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have an original maturity of three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Company’s cash management.
For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including deposits, and assets similar in nature to cash, which are not restricted as to use.
Time deposits
Time deposits represent cash placed with banks with original maturities of more than three months when acquired. The time deposits are presented as a non-current asset if the collection of time deposits is expected more than one year.
Provisions
A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss and other comprehensive income.
F-20
Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Company operates.
Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
•where the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:
•when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
•in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if the Company has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Government grants
Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed.
Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss and other comprehensive income over the expected useful life of the relevant asset by equal annual installments.
F-21
Collaboration Arrangements
The Company enters into collaboration arrangements with pharmaceutical and biotechnology collaboration partners, under which the Company may grant licenses to its collaboration partner to further develop and commercialize one of its product candidates. The Company may also perform research, development, manufacturing and commercial activities under its collaboration arrangements. Consideration under these contracts may include an upfront payment, development and regulatory milestones, commercial sales milestones and other contingent payments, expense reimbursements, and profit-sharing.
For collaboration arrangements that contain multiple elements, at contract inception the Company determines whether elements of the collaboration are reflective of a vendor-customer relationship and therefore are within the scope of IFRS 15. Elements of the collaboration arrangements that involve joint operating activities performed by the parties that are both active participants in the activities and exposed to significant risks and rewards of such activities are not arrangements with a customer and are outside the scope of IFRS 15. For a distinct bundle of goods or services within the arrangement that is not with a customer, the recognition and measurement of that unit of account shall be based on other authoritative accounting literature, or if there is no appropriate authoritative accounting literature, a reasonable, rational and consistently applied accounting policy election.
If the Company concludes that its collaboration partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing and commercial activities, the Company presents payments from its collaboration partner as a reduction of expense, based on where the Company presents the underling expense. If the Company's collaborator performs research and development, manufacturing or commercialization-related activities, the Company recognizes as expense (e.g. research and development expense or selling and distribution expense, as applicable) in the period when its collaborator incurs such expenses, the portion of the collaborator’s expenses that the Company is obligated to reimburse.
Janssen Agreement
In December 2017, the Company entered into a collaboration and license agreement (the “Janssen Agreement”) with Janssen for the worldwide development and commercialization of cilta-cel. Pursuant to the Janssen Agreement, we granted Janssen a worldwide, co-exclusive (with us) license to develop and commercialize cilta-cel. We and Janssen will collaborate to develop and commercialize cilta-cel for the treatment of MM worldwide pursuant to a global development plan and global commercialization plan.
Janssen will be responsible for conducting all clinical trials worldwide with participation by our team in the United States and Greater China for cilta-cel. We will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for Greater China, while Janssen will be responsible for conducting regulatory activities, obtaining pricing approval and booking sales for the rest of the world. We and Janssen share development, production and commercialization costs and pre-tax profits or losses equally in all countries of the world except for Greater China, for which the cost-sharing and profit/loss split will be 70 % for us and 30 % for Janssen
In consideration for the licenses and other rights granted to Janssen, Janssen paid us an upfront fee of $350.0 million and we were eligible to receive up to an additional $1.35 billion in milestone payments from Janssen. Of the $1.35 billion, we may not receive up to $280 million due to mutually agreed upon modifications to our clinical development plan that resulted in the decision to not conduct certain trials as originally planned.
In connection with the Janssen Agreement, we entered into the Interim Product Supply Agreement dated as of February 28, 2022 (the “IPSA”) pursuant to which we will supply cilta-cel to Janssen for clinical and commercial use worldwide (excluding Greater China). Under the IPSA, Janssen pays us a transfer price for supplied product based on the total costs necessary to produce and supply such product. Ultimately, however, the cost for commercial supply and clinical supply of product are shared equally by us and Janssen as “Allowable Expenses” and “Development Costs,” respectively, under the Janssen Agreement. The IPSA will remain in effect until June 30, 2024 or such alternate date determined by the joint manufacturing committee (the “JMC”) that has been established under the Janssen Agreement. The IPSA will also terminate if the Janssen Agreement expires or is terminated. We expect to enter into a product supply agreement with Janssen that will replace the IPSA.
F-22
Revenue recognition
Revenue from contracts with customers
The Company recognizes revenue in accordance with IFRS 15, Revenue from Contracts with Customers (IFRS 15). Under IFRS 15, revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for agreements that we determine are within the scope of IFRS 15, the Company performs the following five-steps: (i) identify the contract, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Once a contract is determined to be within the scope of IFRS 15, at contract inception the Company assesses the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. A good or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and (b) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
The Company determines the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable or a combination of both. When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Company will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. The contracts generally do not include a significant financing component.
The Company recognizes revenue only when it satisfies a performance obligation by transferring control of the promised goods or services. The transfer of control can occur over time or at a point in time. A performance obligation is satisfied over time if it meets one of the following criteria: (i) the counterparty simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs; or (ii) the Company’s performance creates or enhances an asset that the counterparty controls as the asset is created or enhanced.
The portion of the transaction price that is allocated to performance obligations satisfied at a point in time is recognized as revenue when control of the goods or services is transferred to the counterparty. If the performance obligation is satisfied over time, the portion of the transaction price allocated to that performance obligation is recognized as revenue as the performance obligation is satisfied. The Company adopts an appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress at the end of each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Contracts may be amended to account for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations. When contract modifications create new performance obligations and the increase in consideration approximates the standalone selling price for goods and services related to such new performance obligations as adjusted for specific facts and circumstances of the contract, the modification is considered to be a separate contract.
If a contract modification is not accounted for as a separate contract, the Company accounts for the promised goods or services not yet transferred at the date of the contract modification (the remaining promised goods or services) prospectively, as if it were a termination of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification. For a change in transaction price that occurs after a contract modification, the Company allocates the change in the transaction price to the performance obligations identified in the contract before the modification if, and to the extent that, the change in the transaction price is attributable to an amount of variable consideration promised before the modification.
The Company accounts for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. In such case, the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to
F-23
revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).
License and collaboration revenue
Licenses of Intellectual Property
For collaboration arrangements that include a grant of a license to the Company's intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. In assessing whether a license is distinct from the other promises, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the counterparty can benefit from a license for its intended purpose without the receipt of the remaining promise(s) by considering whether the value of the license is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s), and whether it is separately identifiable from the remaining promise(s). The Company evaluated that the license, including a technology transfer service, is a single performance obligation in the Janssen Agreement, which represents a right to use our license as it exists at the point in time that the license is granted. Revenue from licenses is recognized when the control of the right to use of the license is transferred to the customer. The Company evaluated that the license (inclusive of know-how) and the delivery of the Handover Package Documents which includes performing the Legend Phase 1 trial, is a single performance obligation in the Novartis Licensing Agreement, which represents a right to use our license over time after the license is granted and the Legend Phase 1 trial is ongoing. Revenue from licenses is recognized when the value of the right to use of the license is transferred to the customer which occurs over time during the Phase 1 trial.
Input Method
We use input methods to measure the progress toward the complete satisfaction of performance obligations satisfied over time. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
We have concluded that revenue associated with the Novartis Licensing Agreement will be recognized over time using the input method as the delivery of the license is not distinct from the Legend Phase 1 trial.
Milestone Payments
Milestone payments represent a form of variable consideration which are included in the transaction price to the extent that it is highly probable that a significant reversal of accumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered highly probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. Milestone payments that are not within the control of the Company, such as regulatory approvals, are not considered highly probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgement involved in determining whether it is highly probable that a significant reversal of cumulative revenue would not occur. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price.
When the Company cannot conclude that it is highly probable that a significant revenue reversal of cumulative revenue under the contract will not occur, the Company constrains the related variable consideration resulting in its exclusion from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price.
F-24
Royalty Payments
The Company recognizes revenue for sales-based milestone payments promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs:
(a)the subsequent sale occurs; and
(b)the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).
Janssen Agreement
The Company entered into a license and collaboration agreement with one customer (Janssen). The terms of the arrangement include: non-refundable upfront fees of $350.0 million and milestone payments for the achievement of specified manufacturing milestones, specified development milestones, specified regulatory milestones and specified net trade sales milestones of $125.0 million, $215.0 million, $800.0 million and $210.0 million, respectively. The Company has assessed that there is one distinct performance obligation, being the transfer of a license of intellectual property, including a technology transfer service. The Company considers this performance obligation is distinct from other collaborative activities as the license has stand-alone value without the Company being further involved in the research and development or other collaborative activities. Upon contract inception, the Company has estimated that the total transaction price is constrained to $400.0 million which included upfront fees of $350.0 million and milestone payments of $50.0 million. The transaction price was allocated to the single performance obligation in the contract.
Novartis Licensing Agreement
The Company entered into a license agreement with Novartis. The terms of the arrangement include: non-refundable upfront fees of $100.0 million and milestone payments for the achievement of specified development milestones and specified net trade sales milestones of up to $330.0 million and $680.0 million, respectively as well as tiered royalties. The Company has assessed that there are two distinct performance obligations. Performance Obligation 1 (PO1); A combined performance obligation that includes delivery of the license (inclusive of know-how) and the delivery of the Handover Package Documents which includes performing the Legend Phase 1 trial. Performance Obligation 2 (PO2); Supply of materials (supply of Lentivirus/other materials). Upon contract inception, the Company has estimated that the total transaction price is constrained to $125.3 million which included upfront fees of $100.0 million and variable consideration of $25.3 million. The transaction price was allocated to the two performance obligations (PO1) $120.7 million and (PO2) $4.6 million, respectively.
Upfront fees
Upfront payment is allocated to the single performance obligation in the Janssen Agreement. The upfront fees of $350.0 million were included in the transaction price upon contract inception in 2017 and were recognized when the single performance obligation to deliver the intellectual property, including a technology transfer service, was completed in 2018. The $350.0 million upfront fees were fully received by the Company in 2018.
Milestone payments
Certain milestone payments were allocated to the single performance obligation in the Janssen Agreement to deliver the license of intellectual property, including the technology transfer service. The initial two milestone payments of aggregate $50.0 million were included in the transaction price at contract inception in 2017 and were recognized when the single performance obligation was completed in 2018. Subsequently in 2019, an additional two milestone payments of $60.0 million were included in the transaction price when the milestones triggered by dosing of a specified number of patients in the CARTITUDE-1 clinical trial were achieved. In 2021, an additional milestone with a payment of $75.0 million was achieved relating to the clinical development of cilta-cel. In 2021, three additional milestone payments amounting to $65.0 million were achieved relating to the submission of a Marketing Authorization to the EMA, enrollment of a specified number of patients in the CARTITUDE-5 clinical trial and filing of a Drug approval application for a product by the Ministry of Health, Labour and Welfare in Japan. In 2022, additional milestone payments of $50.0 million were achieved in connection with the submission of a NDA to the PMDA in Japan, the enrollment of a specified number of patients in the Company’s CARTITUDE-5 clinical trial and in connection with the receipt of a commercialization approval for cilta-cel in the U.S. In 2023, two additional milestone payments amounting to $35 million were achieved relating to the
F-25
acceptance of a submission of a supplemental BLA to the FDA and the acceptance of a submission of a Type II variation application to the EMA.
As of December 31, 2023, pursuant to the Agreement, the remaining future contractual milestone payments for the Company aggregated to $1.02 billion for the achievement of various development, regulatory, manufacturing and net trade sales milestones. More specifically, the future contractual milestones consist of $125.0 million for the achievement of specified manufacturing milestones, $60.0 million for the achievement of specified development milestones, $620.0 million for the achievement of specified regulatory milestones and $210.0 million for the achievement of specified net trade sales milestones. The Company’s development plans and research progresses might change from time to time, which would increase the uncertainties of achieving future contractual milestones. The Company does not believe $280.0 million of the remaining $1.02 billion contractual milestone payments would be eligible to be received based on a subsequent change in development plan with the collaborator. Furthermore, the Company assessed that achievement of all the remaining contractual milestones is highly uncertain and the related milestone payments are not included in the transaction price. The milestone is achieved when the triggering event described in the agreement occurs.
Profit sharing
The Company and Janssen share equally profits on sales of CARVYKTI in all areas other than the People's Republic of China, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan (“Greater China”), where the Company retains or bears 70 % of pre-tax profits or losses. In all areas other than Greater China, as Janssen is the principal in the sale transaction with the customer, the Company recognizes a pro-rata share of collaboration net trade sales in the period Janssen completes the sale and delivers the product to the customer. The Company's share of collaboration net trade sales in all areas other than Greater China are recognized within collaboration revenue on the statement of profit or loss and other comprehensive income. Subsequent to regulatory approval, revenue from sales of product in Greater China will be recognized within Product sales on the statement of profit or loss and other comprehensive income as the Company will be the principal in the sale to the customer.
Collaborative activities
In addition to the license of intellectual property, the Janssen Agreement includes joint development, manufacturing and commercial activities that are performed by the Company and its collaboration partner. These activities and the related consideration for these activities are outside the scope of IFRS 15 as the Company and its collaboration partner are both active participants in the activities and are exposed to significant risks and rewards of such activities.
Product Sales
Revenue from the sale of goods is recognized at the point in time when control of the goods is transferred to the customer, generally on delivery of the goods. To date the Company has not generated any product sales. Our share of collaboration net trade sales in which Janssen is the principal in the sale transaction with the customer is recognized within collaboration revenue on the statement of profit or loss and other comprehensive income.
Collaboration cost of revenue
Collaboration cost of revenue relates to the sale of CARVYKTI and includes costs incurred by the Company as well as the Company's pro-rata share of collaboration cost of revenue. Collaboration cost of revenue includes the cost of inventory sold, manufacturing costs, other costs attributable to production, and provisions to write down inventory, such as for excess and obsolete inventory or inventory that did not meet quality specifications.
Other income
Interest income is recognized on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.
F-26
Share-based payments
The Company operates a share option scheme and a restricted share unit scheme (“RSU Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Company’s operations. Employees and directors of the Company receive remuneration in the form of share-based payments, whereby employees and directors render services as consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of share option is determined by using a binomial model, and the fair value of each RSU is determined by reference to market price of the Company’s shares at the respective grant date, further details of which are given in notes 25 and 26 to the consolidated financial statements.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefit expense. The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to profit or loss for a period represents the movement in the cumulative expense recognized as at the beginning and end of that period.
Service and performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Company’s best estimate of the number of equity instruments that will ultimately vest.
For awards that do not ultimately vest because performance and/or service conditions have not been met, no expense is recognized.
Other employee benefits
Pension scheme
The employees of the Company’s subsidiaries which operates in Greater China and Hong Kong are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.
Defined contribution plan
Foreign Currency Transactions
These consolidated financial statements are presented in U.S. dollars, which is the Company’s functional currency. Each of the Company's subsidiaries determines its own functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency.
Transactions that are denominated in a currency other than the functional currency of an entity are recorded at that functional currency by applying the spot exchange rates prevailing at the dates of the transactions. At the end of the reporting period, monetary assets and liabilities denominated in a currency other than the functional currency are revalued to the functional currency by applying the spot exchange rate prevailing at the end of the reporting period. Gains and losses arising from these foreign currency revaluations are recognized in net income as other income and gains or other expenses. Foreign-currency-denominated transactions that are classified as non-monetary are measured using the historical spot exchange rate.
Foreign Currency Translation
F-27
The functional currencies of certain subsidiaries established in the PRC and Europe are currencies other than the U.S. dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into U.S. dollars at the exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into U.S. dollars using the average foreign exchange rates during the period.
The resulting exchange differences are recognized in other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in net income.
For the purpose of the consolidated statements of cash flows, the cash flows of the subsidiaries established in the PRC and Europe are translated into U.S. dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of the companies established in the PRC and Europe which arise throughout the year are translated into U.S. dollars at the weighted average exchange rates for the year.
Use of Estimates
The preparation of the Company’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.
Global Economic Conditions
Worldwide economic conditions remain uncertain and we continue to monitor the impact of macroeconomic conditions, including those related to the public health crises, the Russia-Ukraine war, the conflict between Israel and Hamas, the failure and instability of financial institutions and rising inflation rates.
Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the Russia-Ukraine war, the conflict between Israel and Hamas and steps taken by governments and central banks, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Our product manufacturing in both the U.S. and China has continued. Currently we have not experienced any material impact to our material supply chain or as a result of inflation and rising interest rates. Increased quantities of certain raw materials and consumables have been stocked as an appropriate safety measure. We believe we have established robust sourcing strategies for all necessary materials and do not expect any significant impact.
In addition, in China, although we experienced disruptions from COVID-19 during the year ended December 31, 2023, we do not believe they had a material impact to our business. There are still uncertainties of COVID-19’s future impact on our business in China, results of operations and financial condition, and the extent of the impact will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the development and progress of distribution of COVID-19 vaccines and other medical treatments, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. If COVID-19 resurges or if other public health crises create similar disruptions, our business, results of operations and financial condition could be materially and adversely affected. We will continue to monitor and assess the impact of the ongoing development of the pandemic on our financial position and operating results and respond accordingly.
F-28
3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
Judgement
In the process of applying the Company’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:
Revenue from contracts with customers
The Company has applied the following judgements that significantly affect the determination of the performance obligations and the method to estimate variable consideration of revenue from contracts with customers, specifically the historic accounting under the Janssen Agreement:
(i)Determining the performance obligations of the contract
A good or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and (b) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. The Company determined that the license is capable of being distinct under the Janssen Agreement. In assessing whether the license under the Janssen Agreement has standalone value to the customer, the Company considers factors such as the research, manufacturing, and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace, which indicates that the customer can benefit from the license on its own. The Company determined that the license of intellectual property and technology transfer service form a single performance obligation. The license of intellectual property and technology transfer are highly interdependent and are not separately identifiable from each other. The technology transfer is essential for the customer's ability to obtain the use of and benefit from the license. The promise to transfer the license, including a technology transfer service, is distinct within the context of the contract. The license of intellectual property, including a technology transfer service, is separately identifiable in the contract and is meant to be transferred separate from other collaborative activities. The license, including a technology transfer service, is not an input that will be integrated with the service which represents a combined output. The preparation and attendance of the various steering committees and participation in the collaborative activities (e.g. joint development) is to assist in conducting clinical trials and obtaining regulatory approval of the technology, but does not modify the license and technology. In addition, the license, including the technology transfer service, is not highly interdependent or highly interrelated with the JSC and other collaborative activities, because the delivery of license and technology transfer service is not dependent on these activities to be provided in the future, and accordingly, it is not interdependent or interrelated with these activities.
In determining whether the license, including the technology transfer service, transfers to a customer either at a point in time or over time, the Company considers whether the nature of the Company’s promise in granting the license to a customer is to provide a right to access or a right to use the Company’s intellectual property. The Company assessed that the Company provides a right to use the license as the license under the Janssen Agreement exists (in terms of form and functionality) at a point in time at which it is granted and the technology transfer occurred, which is when the customer can use and benefit from the license. The license is already developed and has positive results on cancer patient candidates. The next step is to perform clinical trials again in a controlled and monitored environment.
The Company has allocated the entire transaction price to the license of intellectual property under the Janssen Agreement, as this is the sole performance obligation in the arrangement.
(ii)Determining the method to estimate variable consideration
Certain contracts include milestone payments that give rise to variable consideration. In estimating the variable consideration, the Company is required to use either the expected value method or the most likely amount method based on which method better predicts the amount of consideration to which it will be entitled. The Company determined that the most likely amount method is the appropriate method to use in estimating the variable consideration for the milestone payments as this method better predicts the amount of variable consideration to which the Company will be entitled.
Before including any amount of variable consideration in the transaction price, the Company considers whether the amount of variable consideration is constrained. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.
F-29
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.
Impairment of non-financial assets
The Company assesses whether there are any indicators of impairment for all non-financial assets (including the right-of-use assets) at the end of each reporting period. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. There were no indicators of impairment for all periods presented.
Deferred tax assets
Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and deductible temporary differences can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The outcome of their actual utilization may be different. Further details are contained in note 20 to the consolidated financial statements.
Warrant liability
The fair value of the warrant liability is determined by using the binominal model. The use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Management estimates expected volatility based on the historical volatility of the stock of comparable companies. The risk-free interest rate is based on treasury yield curve rates with a remaining term which approximates to the expected life of the warrant. Changes in these input variables would affect fair value of the warrant. Further details are contained in notes 21 and 32 to the consolidated financial statements. On May 11, 2023, the PIPE Investor exercised the Warrant in full, and as of year-end, there is no warrant liability balance.
Share-based compensation
The fair value of share options granted by the Company is estimated using the binomial model. The use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Management estimates expected volatility based on the historical volatility of the stock of comparable companies. Expiration date is the basis for determining the expected life of an option. The risk-free interest rate is based on treasury yield curve rates with a remaining term which approximates to the expected life assumed at the date of grant. Changes in these input variables would affect the amount of expense associated with share-based compensation. The compensation expense recognized for all share-based awards is net of estimated forfeitures. The Company estimates forfeiture rates based on historical analysis of option forfeitures. If actual forfeitures vary from estimated forfeitures, adjustments to the compensation expense may be required. Further details are contained in note 25 and 26 to the consolidated financial statements.
4. OPERATING SEGMENT INFORMATION
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reporting about components of the Company that are regularly reviewed by the chief operating decision-maker in order to allocate resources to segments and to assess their performance. The information reported to the Board of Directors of the Company, who are the chief operating decision makers, for the purposes of resource allocation and assessment of performance does not contain discrete operation segment financial information and the directors reviewed the financial results of the Company as a whole. Therefore, no further information on the operating segment is presented.
F-30
Geographic information
(a)Revenue
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
License and other revenue | |||||||||||||||||
| United States of America* | |||||||||||||||||
| China | |||||||||||||||||
| Total revenue and other revenue | |||||||||||||||||
Collaboration revenue | |||||||||||||||||
| United States of America* | |||||||||||||||||
| Europe* | |||||||||||||||||
| Total collaboration revenue | |||||||||||||||||
Total revenue | |||||||||||||||||
The revenue information above is based on the locations of the customers.
*Certain prior year amounts have been reclassified for comparative purposes
(b)Non-current assets
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| United States of America | |||||||||||
| China | |||||||||||
| Europe | |||||||||||
| Total | |||||||||||
The non-current asset information above is based on the locations of assets and excludes non-current time deposits.
Information about major customer
Revenue of $35.2 million, $50.0 million and $65.4 million for the years ended December 31, 2023, 2022 and 2021, respectively, was derived from license revenue to a single customer and under the Janssen Agreement.
5. REVENUE, OTHER INCOME AND GAINS
An analysis of revenue is as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Revenue | |||||||||||||||||
| Licensing of intellectual property | |||||||||||||||||
| Collaboration revenue | |||||||||||||||||
| Other revenue | |||||||||||||||||
Total Revenue | |||||||||||||||||
Revenue from licensing of intellectual property is recognized at a point in time with respect to the Janssen collaboration. Revenue from licensing of intellectual property represents variable consideration relating to the milestone payments that were constrained in prior years but included in the transaction price when the achievement of the milestones was highly probable. Collaboration revenue includes our pro-rata share of collaboration net trade sales for which Janssen
F-31
Biotech, Inc. (“Janssen”) is the principal in the sale to the customer under the collaboration and license agreement with Janssen (the “Janssen Agreement”).
Other revenue is related to an exclusive licensing of certain patents to Nanjing Probio Biotech Co., Ltd. and its affiliates and related subsequent sales-based royalties.
Novartis License Agreement
On November 10, 2023, Legend Biotech, through its wholly owned subsidiary, Legend Biotech Ireland Limited, entered into an exclusive, global license agreement with Novartis Pharma AG. The Company granted Novartis the rights to develop, manufacture and commercialize LB2102 and other potential chimeric antigen receptor T-cell (CAR-T) therapies selectively targeting Delta-like Ligand 3 (DLL3). The agreement was effective on December 28, 2023, with a $100 million receivable recorded, representing the Novartis upfront payment to be received shortly after December 31, 2023. Novartis has also agreed to pay up to $1.01 billion in milestone payments upon achievement of specified clinical, regulatory and commercial milestones, as well as tiered royalties on net sales. We determined that any milestone payments will be recognized when occur as they were determined to relate predominately to the license granted and therefore have been excluded from the transaction price. We determined that any sales-based royalties will be recognized when the related sales occur as they were determined to relate predominately to the license granted and therefore have been excluded from the transaction price. Under the Novartis License Agreement, Legend Biotech will conduct the Legend Phase 1 clinical trial for LB2102 in the U.S. Novartis will conduct all other development for the licensed products.
The following table shows the deferred revenue which is included in contract liabilities for the periods presented:
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Contract liabilities (Current) | |||||||||||
| Contract liabilities (Non Current) | |||||||||||
| Total | |||||||||||
Performance Obligations
The Novartis License Agreement represents a transaction with a customer and therefore is accounted for in accordance with IFRS 15. We identified the following performance obligations:
•Performance Obligation 1 (PO1)
A combined performance obligation that includes delivery of the license (inclusive of know-how) and the delivery of the Handover Package Documents which includes performing the Legend Phase 1 trial.
•Performance Obligation 2 (PO2)
Supply of materials (supply of Lentivirus/other materials).
We concluded that the license to intellectual property is not distinct from the completion of Phase 1 trial as the license has minimal utility prior to receipt of the completed Legend Phase 1 trial by Legend Biotech. The IP license granted at contract inception is unproven as it relates to products in the early development stage and, therefore the IP may be revised throughout the completion of the Phase 1 trial. In order for Novartis to get the full benefit of the IP, Novartis needs Legend Biotech to provide the IP, the know-how and the completion of the Legend Phase 1 clinical trial, which culminates with the delivery of the handover package. Without each of these deliverables, Novartis would have experienced significant delays in utilizing the IP and commencing the Novartis Phase 1 clinical trial.
Transaction Price
The following table summarizes the composition of the total transaction price for the following periods.
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| PO1: Licensing of intellectual property and performing Legend Phase 1 trial | |||||||||||
| PO2: Supply of materials | |||||||||||
| Total | |||||||||||
PO1: In accordance with the Novartis License Agreement, Legend Biotech will receive a $100.0 million up-front payment from Novartis upon entering into the Novartis License Agreement. The Company determined this upfront payment represents fixed consideration to be included in the transaction price in accordance with IFRS 15 as the payment is non-refundable and represents consideration in exchange for Legend Biotech providing Novartis delivery of the license (inclusive of know-how).
PO1: Novartis must reimburse Legend Biotech for development costs incurred or paid by Legend Biotech prior to, on or after the Effective Date. There is up to $33 million in total aggregate reimbursable development costs through such occurrence. Given it is contractually agreed upon, the Company will include as variable consideration the expected amount it will be reimbursed by Novartis for the Legend Phase 1 clinical trial. The Company concluded that the development costs that are highly probable of being achieved should be included in the transaction price. We have included the estimate of cost reimbursement for the R&D in the transaction price for the first twelve months of expenses through the end of 2024; totaling $20.7 million. The remaining R&D Costs $12.3 million are constrained at inception of the contract as we concluded that they aren’t highly probable that a significant reversal in the cumulative amount of revenue recognized would not occur.
PO2: Given supply is contractually agreed upon for the existing materials and clearly laid out for new materials it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As such the supply of materials cost included in the transaction price is $4.6 million.
The difference between the $125.3 million transaction price and the $100.0 million disclosed above is the variable consideration of $25.3 million.
The following table summarizes the allocation of the total transaction price to the identified performance obligations under the arrangement, and the amount of the transaction price unsatisfied as of December 31, 2023:
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| PO1: Licensing of intellectual property and completion of Legend Phase 1 trial | |||||||||||
| PO2: Supply of materials | |||||||||||
| Total | |||||||||||
| Remaining unsatisfied performance obligation | |||||||||||
The amounts of transaction prices allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as of December 31, 2023 are as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Amounts expected to be recognized as revenue: | |||||||||||||||||
Licensing of intellectual property and completion of Legend Phase 1 trial | |||||||||||||||||
| Within 1 year | |||||||||||||||||
| 1 - 2 years | |||||||||||||||||
| 2 - 3 Years | |||||||||||||||||
| 3 - 4 years | |||||||||||||||||
| After 4 years | |||||||||||||||||
Total | |||||||||||||||||
The amounts of transaction prices allocated to the remaining performance obligations which are expected to be recognized as revenue relate to Novartis Licensing Agreement, of which the performance obligations are to be satisfied over the completion of Legend Phase 1 trial for LB2102, which is estimated to be 4 years. As part of the Novartis transaction, the Company allocated the transaction price to performance obligations based on the estimated stand-alone selling prices of promised goods or services and specifically the residual approach for this performance obligation. The amounts disclosed above do not include variable consideration which is constrained. We re-evaluate the transaction price at the end of each reporting period.
Revenue
The following summarizes the revenue recognized for the periods presented:
There was no revenue recognized in the current reporting period that was included in the contract liabilities at the beginning of the reporting period and there was no revenue recognized from performance obligations satisfied in previous periods.
The Company will recognize revenue for the allocation of the transaction price for licensing of intellectual property and completion of Legend Phase 1 trial using the percentage of completion method using the input method (costs). The model used is based on budgeted R&D costs during our Phase 1 trial. There were no 2023 expenses incurred from the effective date through year end. As such, there was no revenue recognized in 2023 in this percentage of completion model.
The Company will recognize revenue for the allocation of the transaction price for supply of materials at a point in time. As of the end of 2023 no materials have been delivered, as such there will be no revenue recognized in 2023.
The following table summarizes the Total other income and gains:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Other income and gains | |||||||||||||||||
| Other income: | |||||||||||||||||
| Finance income | |||||||||||||||||
| Government grants* | |||||||||||||||||
| Other | |||||||||||||||||
| Total income | |||||||||||||||||
| Gains: | |||||||||||||||||
| Fair value gains on financial assets measured at fair value change through profit or loss | |||||||||||||||||
| Other | |||||||||||||||||
| Total gains | |||||||||||||||||
| Total other income and gains | |||||||||||||||||
6. LOSS BEFORE TAX
The Company’s loss before tax is arrived at after charging:
| 2023 | 2022 | 2021 | ||||||||||||||||||
| US$’000 | US$’000 | US$’000 | ||||||||||||||||||
| Employee benefit expense (including directors’ remuneration): | ||||||||||||||||||||
| Wages and salaries | ||||||||||||||||||||
| Other employee benefits | ||||||||||||||||||||
| Equity-settled share-based compensation expense | ||||||||||||||||||||
7. FINANCE COSTS
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Interest on lease liabilities | |||||||||||||||||
| Collaboration interest-bearing advanced funding | |||||||||||||||||
| Total | |||||||||||||||||
8. INCOME TAX
The Company is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which the Company and its subsidiaries are domiciled and operate.
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. The Company is subject to withholding tax on intercompany notes, which is insignificant.
British Virgin Islands
Under the current laws of the British Virgin Islands (“BVI”), the subsidiary that operates in BVI is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company’s subsidiary incorporated in the BVI to its shareholders, no withholding tax will be imposed.
Hong Kong
Under the current tax laws of Hong Kong, the subsidiary which operates in Hong Kong is subject to the two-tiered profits tax rates regime. The first HK$2,000,000 (2022 and 2021: HK$2,000,000 8.25 % (2022 and 2021: 8.25 16.5 % (2022 and 2021: 16.5
United States of America
Under the current tax laws of the United States of America ("USA"), the subsidiary which operates in the United States of America is subject to federal tax at a rate of 21 % (2022 and 2021: 21 3.3 % (2022 and 2021: 9 30 % withholding tax, unless the respective non US resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with US that provides for a reduced withholding tax rate or an exemption from withholding tax.
Ireland
Under the current laws of the Ireland, the subsidiary which operates in Ireland is subject to Corporate Income Tax ("CIT") at a rate of 12.5 % (2022 and 2021: 12.5 25 % (2022 and 2021: 25 25 % in 2023 (2022 and 2021: 25
Greater China
Pursuant to the Corporate Income Tax Law of the People's Republic of China (the "PRC") and the respective regulations (the “CIT Law”), the subsidiaries which operate in Greater China are subject to CIT at a rate of 25 % on the taxable income. Legend Nanjing is qualified as High and New Technology Enterprise, which is subject to income tax at a preferential tax rate of 15 % during the year ended December 31, 2023. During the years ended December 31, 2022, and 2021, the applicable income tax rate was 25 10 % CIT, namely withholding tax, unless the respective non PRC resident enterprise’s jurisdiction of incorporation has a tax treaty or arrangements with the PRC that provides for a reduced withholding tax rate or an exemption from withholding tax.
Belgium
Under the current laws of Belgium, the subsidiary which operates in Belgium is subject to CIT at a rate of 25 % on its taxable trading income. Dividend withholding tax is imposed on distributions made by Belgium companies at a rate of 30 % with many exemptions provided.
Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Current – United States of America | |||||||||||||||||
| Current – Elsewhere | ( | ||||||||||||||||
| Deferred (note 20) | ( | ||||||||||||||||
| Total tax charge/(credit) for the year | ( | ( | |||||||||||||||
A reconciliation of the tax charge/(credit) applicable to loss before tax at the statutory rates for the countries (or jurisdictions) in which the Company and the majority of its subsidiaries are domiciled to the tax expense/(credit) at the effective tax rates is as follows:
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| US$’000 | % | US$’000 | % | US$’000 | % | ||||||||||||||||||||||||||||||
| Loss before tax | ( | ( | ( | ||||||||||||||||||||||||||||||||
At the statutory blended US federal and state income tax rate of | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Preferential tax rate in other countries and regions | ( | ||||||||||||||||||||||||||||||||||
| Effect of tax rate differences in other countries and regions | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Research and development credit | ( | ( | ( | ||||||||||||||||||||||||||||||||
| State rate change | ( | ( | |||||||||||||||||||||||||||||||||
| Effect of non-deductible expenses | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Tax losses and deductible temporary differences not recognized* | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation income tax charge/(benefit)* | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Others | ( | ( | |||||||||||||||||||||||||||||||||
| Tax charge/(benefit) at the Company’s effective rate | ( | ( | ( | ||||||||||||||||||||||||||||||||
9. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
The calculation of the basic loss per share amount is based on the loss for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 352,165,418 , 318,083,913 and 281,703,291 in issue during the years ended December 31, 2023, 2022 and 2021, respectively.
The calculation of the diluted earnings per share amount is based on the loss for the year attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise of all dilutive potential ordinary shares into ordinary shares.
No adjustment has been made to the basic loss per share amounts presented for the years ended December 31, 2023, 2022 and 2021 in respect of a dilution as the impact of the outstanding share options, RSU and warrant liability had an anti-dilutive effect on the basic loss per share amounts presented.
The calculations of basic and diluted loss per share are based on:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Earnings | |||||||||||||||||
| Loss attributable to ordinary equity holders of the parent, used in the basic earnings per share calculation | ( | ( | ( | ||||||||||||||
| Number of shares | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Shares | |||||||||||||||||
| Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation | |||||||||||||||||
10. PROPERTY, PLANT AND EQUIPMENT
| Freehold land | Buildings | Leasehold improvement | Machinery and equipment | Computer and office equipment | Transportation equipment | Construction in progress | Total | ||||||||||||||||||||||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| At January 1, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated depreciation | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Net carrying amount | |||||||||||||||||||||||||||||||||||||||||||||||
| At January 1, 2023, net of accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Depreciation provided during the year | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Exchange realignment | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||
| Transfers | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2023, net of accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2023: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated depreciation | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Net carrying amount | |||||||||||||||||||||||||||||||||||||||||||||||
| Freehold land | Buildings | Leasehold improvement | Machinery and equipment | Computer, fixtures and office equipment | Transportation equipment | Construction in progress | Total | ||||||||||||||||||||||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| At January 1, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated depreciation | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Net carrying amount | |||||||||||||||||||||||||||||||||||||||||||||||
| At January 1, 2022, net of accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||||||||||||||
| Disposals | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Depreciation provided during the year | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Exchange realignment | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Transfers | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2022, net of accumulated depreciation | |||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2022: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated depreciation | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Net carrying amount | |||||||||||||||||||||||||||||||||||||||||||||||
11. INTANGIBLE ASSETS
| Software | |||||
| US$’000 | |||||
| December 31, 2023 | |||||
| At January 1, 2023 | |||||
| Cost | |||||
| Accumulated amortization | ( | ||||
| Net carrying amount | |||||
| At January 1, 2023, net of accumulated amortization | |||||
| Additions | |||||
| Disposals | ( | ||||
| Amortization provided during the year | ( | ||||
| Exchange realignment | ( | ||||
| At December 31, 2023, net of accumulated amortization | |||||
| At December 31, 2023 | |||||
| Cost | |||||
| Accumulated amortization | ( | ||||
| Net carrying amount | |||||
| December 31, 2022 | |||||
| At January 1, 2022 | |||||
| Cost | |||||
| Accumulated amortization | ( | ||||
| Net carrying amount | |||||
| At January 1, 2022, net of accumulated amortization | |||||
| Additions | |||||
| Disposals | ( | ||||
| Amortization provided during the year | ( | ||||
| Exchange realignment | ( | ||||
| At December 31, 2022, net of accumulated amortization | |||||
| At December 31, 2022 | |||||
| Cost | |||||
| Accumulated amortization | ( | ||||
| Net carrying amount | |||||
12. OTHER NON-CURRENT ASSETS
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Prepaid expenses | |||||||||||
| Lease receivables | |||||||||||
| Total | |||||||||||
13. LEASES
The Company as a lessee
The Company has leases for office, research laboratory and manufacturing facilities, equipment, vehicles and land. The terms of the leases vary, although most generally have lease terms between 3 and 29 years. Lump sum payments were made upfront to acquire the leasehold land from the owners with lease periods of 50 years, and no ongoing payments will be made under the terms of these leasehold land. Leases with terms of 12 months or less are expensed as incurred, Collaboration assets represent the Company’s share of assets leased to the collaboration from Janssen, which purchased the assets on behalf of the collaboration, in connection with the Janssen Agreement. Collaboration assets under construction that will be leased to the collaboration from Janssen when placed into service are classified as collaboration prepaid leases on the consolidated financial statements.
(a)Right-of-use assets
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Leasehold land | |||||||||||
| Lease buildings | |||||||||||
| Collaboration assets | |||||||||||
| Total | |||||||||||
The carrying amounts of the Company’s right-of-use assets and the movements during the year are as follows:
| Non-Collaboration Assets Leased | Collaboration Assets Leased | ||||||||||||||||||||||||||||||||||
| Leasehold land | Buildings* | Buildings* | Machinery and equipment | Computer and office equipment | Total | ||||||||||||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Right-of-use assets at January 1, 2023 | |||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||
| Accumulated depreciation | |||||||||||||||||||||||||||||||||||
| Exchange realignment | ( | ||||||||||||||||||||||||||||||||||
| Depreciation of right-of-use assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Right-of-use assets at December 31, 2023 | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Right-of-use assets at January 1, 2022 | |||||||||||||||||||||||||||||||||||
| Additions | |||||||||||||||||||||||||||||||||||
| Exchange realignment | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Depreciation of right-of-use assets | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Right-of-use assets at December 31, 2022 | |||||||||||||||||||||||||||||||||||
*Certain prior year amounts have been reclassified for comparative purposes
(b)Lease liabilities
Lease liabilities are as indicated below:
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term.
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Carrying amount at January 1 | |||||||||||
| Additions | |||||||||||
| Accretion of interest recognized during the year | |||||||||||
| Payments | ( | ( | |||||||||
| Exchange realignment | ( | ||||||||||
| Carrying amount at December 31 | |||||||||||
| Analyzed into: | |||||||||||
| Current portion | |||||||||||
| Non-current portion | |||||||||||
| Total | |||||||||||
(c)The amounts recognized in profit or loss in relation to leases are as follows:
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Interest on lease liabilities | |||||||||||
| Depreciation charge of right-of-use assets | |||||||||||
| Expense relating to short-term leases | |||||||||||
| Total amount recognized in profit or loss | |||||||||||
The maturity analysis of lease liabilities is disclosed in note 33 to the financial statements. The total cash outflow for leases is disclosed in note 28 (c) to the financial statements.
The Company as a lessor
The Company leases assets it owns to the collaboration in accordance with the Janssen Agreement. These are finance leases for which the Company recognized an insignificant amount of finance income for the year ended December 31, 2023 and 2022.
At December 31, 2023 and 2022, the undiscounted minimum lease payments receivables by the Company in future periods under non-cancellable operating leases with its tenants are as follows:
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Finance leases: | |||||||||||
| Total | |||||||||||
14. COLLABORATION INVENTORIES
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Raw materials | |||||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Total collaboration inventories | |||||||||||
The Company's reserve for inventory was $8.9 million as of December 31, 2023 and $5.3 million as of December 31, 2022. The Company’s reserve for inventory as of December 31, 2023 was primarily related to expired material and certain batches or units of product that did not meet quality specifications that were charged to collaboration cost of sales.
15. TRADE RECEIVABLES
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade receivables | |||||||||||
The Company’s trading terms with its customers are mainly on credit. The credit period is 45 to 60 days. The Company seeks to maintain strict control over its outstanding receivables and overdue balances are reviewed regularly by management. Trade receivables are non-interest-bearing. The Company had concentration of credit risk of $100 million trade receivables that were due from one single customer under a license agreement as of December 31, 2023.
16. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Other Collaboration Receivables* | |||||||||||
| Interest receivable | |||||||||||
| Other receivables* | |||||||||||
| Lease receivables | |||||||||||
| VAT recoverable | |||||||||||
| Prepayments* | |||||||||||
| Total | |||||||||||
*Certain prior year amounts have been reclassified for comparative purposes
The amounts due from the Company’s related parties that are repayable on demand, which were included in the Company’s other receivables, was $0.04 million and $0.3 million, for December 31, 2023 and 2022, respectively (note 30). As at December 31, 2023 and 2022, amounts prepaid to the Company’s related parties were $0.2 million and $0.3 million, respectively (note 30).
None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default. The majority of the above balances were settled within 12 months and had no history of default. The Company estimated that the expected credit loss for the above receivables as at December 31, 2023 and 2022 is insignificant.
17. CASH AND CASH EQUIVALENTS, TIME DEPOSITS AND PLEDGED DEPOSITS
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Cash and bank balances | |||||||||||
| Less: Pledged deposits | ( | ( | |||||||||
| Time deposits | ( | ( | |||||||||
| Cash and cash equivalents | |||||||||||
| Denominated in USD | |||||||||||
| Denominated in RMB | |||||||||||
| Denominated in EUR | |||||||||||
| Cash and cash equivalents | |||||||||||
The cash and cash equivalents of the Company denominated in Renminbi (“RMB”) amounted to $12.7 million and $21.5 million in the consolidated statements of financial position as at December 31, 2023 and 2022, respectively. The RMB is not freely convertible into other currencies, however, under Greater China Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Company is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.
The pledged deposit as at December 31, 2023 was pledged for credit card facilities. The pledged deposit as at December 31, 2022 was pledged for issuing bank acceptance notes to suppliers of the Company and credit card facilities.
Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default. The carrying amounts of the cash and cash equivalents approximate to their fair values.
18. TRADE PAYABLES
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade payables | |||||||||||
The trade payables are non-interest-bearing and are normally settled on 30-day terms.
As at December 31, 2023 and 2022, amounts due to the Company’s related parties, included in the Company’s trade payables, were $0.6 million and $1.2 million, respectively (note 30).
19. OTHER PAYABLES AND ACCRUALS
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Accrued payroll | |||||||||||
| Accrued expense | |||||||||||
| Other payables | |||||||||||
| Payable for Collaboration Assets | |||||||||||
| Other tax payables | |||||||||||
Other payables are non-interest-bearing and repayable on demand.
As at December 31, 2023 and 2022, amounts due to the Company’s related parties, included in the Company’s other payables, were $0.9 million and $2.5 million, respectively (note 30).
20. DEFERRED TAX
The movements in the deferred tax liabilities and assets during the years ended December 31, 2023 and 2022, are as follows:
Deferred tax liabilities
| Collaboration revenue | License revenue - transitional adjustment | Difference allowance in excess of related depreciation1 | Right of use assets | Total | |||||||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | |||||||||||||||||||||||||
| At January 1, 2022 | ( | ( | ( | ||||||||||||||||||||||||||
| Deferred tax charged/(credited) to the statement of profit or loss during the year | ( | ||||||||||||||||||||||||||||
Gross deferred tax liabilities at December 31, 2022 | ( | ( | ( | ||||||||||||||||||||||||||
| At January 1, 2023 | ( | ( | ( | ||||||||||||||||||||||||||
| Deferred tax charged/(credited) to the statement of profit or loss during the year | ( | ( | ( | ||||||||||||||||||||||||||
Gross deferred tax liabilities at December 31, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||
Deferred tax assets
| Losses available for offsetting against future taxable profits | Difference in intangible assets amortization | Accrued expense | Lease liability | Cost recovery of R&D expense | Total | ||||||||||||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||||||||||||
| At January 1, 2022 | |||||||||||||||||||||||||||||||||||
| Deferred tax charged to the statement of profit or loss during the year | ( | ( | |||||||||||||||||||||||||||||||||
Gross deferred tax assets at December 31, 2022 | |||||||||||||||||||||||||||||||||||
| At January 1, 2023 | |||||||||||||||||||||||||||||||||||
| Deferred tax charged to the statement of profit or loss during the year | ( | ( | |||||||||||||||||||||||||||||||||
Gross deferred tax assets at December 31, 2023 | |||||||||||||||||||||||||||||||||||
1
The Company has tax losses arising in Hong Kong of $0.4 million in 2023 (2022: $1.9 million) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose.
The Company has tax losses arising in Greater China of $90.9 million in 2022 that will expire in 10 years for offsetting against future taxable profits of the companies in which the losses arose.
The Company has tax losses arising in Ireland of $134.8 million in 2023 (2022 $118.6 million) that can be carried back for 1
The Company has tax losses arising in the United States of America of $48.8 million in 2023 (2022: $179.8 million) that are available indefinitely for offsetting against up to 80 % of future taxable profits of the companies in which the losses arose.
Deferred tax assets have not been recognized in respect of these tax losses as it is not considered probable that taxable profits will be available against which the tax losses can be utilized.
Deferred tax assets have not been recognized in respect of the following items as of the end of the reporting year:
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Deductible temporary differences | |||||||||||
| Tax losses and credits | |||||||||||
| Total | |||||||||||
Deferred income tax assets are recognized for tax losses carried-forward to the extent that realization of the related tax benefit through future taxable profits is probable. Deferred tax assets have not been recognized in respect of the above items as it is not considered probable that taxable profits will be available against which the above items can be utilized.
Pursuant to the PRC Corporate Income Tax Law, a 10 % withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Greater China. The requirement is effective from January 1, 2008 and applies to earnings after December 31, 2007. A lower withholding tax rate may be applied if there is a tax treaty between Greater China and the jurisdiction of the foreign investors. For the Company, the applicable rate is 10 %. The Company is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in Greater China in respect of earnings generated from January 1, 2008.
At December 31, 2023 and 2022, the subsidiaries in Greater China had no
According to the US tax laws, dividends payable by the Company’s US entity, to non-US resident enterprises shall be subject to 30 % withholding tax. A lower withholding tax rate may be applied if there is a tax treaty between US and the jurisdiction of the foreign investors. For the Company, the applicable rate is 5 %. The Company is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in US.
21. WARRANT LIABILITY
On May 13, 2021, the Company entered into a subscription agreement with an institutional investor (the “PIPE Investor”) relating to the offer and sale of 20,809,850 ordinary shares of the Company, par value $0.0001 per share (the “ordinary shares”), in a private placement at a purchase price of $14.41625 per ordinary share (the “PIPE Offering”). The total proceeds from the PIPE Offering were $300.0 million. Pursuant to the subscription agreement, the Company also issued the PIPE Investor, l concurrently with the PIPE offering a warrant (the “Warrant”) exercisable for up to an aggregate of 10,000,000 ordinary shares (such transaction together with the PIPE Offering, the “Transactions”). The Transactions closed on May 21, 2021 (the “Closing Date”). The Warrant was exercisable, in whole or in part, at an exercise price of $20.0 per ordinary share. The Warrant was exercisable after the Closing Date and prior to the two-year anniversary of the Closing Date.
On May 11, 2023, the PIPE Investor exercised the Warrant in full for an aggregate exercise price of $200.0 million, and, as a result, the Company issued 10,000,000 ordinary shares to the PIPE Investor. The Warrant was accounted for as a
financial liability because the Warrant was net share settleable at the holder’s option. In 2023, up to the exercise of the warrant, the Company recorded a fair value loss of $85.8 million.
The movement of the warrant liability is set out as below:
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Balance, beginning of the period | |||||||||||
| Fair value loss/(gain) of the warrant liability | ( | ||||||||||
| Exercise of the warrant liability | ( | ||||||||||
| Balance, end of the period | |||||||||||
22. GOVERNMENT GRANTS
| 2023 | 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Deferred government grants | |||||||||||
| Current | |||||||||||
| Non-current | |||||||||||
23. COLLABORATION INTEREST-BEARING ADVANCED FUNDING
| Effective interest rate | Maturity | December 31, 2023 | |||||||||||||||
| % | US$’000 | ||||||||||||||||
| Non-current | |||||||||||||||||
| Loans from a collaborator | No specific maturity date | ||||||||||||||||
Pursuant to the license and collaboration agreement entered into with a collaborator, the Company is entitled to receive funding advances from the collaborator when certain operational conditions are met. As a result, the Company took an initial funding advance with principal amounting to $17.3 million on June 18, 2021, a second funding advance with principal amounting to $53.1 million on September 17, 2021, a third funding advance with principal amounting to $49.3 million on December 17, 2021, a forth funding advance with principal amounting to $5.3 million on March 18, 2022, a fifth funding advance with principal amounting to $60.9 million on June 17, 2022, a sixth funding advance with principal amounting to $60.5 million on September 16, 2022, and a seventh funding advance with principal amounting to $3.6 million on December 16, 2022, by reducing the same amount of other payables due to the collaborator, respectively (collectively, the “Funding Advances”).
These Funding Advances are accounted for as interest-bearing borrowings funded by the collaborator, constituted by a principal amounting to $250.0 million and applicable interests accrued amounting to $31.3 million upon such principal. The respective interest rate of each borrowing has transitioned from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) in accordance with the LIBOR ACT. Thus, outstanding advances accrue interest at 12 month CME term SOFR plus LIBOR/SOFR adjustment (12 month) plus a margin of 2.5 % For each of the seven batches of funding advances, interest started to accrue from June 18, 2021, September 17, 2021, December 17, 2021, March 18, 2022, June 17, 2022, September 16, 2022, and December 16, 2022, respectively.
Pursuant to the terms of the license and collaboration agreement, the collaborator may recoup the aggregate amount of Funding Advances together with interest thereon from Company’s share of pre-tax profits from the first profitable year of the collaboration program and, subject to some limitations, from milestone payments due to the Company under the Janssen Agreement. The Company’s management estimated the loan will not be recouped by the collaborator within one year, nor does the Company expect to repay the funding advances within one year, and thus the loan was classified as a long-term liability.
24. SHARE CAPITAL AND SHARE PREMIUM
Shares
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Authorized: | |||||||||||
| Issued and fully paid: | |||||||||||
A summary of movements in the Company’s share capital and share premium is as follows:
| Number of shares in issue | Share capital | Share premium | Total | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||||||||
| At December 31, 2021 and January 1, 2022 | |||||||||||||||||||||||
| Issuance of ordinary shares for follow-on public offering, net of issuance cost | |||||||||||||||||||||||
| Exercise of share options | |||||||||||||||||||||||
| Reclassification of vesting of restricted share units | |||||||||||||||||||||||
| At December 31, 2022 and January 1, 2023 | |||||||||||||||||||||||
| Issuance of ordinary shares for private placements, net of issuance cost | |||||||||||||||||||||||
| Issuance of ordinary shares for registered direct offering, net of issuance cost | |||||||||||||||||||||||
| Issuance of ordinary shares for exercise of warrants | |||||||||||||||||||||||
| Exercise of share options | |||||||||||||||||||||||
| Reclassification of vesting of restricted share units | |||||||||||||||||||||||
| At December 31, 2023 | |||||||||||||||||||||||
On April 24, 2023, May 2, 2023 and May 19, 2023, the Company sold 7,656,968 , 484,992 and 692,782 ordinary shares to institutional investors in private placement transactions, respectively, for net proceeds of $234.4 million, after deduction of related issuance costs of $0.4 million. On May 10, 2023, the Company sold 10,937,500 ordinary shares to certain investors in a registered direct offering at a price of $32.00 per share, for net proceeds of $349.3 million, after deduction of related issuance costs of $0.7 million. On May 11, 2023, the PIPE Investor exercised the Warrant in full for an aggregate exercise price of $200.0 million, and, as a result, the Company issued 10,000,000 ordinary shares to the PIPE Investor.
25. SHARE OPTION SCHEME
The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Company’s operations. Eligible participants of the Scheme include the Company’s directors, including independent non-executive directors, and employees of any member of the Company.
The Scheme became effective on December 21, 2017 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. The Scheme has a performance vesting condition and is subject to forfeiture if the participants cannot meet certain performance targets set by the board of directors.
Share options do not confer any voting rights, or rights to participate in any dividends or distributions. The following share options were outstanding under the Scheme during the year:
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | ||||||||||||||||||||||||||||||
| US$ per share | ’000 | US$ per share | ’000 | US$ per share | ’000 | ||||||||||||||||||||||||||||||
| At January 1, | |||||||||||||||||||||||||||||||||||
| Granted during the year | |||||||||||||||||||||||||||||||||||
| Forfeited during the year | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Exercised during the year | ( | ( | ( | ||||||||||||||||||||||||||||||||
| At December 31, | |||||||||||||||||||||||||||||||||||
| Exercisable at December 31 | |||||||||||||||||||||||||||||||||||
The weighted average share price at the date of exercise for share options exercised during 2023 was $31.8140 per share (2022: $22.5813 , 2021: $18.4846 ).
The exercise prices and exercise periods of the share options outstanding as at the end of the reporting period are as follows:
| December 31, 2023 | ||||||||||||||
| Number of options ’000 | Exercise price* US$ per share | Exercise period | ||||||||||||
| 2019/12/25 – 2027/12/25 | ||||||||||||||
| 2019/07/01 – 2028/08/29 | ||||||||||||||
| 2019/12/31 – 2028/12/30 | ||||||||||||||
| 2020/07/02 – 2029/07/01 | ||||||||||||||
| 2020/11/29 – 2029/11/28 | ||||||||||||||
| 2021/06/05 – 2030/06/04 | ||||||||||||||
| 2021/09/01 – 2030/08/31 | ||||||||||||||
| 2022/03/29 – 2031/03/28 | ||||||||||||||
| 2022/08/27 – 2031/08/26 | ||||||||||||||
| 2023/03/31 - 2032/03/30 | ||||||||||||||
| 2023/04/30 - 2032/04/29 | ||||||||||||||
| 2023/05/02 - 2032/05/01 | ||||||||||||||
| 2023/05/05 - 2032/05/04 | ||||||||||||||
| 2023/05/08 - 2032/05/07 | ||||||||||||||
| 2023/05/10 - 2032/05/09 | ||||||||||||||
| 2023/05/13 - 2032/05/12 | ||||||||||||||
| 2023/06/30 - 2032/06/29 | ||||||||||||||
| 2023/08/02 - 2032/08/01 | ||||||||||||||
| 2024/04/03 - 2033/04/02 | ||||||||||||||
| December 31, 2022 | ||||||||||||||
| Number of options ’000 | Exercise price* US$ per share | Exercise period | ||||||||||||
| 2019/12/25 – 2027/12/25 | ||||||||||||||
| 2019/07/01 – 2028/08/29 | ||||||||||||||
| 2019/12/31 – 2028/12/30 | ||||||||||||||
| 2020/07/02 – 2029/07/01 | ||||||||||||||
| 2020/11/29 – 2029/11/28 | ||||||||||||||
| 2021/06/05 – 2030/06/04 | ||||||||||||||
| 2021/09/01 – 2030/08/31 | ||||||||||||||
| 2022/03/29 – 2031/03/28 | ||||||||||||||
| 2022/08/27 – 2031/08/26 | ||||||||||||||
| 2023/03/31 - 2032/03/30 | ||||||||||||||
| 2023/04/30 - 2032/04/29 | ||||||||||||||
| 2023/05/02 - 2032/05/01 | ||||||||||||||
| 2023/05/05 - 2032/05/04 | ||||||||||||||
| 2023/05/08 - 2032/05/07 | ||||||||||||||
| 2023/05/10 - 2032/05/09 | ||||||||||||||
| 2023/05/13 - 2032/05/12 | ||||||||||||||
| 2023/06/30 - 2032/06/29 | ||||||||||||||
| 2023/08/02 - 2032/08/01 | ||||||||||||||
| December 31, 2021 | ||||||||||||||
| Number of options ’000 | Exercise price* US$ per share | Exercise period | ||||||||||||
| 2019/12/25 – 2027/12/25 | ||||||||||||||
| 2019/07/01 – 2028/08/29 | ||||||||||||||
| 2019/12/31 – 2028/12/30 | ||||||||||||||
| 2020/07/02 – 2029/07/01 | ||||||||||||||
| 2020/11/29 – 2029/11/28 | ||||||||||||||
| 2021/06/05 – 2030/06/04 | ||||||||||||||
| 2021/09/01 – 2030/08/31 | ||||||||||||||
| 2021/11/19 – 2030/11/18 | ||||||||||||||
| 2022/03/29 – 2031/03/28 | ||||||||||||||
| 2022/08/27 – 2031/08/26 | ||||||||||||||
*The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital. Pursuant to certain listing rules of the Hong Kong Stock Exchange to which members of the Genscript Group are subject to, the Company adjusted the exercise price of options granted during November 29, 2019 through December 9, 2019 to $11.50 per share. Concurrent with this adjustment, the Company agreed to pay each employee holding affected share options an amount in cash representing the difference between the adjusted exercise price over the original exercise price upon exercising the share options.
The fair value of the share options granted during the year ended December 31, 2023 was $4.8 million ($13.397 each) (2022: $27.2 million, $12.010 each; 2021: $5.7 million, $9.497 each). The Company recognized share option expense of $11.3 million (2022: $10.7 million, 2021: $2.4 million) during the year ended December 31, 2023.
The fair value of equity-settled share options granted during the period was estimated, using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:
| 2023 | 2022 | 2021 | |||||||||||||||
| Dividend yield (%) | |||||||||||||||||
| Expected volatility (%) | % | ||||||||||||||||
| Risk-free interest rate (%) | |||||||||||||||||
| Expected life of options (year) | |||||||||||||||||
The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of comparable listed companies in the same industry. The weighted average share price was $23.5300 used in the share option fair value valuation model during the year ended December 31, 2023.
As at December 31, 2023, the Company had 6,366,538 share options outstanding under the Scheme. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 6,366,538 additional ordinary shares of the Company, an additional share capital of $637 and a share premium of $59.4 million (before issue expenses).
As at December 31, 2023, the Company had 6,366,538 share options outstanding under the share option scheme, which represented approximately 1.7 % of the Company's shares in issue as at that date.
26. RESTRICTED SHARE UNITS
The Company operates a RSU scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Company’s operations. Eligible participants of the Scheme include the Company’s directors, including independent non-executive directors, and employees of any member of the Company. The RSU Scheme became effective on May 26, 2020 and, unless otherwise cancelled or amended, will remain in force. The RSU Scheme has a performance vesting condition and is subject to forfeiture if the participants cannot meet certain performance target set by the board of directors.
The movement in the number of RSUs outstanding for the year ended December 31, 2023, 2022 and 2021 was as follows:
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Weighted average grant date fair value | Number of RSU | Weighted average grant date fair value | Number of RSU | Weighted average grant date fair value | Number of RSU | ||||||||||||||||||||||||||||||
| US$ per unit | ’000 | US$ per unit | ’000 | US$ per unit | ’000 | ||||||||||||||||||||||||||||||
| Outstanding at January 1 | |||||||||||||||||||||||||||||||||||
| Granted during the year | |||||||||||||||||||||||||||||||||||
| Vested during the year | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Forfeited during the year | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Outstanding at December 31 | |||||||||||||||||||||||||||||||||||
The fair value of the awarded shares was calculated based on the market price of the Company’s shares at the respective grant date.
For the year ended December 31, 2023, the fair value of the RSUs granted during the period was $101.5 million ($29.604 each), of which the Company recognized RSU expense of $36.3 million.
For the year ended December 31, 2022, the fair value of the RSUs granted during the period was $45.3 million ($20.570 each), of which the Company recognized RSU expense of $23.6 million.
For the year ended December 31, 2021, the fair value of the RSUs granted during the period was $32.0 million ($15.012 each), of which the Company recognized RSU expense of $17.8 million.
As at December 31, 2023, the Company had 4,948,956 RSUs outstanding under the RSU Scheme, which represented approximately 1.4 % of the Company's ordinary shares in issue as at that date.
27. RESERVES
The amounts of the Company’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity of the consolidated financial statements.
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations with a functional currency other than US$.
Under PRC laws and regulations, there are restrictions on the Company’s PRC subsidiaries with respect to transferring certain of their net assets to the Company either in the form of dividends, loans, or advances. Amounts of net assets restricted include paid in capital and reserve funds of the Company’s PRC subsidiaries, totaling $107.3 million and $81.8 million as at December 31, 2023 and 2022, respectively.
28. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(a)Major non-cash transactions
For the year ended December 31, 2022 and 2021, the Company had non-cash additions to collaboration interest-bearing advanced funding of $130.3 million and $119.7 million which was received through the deduction of other payables to a collaborator. There were no such non-cash additions to the collaboration interest-bearing advanced funding in 2023.
For the year ended December 31, 2023, 2022 and 2021, the Company recorded a non-cash fair value loss of $85.8 million, non-cash fair value gain of $20.9 million, and non-cash fair value loss of $6.2 million of warrant liability, respectively.
For the years ended December 31, 2023, 2022 and 2021, the Company had non-cash additions to right-of-use assets of $26.7 million, $23.2 million and $0.7 million, and lease liabilities of $26.7 million, $23.7 million and $0.7 million, in respect of lease arrangements for buildings, respectively.
For the years ended December 31, 2023, 2022 and 2021, the Group had non-cash additions to collaboration prepaid leases included in the other payables and accruals for the assets leased from the collaboration partner of $16.30 million $26.5 million and $7.6 million, respectively, and had non-cash additions to property, plant and equipment included in other payables and accruals of $6.6 million, $5.1 million and $6.7 million, respectively.
(b)Changes in liabilities arising from financing activities
| Lease liabilities | ||||||||
| US$’000 | ||||||||
| At January 1, 2023 | ||||||||
| Additions of lease liabilities | ||||||||
| Changes from financing cash flows | ( | |||||||
| Disposal | ||||||||
| Interest expense | ||||||||
| Interest paid classified as operating cash flows | ( | |||||||
| Foreign exchange movement | ||||||||
| At December 31, 2023 | ||||||||
| At January 1, 2022 | ||||||||
| Additions of lease liabilities | ||||||||
| Changes from financing cash flows | ( | |||||||
| Disposal | ||||||||
| Interest expense | ||||||||
| Interest paid classified as operating cash flows | ( | |||||||
| Foreign exchange movement | ( | |||||||
| At December 31, 2022 | ||||||||
| At January 1, 2021 | ||||||||
| Additions of lease liabilities | ||||||||
| Changes from financing cash flows | ( | |||||||
| Disposal | ( | |||||||
| Interest expense | ||||||||
| Interest paid classified as operating cash flows | ( | |||||||
| Foreign exchange movement | ( | |||||||
| At December 31, 2021 | ||||||||
(c)Total cash outflow for leases
The total cash outflow for leases included in the statement of cash flows is as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Within operating activities | |||||||||||||||||
| Within financing activities | |||||||||||||||||
| Short-term leases | |||||||||||||||||
| Total | |||||||||||||||||
29. COMMITMENTS AND CONTINGENCIES
(a)Capital commitments
The Company had the following capital commitments at the end of the year:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Construction in progress | |||||||||||||||||
(b)Loss contingencies
In September 2021, a former employee elected to enter into arbitration against Legend USA with the American Arbitration Association, claiming such former employee was discriminated against due to her gender and wrong fully terminated in retaliation for engaging in alleged protected activity. The former employee demanded Legend USA to pay damages of approximately $3.0 million for alleged lost pay, lost equity, damage to reputation, emotional distress and other related losses.
Management believes that the former employee’s claims above are without merit and intends to defend vigorously. At the early stage of the process, management cannot predict the ultimate outcome of the above claims, whether in whole or in part, which may result in a loss, if any. Therefore, in the opinion of management and legal counsel, an estimate of the amount or arrange of reasonably possible losses cannot be made at this time. Accordingly, no provision for any liability has been made in the financial statements.
(c) Lease contingency
We are party to a lease with Janssen under which we expect to lease an approximately 106,000 square foot manufacturing facility from Janssen located in Raritan, New Jersey. That lease will become effective and recorded as a lease on a future date contingent on the U.S. Food and Drug Administration’s approval of our Biologics License Application for cilta-cel, which we referred to as the Facility Transition Date. For this facility, which we collaboratively operate with Janssen, we continue to invest in manufacturing, quality, information technology and distribution capabilities to support the launch of CARVYKTI.
30. RELATED PARTY TRANSACTIONS
| Company | Relationship | |||||||
| Genscript Biotech Corporation ("Genscript") | ||||||||
| Nanjing GenScript Biotech Co., Ltd. (formerly named as Nanjing Jinsirui Biotechnology Co., Ltd.) | ||||||||
| Jiangsu GenScript Biotech Co., Ltd. | ||||||||
| Genscript USA Incorporated | ||||||||
| Genscript USA Holdings Inc | ||||||||
| Genscript Probio USA Inc | ||||||||
| Nanjing Probio Biotech Co., Ltd. | ||||||||
| Jiangsu GenScript Probio Biotech Co., Ltd. | ||||||||
| Genscript Netherlands | ||||||||
(a)In addition to the transactions detailed elsewhere in the consolidated financial statements, the Company had the following transactions with related parties during the year:
(i)Licensing of patents to related parties:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||||||||
The sale was generated from an exclusive licensing of certain patents to Nanjing Probio Biotech Co., Ltd and its affiliates.
(ii)Sales of products and sales-based royalties from related parties:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||||||||
The sale was mainly generated from sales-based royalties related to the exclusive licensing of certain patents to Nanjing Probio Biotech Co., Ltd and its affiliates.
(iii)Purchases from related parties:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Nanjing GenScript Biotech Co., Ltd. | |||||||||||||||||
| Jiangsu GenScript Probio Biotech Co., Ltd | |||||||||||||||||
| Genscript USA Incorporated | |||||||||||||||||
| Genscript USA Holdings Inc | |||||||||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||||||||
| Jiangsu GenScript Biotech Co., Ltd | |||||||||||||||||
| GenScript Probio USA Inc. | |||||||||||||||||
| Genscript Netherlands | |||||||||||||||||
| Total | |||||||||||||||||
The transactions were made according to the price and terms agreed with related parties.
(iv)Shared services:
During the years ended December 31, 2023, 2022 and 2021, Nanjing GenScript Biotech Co., Ltd. provided certain accounting, legal, IT and administrative shared services to the Company for a consideration of $0.2 million, $1.6 million and $1.6 million, respectively.
(v)Compensation fee for termination of service agreement:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Jiangsu GenScript Biotech Co., Ltd. | |||||||||||||||||
In May 2021, pursuant to a settlement agreement between the Company and Jiangsu GenScript Biotech Co., Ltd., the Company incurred compensation charges for the termination of a service agreement related to the design and construction of a lab facility.
(vi)Financing from follow-on public offering, net of issuance cost
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Genscript Biotech Corporation | |||||||||||||||||
Genscript purchased 4,500,000 ordinary shares, in the form of ADSs issued as part of the follow-on public offering on December 20, 2021, at the same price as these shares issued to the public.
(vii)Lease contract guarantee
In 2018, Legend Ireland entered into a property lease agreement with a third party in Dublin with lease period from 2018 to August 2028. Genscript provided a guarantee on Legend Ireland’s payment obligations under the lease agreement for nil consideration.
(b)Outstanding balances with related parties:
The Company had the following significant balances with its related parties at the end of the year:
(i)Due from related parties
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade receivables | |||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Other receivables | |||||||||||
| Nanjing GenScript Biotech Co., Ltd. | |||||||||||
| Genscript USA Incorporated | |||||||||||
| Jiangsu Genscript Biotech Co., Ltd | |||||||||||
| Total | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Prepayment | |||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||
| Jiangsu GenScript Probio Biotech Co., Ltd | |||||||||||
| Total | |||||||||||
(ii)Due to related parties.
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade payables | |||||||||||
| Nanjing GenScript Biotech Co., Ltd. | |||||||||||
| Genscript USA Incorporated | |||||||||||
| Jiangsu GenScript Biotech Co., Ltd | |||||||||||
| Jiangsu GenScript Probio Biotech Co., Ltd | |||||||||||
| Nanjing Probio Biotech Co., Ltd. | |||||||||||
| Total | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Other payables | |||||||||||
| Nanjing GenScript Biotech Co., Ltd. | |||||||||||
| GenScript USA Incorporated. | |||||||||||
| Jiangsu Genscript Biotech Co., Ltd | |||||||||||
| Jiangsu Genscript Probio Biotech Co., Ltd | |||||||||||
| Nanjing Probio Biotech Co., Limited | |||||||||||
| Genscript Netherlands | |||||||||||
| Total | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Lease liabilities | |||||||||||
| Genscript USA Holdings Inc | |||||||||||
| Nanjing GenScript Biotech Co., Ltd. | |||||||||||
| Total | |||||||||||
Except for lease liabilities with incremental borrowing rates between 5.14 % and 7.94 % repayable over 5 years, all other related party balances are unsecured and repayable on demand and interest free.
(iii)Compensation of key management personnel of the Company:
| 2023 | 2022 | 2021 | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Equity-settled share-based compensation expense | |||||||||||||||||
| Short-term employee benefits | |||||||||||||||||
| Total | |||||||||||||||||
31. FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments as at the end of each of the reporting periods are as follows:
As at December 31, 2023
Financial assets
| Financial assets at amortized cost | Financial assets at value through profit or loss | |||||||
| US$’000 | US$’000 | |||||||
| Trade receivables | ||||||||
| Financial assets included in prepayments, other receivables and other assets (note 16) | ||||||||
| Financial assets measured at fair value through profit and loss | ||||||||
| Time deposits | ||||||||
| Pledged deposits | ||||||||
| Cash and cash equivalents | ||||||||
| Total | ||||||||
Financial liabilities
| Financial liabilities at amortized cost | Financial liabilities at fair value | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade payables | |||||||||||
| Financial liabilities included in other payables and accruals (note 19) | |||||||||||
| Collaboration interest-bearing advanced funding | |||||||||||
| Lease liabilities | |||||||||||
| Total | |||||||||||
As at December 31, 2022
Financial assets
| Financial assets at amortized cost | Financial assets at value through profit or loss | |||||||
| US$’000 | US$’000 | |||||||
| Trade receivables | ||||||||
| Financial assets included in prepayments, other receivables and other assets (note 16) | ||||||||
| Financial assets measured at fair value through profit and loss | ||||||||
| Time deposits | ||||||||
| Pledged deposits | ||||||||
| Cash and cash equivalents | ||||||||
| Total | ||||||||
Financial liabilities
| Financial liabilities at amortized cost | Financial liabilities at fair value | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Trade payables | |||||||||||
| Warrant liability | |||||||||||
| Financial liabilities included in other payables and accruals (note 19) | |||||||||||
| Collaboration interest-bearing advanced funding | |||||||||||
| Lease liabilities | |||||||||||
| Total | |||||||||||
32. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
Management has assessed that the fair values of cash and cash equivalents, pledged deposits, time deposits, financial assets included in prepayments, other receivables and other assets, trade receivables, trade payables and financial liabilities included in other payables and accruals approximate to their carrying amounts largely due to the short-term maturities of these instruments.
The Company’s finance department headed by the Corporate Controller is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance department reports directly to the Corporate Controller. At December 31, 2023, the finance department analyzed the movements in the values of financial instruments and determined the major inputs applied in the valuation. The valuation was reviewed and approved by the finance manager. The valuation process and results are discussed with the directors once a year for annual financial reporting.
The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following table illustrates the fair value measurement hierarchy of the Company’s financial instruments:
Asset measured at fair value:
| As at December 31, 2023 | |||||||||||||||||||||||
| Fair value measurement using | |||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||
| Financial assets at fair value through profit or loss | |||||||||||||||||||||||
Asset measured at fair value:
December 31, 2022 | |||||||||||||||||||||||
| Fair value measurement using | |||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||
| Financial assets at fair value through profit or loss | |||||||||||||||||||||||
Financial assets measured at fair value consists of money market funds.
Liability measured at fair value:
December 31, 2022 | |||||||||||||||||||||||
| Fair value measurement using | |||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||||||||||
| US$’000 | US$’000 | US$’000 | US$’000 | ||||||||||||||||||||
| Warrant liability | |||||||||||||||||||||||
The following table lists the inputs to the binominal model used for the fair value valuation of warrant liability:
| December 31, 2022 | |||||
| Underlying stock price | $ | ||||
| Volatility | % | ||||
| Risk free rate | |||||
| Dividend | % | ||||
33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company’s principal financial instruments comprise cash and cash equivalents, pledged deposits, time deposits, prepayments, other receivables and other assets, and financial liabilities included in other payables and accruals. The main purpose of these financial instruments is to raise finance for the Company’s operations. The Company has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.
The main risks arising from the Company’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarized below.
Interest rate risk
As at December 31, 2023, the Company's exposure to the risk of changes in interest rates primarily relates to the Company's Funding Advances with a floating interest rate as disclosed in note 23 to the consolidated financial statements. As at December 31, 2023, management considered that any reasonable changes in the interest rate would not have significant impact on the interest expense from the Funding Advances. Accordingly, no sensitivity analysis for interest rate risk is presented.
Foreign currency risk
The Company has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. Approximately 5.0 % in 2023, 2022 in 0.3 % and 2021 in 54 % of the Company’s sales were denominated in currencies other than the functional currencies of the operating units making the sale.
As at December 31, 2023, 2022 and 2021, the Company had no
The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the Euro ("EUR") and RMB exchange rate against US$, with all other variables held constant, of the Company’s loss before tax (due to changes in the fair values of monetary assets and liabilities).
| Increase/ (decrease) in the rate of foreign currency | Decrease/ (increase) in loss before tax | ||||||||||
| % | US$’000 | ||||||||||
| Year ended December 31, 2023 | |||||||||||
| If US$ strengthens against RMB | |||||||||||
| If US$ weakens against RMB | ( | ( | |||||||||
| If US$ strengthens against EUR | ( | ||||||||||
| If US$ weakens against EUR | ( | ||||||||||
| Year ended December 31, 2022 | |||||||||||
| If US$ strengthens against RMB | |||||||||||
| If US$ weakens against RMB | ( | ( | |||||||||
| If US$ strengthens against EUR | ( | ||||||||||
| If US$ weakens against EUR | ( | ||||||||||
| Year ended December 31, 2021 | |||||||||||
| If US$ strengthens against RMB | |||||||||||
| If US$ weakens against RMB | ( | ( | |||||||||
| If US$ strengthens against EUR | ( | ||||||||||
| If US$ weakens against EUR | ( | ||||||||||
Credit risk
The Company trades only with recognized and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Company’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Company does not offer credit terms without the specific approval of the Head of Credit Control.
The credit risk of the Company’s other financial assets, which comprise cash and cash equivalents, pledged deposits, and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. Further quantitative data in respect of the Company’s exposure to credit risk arising from trade receivables and other receivables are disclosed in notes 15 and 16 to the consolidated financial statements, respectively.
Since the Company trades only with recognized and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by debtor. The Company had certain concentrations of credit risk with respect to trade receivables, which are disclosed in note 15 to the consolidated financial statements.
Liquidity risk
The Company monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets (e.g., trade receivables and other financial assets) and projected cash flows from operations.
The maturity profile of the Company’s financial liabilities as at the end of the reporting period, based on contractual undiscounted payments, is as follows:
| As at December 31, 2023 | |||||||||||||||||
| Less than 1 years | Over 1 years | Total | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Trade payables | |||||||||||||||||
| Other payables | |||||||||||||||||
| Collaboration interest-bearing advanced funding | |||||||||||||||||
| Lease liabilities | |||||||||||||||||
| Total | |||||||||||||||||
| As at December 31, 2022 | |||||||||||||||||
| Less than 1 years | Over 1 years | Total | |||||||||||||||
| US$’000 | US$’000 | US$’000 | |||||||||||||||
| Trade payables | |||||||||||||||||
| Other payables | |||||||||||||||||
| Warrant liability | |||||||||||||||||
| Collaboration interest-bearing advanced funding | |||||||||||||||||
| Lease liabilities | |||||||||||||||||
| Total | |||||||||||||||||
Note: Pursuant to the terms of the license and collaboration agreement, the collaborator may recoup the aggregate amount of Funding Advances together with interest thereon from Company’s share of pre-tax profits for the first profitable year of the collaboration program and, subject to some limitations, from milestone payments due to the Company under the Janssen Agreement. The Company’s management estimated the loan will not be recouped by the collaborator within one year.
Capital management
The primary objectives of the Company’s capital management are to safeguard the Company’s ability to continue as a going concern and to maintain a strong credit rating and healthy capital ratios in order to support its business and maximize shareholders’ value.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the reporting periods.
The Company monitors capital using a gearing ratio, which is total liabilities divided by total assets. The gearing ratios as at the end of each year were as follows:
| December 31, 2023 | December 31, 2022 | ||||||||||
| US$’000 | US$’000 | ||||||||||
| Total liabilities | |||||||||||
| Total assets | |||||||||||
| Gearing ratio | % | % | |||||||||
34. SUBSEQUENT EVENT
35. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved and authorized for issue by the Board of Directors on March 18, 2024.
Exhibit 2.4
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act
As of December 31, 2023, Legend Biotech Corporation (the “Company,” “we,” “us” and “our”) had the following series of securities registered pursuant to Section 12 of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| American depositary shares, each representing two ordinary shares, par value $0.0001 per share | LEGN | Nasdaq Global Select Market | ||||||
Ordinary shares, par value $0.0001 per share* | Nasdaq Global Select Market | |||||||
* Not for trading, but only in connection with the registration of the American depositary shares.
Description of Ordinary Shares
We are a Cayman Islands exempted company incorporated with limited liability and our affairs are governed by our third amended and restated memorandum and articles of association adopted by a Special Resolution passed on 26 May 2020 ("Memorandum and Articles"), and the Companies Act (as amended) of the Cayman Islands, which we refer to as the Companies Act below and the common law by the Cayman Islands.
According to our Memorandum and Articles, our authorized share capital is $200,000 divided into 2,000,000,000 shares, of which (i) 1,999,000,000 are designated as ordinary shares of a par value of $0.0001 each and (ii) 1,000,000 of a par value of $0.0001 each of such class or classes (however designated) as our board of directors may determine in accordance with our Memorandum and Articles. All of our issued and outstanding ordinary shares are fully paid.
As of December 31, 2023, we had 363,822,069 ordinary shares issued and outstanding.
Each American Depositary Share, ADS, represents two ordinary shares, par value $0.0001 per share.
Preemptive Rights
Our shareholders do not have preemptive purchase rights.
Limitations, Qualifications, and Differences Between Classes of Shares
Our board of directors may, without further action by our shareholders, fix the rights, preferences, privileges, and restrictions of up to an aggregate of 1,000,000 other shares, including preference shares, in one or more classes or series and authorize their issuance. These rights, preferences, and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of our ordinary shares. The issuance of our other shares, including potentially preference shares, could adversely affect the voting power of holders of ADSs and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of other shares, including preference shares, could have the effect of delaying, deferring, or preventing a change of control or other corporate action. We have no present plan to issue any preference shares.
Rights of Other Types of Securities
Not applicable.
Rights of Ordinary Shares
The following are summaries of material provisions of our Memorandum and Articles, and of the Companies Act, insofar as they relate to the material terms of our ordinary shares.
Objects of Our Company. Under our Memorandum and Articles, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman Islands.
Ordinary Shares. Our ordinary shares are issued in registered form and are issued when registered in our register of shareholders. We may not issue shares to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, our shareholders may declare dividends by ordinary resolution, but no dividend shall exceed the amount recommended by our directors. Our Memorandum and Articles provide that the directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, in the absolute discretion of the directors, be applicable for meeting contingencies or for equalizing dividends or for any other purpose to which those funds may be properly applied and pending such application may in the absolute discretion of the directors, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the directors may from time to time think fit. Under the law of the Cayman Islands, our company may pay a dividend out of either profit or the credit standing in our company’s share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business immediately following the date on which the distribution or dividend is paid. No dividend shall bear interest against the company.
Voting Rights. Holders of our ordinary shares shall be entitled to one vote per ordinary share held by such holder of ordinary share/s. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded (before or on the declaration of the result of the show of hands). A poll may be demanded by the chairman of such meeting or any one or more shareholders which are present in person or by proxy at the meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our Memorandum and Articles. Holders of the ordinary shares may, among other things, divide or combine their shares by ordinary resolution.
General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders’ annual general meetings. Our Memorandum and Articles provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by the chairman or a majority of our board of directors or on request of the shareholders holding at the date of deposit of such request in aggregate not less than one-third of the aggregate number of votes attaching to all issued and outstanding shares of the company as at the date of the deposit. Advance notice of at least ten calendar days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. Every notice shall be exclusive of the day on which it is given or deemed to be given and of the day for which it is given. At least two holders of shares being not less than an aggregate of fifty percent (50%) of all votes attaching to all shares in issue and entitled to vote present in person or by proxy shall be a quorum for all purposes.
The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and Articles provide that upon the requisition of shareholders representing in aggregate not less than one-third of the votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. Shareholders seeking to bring business before the annual general meeting or to nominate candidates for election to our board of directors at the annual general meeting are required to deliver notice not later than the 90th day nor earlier than the 120th day prior to the scheduled date of the annual general meeting.
Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay the whole of the share capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture. A call shall be deemed to have been made at the time when the resolution of the board of directors authorizing such call was passed.
Redemption, Repurchase and Surrender of Shares. Our ordinary shares are not subject to redemption by operation of a sinking fund or otherwise. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. We may also repurchase any of our shares (including any redeemable shares) on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our corporate records (except for the memorandum and articles of association of our company, any special resolutions passed by our company and the register of mortgages and charges of our company). The names of the directors of the Company may also be obtained. However, we will provide our shareholders with annual audited financial statements.
Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
•does not have to file an annual return of its shareholders with the Registrar of Companies;
•is not required to open its register of members for inspection;
•does not have to hold an annual general meeting;
•may issue shares with no par value;
•may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 30 years in the first instance);
•may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
•may register as a limited duration company; and
•may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Transfer of Ordinary Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
•the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
•the instrument of transfer is in respect of only one class of shares;
•the instrument of transfer is properly stamped, if required;
•in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; and
•a fee of such maximum sum as The Nasdaq Global Select Market may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged with the company, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of The Nasdaq Select Global Market, be suspended and the register closed at such times and for such periods as our board of directors may in their absolute discretion from time to time determine, provided always, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year.
Variations of Rights of Shares
If at any time our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or series or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares, or with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.
Issuance of Additional Shares
Our Memorandum and Articles authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our Memorandum and Articles also authorizes our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:
•the designation of the series;
•the number of shares of the series;
•the dividend rights, dividend rates, conversion rights, voting rights;
•the rights and terms of redemption and liquidation preferences; and
•any other powers, preferences and relative, participating, optional and other special rights.
Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Anti-Takeover Provisions
Some provisions of our Memorandum and Articles may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
•authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders; and
•authorize our board of directors to cancel or postpone any duly convened general meeting at any time prior to such meeting (except for general meetings requisitioned by shareholders holding, at the date of the deposit of any request for a general meeting, in aggregate not less than one-third of the aggregate number of votes attaching to all issued and outstanding shares of the company as at the date of the deposit.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles for a proper purpose and for what they believe in good faith to be in the best interests of our company in accordance with their fiduciary duties under Cayman Islands law.
Differences in Corporate Law
The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be signed by a director (or the equivalent position of the non-Cayman Islands company) and filed with the Registrar of Companies of the Cayman Islands together with, among other things, a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.
The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.
Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of creditors or the arrangement is approved by three-fourths in value of the shareholders or each such class of shareholders, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:
•the statutory provisions as to the required majority vote have been met;
•the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;
•the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
•the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.
The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:
•a company acts or proposes to act illegally or ultra vires;
•the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and
•those who control the company are perpetrating a “fraud on the minority.”
Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
Our Memorandum and Articles provide that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our Memorandum and Articles.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
Shareholder Action by Written Resolution. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Our Memorandum and Articles provide that no action shall be taken by the shareholders except at an annual or extraordinary general meeting called in accordance with our Memorandum and Articles and no action shall be taken by the shareholders by written consent or electronic transmission, subject to the Companies Act.
Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and Articles allow our shareholders holding in aggregate not less than one-third of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such
meeting. As an exempted Cayman Islands company, we may but are not obliged by law to call shareholders’ annual general meetings. See “-Our Memorandum and Articles -General Meetings of Shareholders” for more information on the rights of our shareholders’ rights to put proposals before the annual general meeting.
Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled for a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the law of the Cayman Islands but our Memorandum and Articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our Memorandum and Articles, directors may be removed only for cause by an ordinary resolution of our shareholders. In addition, a director’s office shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) is found to be or becomes of unsound mind or dies; (iii) resigns his office by notice in writing to the company; (iv) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the board resolves that his office be vacated; or (v) is removed from office pursuant to any other provisions of our Memorandum and Articles.
Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.
Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under the Companies Act and our Memorandum and Articles, our company may be wound up, liquidated and dissolved by a special resolution of our shareholders.
Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our Memorandum and Articles, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act and our Memorandum and Articles, our Memorandum and Articles may only be amended by a special resolution of our shareholders.
Rights of Non-resident or Foreign Shareholders
There are no limitations imposed by our Memorandum and Articles on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our post-offering amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.
Options
As of December 31, 2023, options covering 6,366,538 ordinary shares with a weighted-average exercise price of
$9.33 per share were outstanding. The options generally lapse after 10 years from date of grant.
Restricted Stock Units
As of December 31, 2023, there were restricted stock units outstanding representing 4,948,956 ordinary shares upon vesting.
Registration Rights
Not applicable.
Listing
Our ADSs are listed on The Nasdaq Global Select Market under the trading symbol “LEGN.”
Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
Description of American Depositary Shares
American Depositary Receipts
JPMorgan Chase Bank, N.A., or JPMorgan, as depositary, registers and delivers the ADSs. Each ADS represents an ownership interest in a designated number of shares which we deposit with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary, yourself as an ADR holder and all other ADR holders, and all beneficial owners of an interest in the ADSs evidenced by ADRs from time to time.
The depositary’s office is located at 383 Madison Avenue, Floor 11, New York, NY 10179.
The ADS to share ratio is subject to amendment as provided in the form of ADR (which may give rise to fees contemplated by the form of ADR). In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which they have not distributed directly to you.
A beneficial owner is any person or entity having a beneficial ownership interest ADSs. A beneficial owner need not be the holder of the ADR evidencing such ADS. If a beneficial owner of ADSs is not an ADR holder, it must rely on the holder of the ADR(s) evidencing such ADSs in order to assert any rights or receive any benefits under the deposit agreement. A beneficial owner shall only be able to exercise any right or receive any benefit under the deposit agreement solely through the holder of the ADR(s) evidencing the ADSs owned by such beneficial owner. The arrangements between a beneficial owner of ADSs and the holder of the corresponding ADRs may affect the beneficial owner’s ability to exercise any rights it may have.
An ADR holder shall be deemed to have all requisite authority to act on behalf of any and all beneficial owners of the ADSs evidenced by the ADRs registered in such ADR holder’s name for all purposes under the deposit agreement and ADRs. The depositary’s only notification obligations under the deposit agreement and the ADRs is to registered ADR holders. Notice to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs evidenced by such ADR holder’s ADRs.
Unless certificated ADRs are specifically requested, all ADSs will be issued on the books of our depositary in book-entry form and periodic statements will be mailed to you which reflect your ownership interest in such ADSs. In our description, references to American depositary receipts or ADRs shall include the statements you will receive which reflect your ownership of ADSs.
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, by having an ADS registered in your name on the books of the depositary, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs through your broker or financial institution nominee, you must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. You should consult with your broker or financial institution to find out what those procedures are.
As an ADR holder or beneficial owner, we will not treat you as a shareholder of ours and you will not have any shareholder rights. Cayman Island law governs shareholder rights. Because the depositary or its nominee will be the shareholder of record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Your rights are those of an ADR holder or of a beneficial owner. Such rights derive from the terms of the deposit agreement to be entered into among us, the depositary and all holders and beneficial owners from time to time of ADRs issued under the deposit agreement and, in the case of a beneficial owner, from the arrangements between the beneficial owner and the holder of the corresponding ADRs. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the depositary or its nominee will actually be the registered owner of the shares, you must rely on it to exercise the rights of a shareholder on your behalf.
The following is a summary of what we believe to be the material terms of the deposit agreement. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire deposit agreement and the form of ADR which contains the terms of your ADSs. You can read a copy of the deposit agreement which is filed as an exhibit to this annual report on Form 20-F. You may also obtain a copy of the deposit agreement at the SEC’s Public Reference Room which is located at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. You may also find the annual report and the attached deposit agreement on the SEC’s website at http://www.sec.gov.
Share Dividends and Other Distributions
How will I receive dividends and other distributions on the shares underlying my ADSs?
We may make various types of distributions with respect to our securities. The depositary has agreed that, to the extent practicable, it will pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after converting any cash received into U.S. dollars (if it determines such conversion may be made on a reasonable basis) and, in all cases, making any necessary deductions provided for in the deposit agreement. The depositary may utilize a division, branch or affiliate of JPMorgan to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement. Such division, branch and/or affiliate may charge the depositary a fee in connection with such sales, which fee is considered an expense of the depositary. You will receive these distributions in proportion to the number of underlying securities that your ADSs represent.
Except as stated below, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:
•Cash. The depositary will distribute any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain registered ADR holders, and (iii) deduction of the depositary’s and/or its agents’ expenses in (1) converting any foreign currency to U.S. dollars to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, you may lose some or all of the value of the distribution.
•Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADR holders entitled thereto.
•Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide evidence satisfactory to the depositary that it may lawfully distribute such rights, the depositary will distribute warrants or other instruments in the discretion of the depositary representing such rights. However, if we do not timely furnish such evidence, the depositary may:
(i) sell such rights if practicable and distribute the net proceeds in the same manner as cash to the ADR holders entitled thereto; or
(ii) if it is not practicable to sell such rights by reason of the non-transferability of the rights, limited markets therefor, their short duration or otherwise, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing and the rights may lapse.
•Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash.
If the depositary determines in its discretion that any distribution described above is not practicable with respect to any specific registered ADR holder, the depositary may choose any method of distribution that it deems practicable for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items.
Any U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability and dealt with by the depositary in accordance with its then current practices.
The depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable.
There can be no assurance that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, nor that any of such transactions can be completed within a specified time period. All purchases and sales of securities will be handled by the depositary in accordance with its then current policies, which are currently set forth in the “Depositary Receipt Sale and Purchase of Security” section of https://www.adr.com/Investors/FindOutAboutDRs, the location and contents of which the depositary shall be solely responsible for.
Deposit, Withdrawal and Cancellation
How does the depositary issue ADSs?
The depositary will issue ADSs if you or your broker deposit shares or evidence of rights to receive shares with the custodian and pay the fees and expenses owing to the depositary in connection with such issuance.
Shares deposited in the future with the custodian must be accompanied by certain delivery documentation and shall, at the time of such deposit, be registered in the name of JPMorgan Chase Bank, N.A., as depositary for the benefit of holders of ADRs or in such other name as the depositary shall direct.
The custodian will hold all deposited shares for the account and to the order of the depositary, in each case for the benefit of ADR holders. ADR holders and beneficial owners thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities.”
Deposited securities are not intended to, and shall not, constitute proprietary assets of the depositary, the custodian or their nominees. Beneficial ownership in deposited securities is intended to be, and shall at all times during the term of the deposit agreement continue to be, vested in the beneficial owners of the ADSs representing such deposited securities. Notwithstanding anything else contained herein, in the deposit agreement, in the form of ADR and/or in any outstanding ADSs, the depositary, the custodian and their respective nominees are intended to be, and shall at all times during the term of the deposit agreement be, the record holder(s) only of the deposited securities represented by the ADSs for the benefit of the ADR holders. The depositary, on its own behalf and on behalf of the custodian and their respective nominees, disclaims any beneficial ownership interest in the deposited securities held on behalf of the ADR holders.
Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All of the ADSs issued will, unless specifically requested to the contrary, be part of the depositary’s direct registration system, and a registered holder will receive periodic statements from the depositary which will show the number of ADSs registered in such holder’s name. An ADR holder can request that the ADSs not be held through the depositary’s direct registration system and that a certificated ADR be issued.
How do ADR holders cancel an ADS and obtain deposited securities?
When you turn in your ADR certificate at the depositary’s office, or when you provide proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares to you or upon your written order. Delivery of deposited securities in certificated form will be made at the custodian’s office. At your risk, expense and request, the depositary may deliver deposited securities at such other place as you may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
•temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends;
•the payment of fees, taxes and similar charges; or
•compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Record Dates
The depositary may, after consultation with us if practicable, fix record dates (which, to the extent applicable, shall be as near as practicable to any corresponding record dates set by us) for the determination of the registered ADR holders who will be entitled (or obligated, as the case may be):
•to receive any distribution on or in respect of deposited securities,
•to give instructions for the exercise of voting rights at a meeting of holders of shares, or
•to pay the fee assessed by the depositary for administration of the ADR program and for any expenses as provided for in the ADR,
•to receive any notice or to act in respect of other matters, all subject to the provisions of the deposit agreement.
Voting Rights
How do I vote?
If you are an ADR holder and the depositary asks you to provide it with voting instructions, you may instruct the depositary how to exercise the voting rights for the shares which underlie your ADSs. As soon as practicable after receipt from us of notice of any meeting at which the holders of shares are entitled to vote, or of our solicitation of consents or proxies from holders of shares, the depositary shall fix the ADS record date in accordance with the provisions of the deposit agreement, provided that if the depositary receives a written request from us in a timely manner and at least 30 days prior to the date of such vote or meeting, the depositary shall, at our expense, distribute to the registered ADR holders a “voting notice” stating (i) final information particular to such vote and meeting and any solicitation materials, (ii) that each ADR holder on the record date set by the depositary will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct the depositary as to the exercise of the voting rights, if any, pertaining to the deposited securities represented by the ADSs evidenced by such ADR holder’s ADRs and (iii) the manner in which such instructions may be given, or deemed to be given pursuant to the terms of the deposit agreement, including instructions for giving a discretionary proxy to a person designated by us. Each ADR holder shall be solely responsible for the forwarding of voting notices to the beneficial owners of ADSs registered in such ADR holder’s name. There is no guarantee that ADR holders and beneficial owners generally or any holder or beneficial owner in particular will receive the notice described above with sufficient time to enable such ADR holder or beneficial owner to return any voting instructions to the depositary in a timely manner.
Following actual receipt by the ADR department responsible for proxies and voting of ADR holders’ instructions (including, without limitation, instructions of any entity or entities acting on behalf of the nominee for DTC), the depositary shall, in the manner and on or before the time established by the depositary for such purpose, endeavor to vote or cause to be voted the deposited securities represented by the ADSs evidenced by such ADR holders’ ADRs in accordance with such instructions insofar as practicable and permitted under the provisions of or governing deposited securities.
To the extent that (A) we have provided the depositary with at least 35 days’ notice of the proposed meeting, (B) the voting notice will be received by all ADR holders and beneficial owners no less than 10 days prior to the date of the meeting and/or the cut-off date for the solicitation of consents, and (C) the depositary does not receive instructions on a particular agenda item from an ADR holder (including, without limitation, any entity or entities acting on behalf of the nominee for DTC) in a timely manner, such ADR holder shall be deemed, and in the deposit agreement the depositary is instructed to deem such ADR holder, to have instructed the depositary to give a discretionary proxy for such agenda item(s) to a person designated by us to vote the deposited securities represented by the ADSs for which actual instructions were not so given by all such ADR holders on such agenda item(s), provided that no such instruction shall be deemed given and no discretionary proxy shall be given unless (1) we inform the depositary in writing (and we agree to provide the depositary with such instruction promptly in writing) that (a) we wish such proxy to be given with respect to such agenda item(s), (b) there is no substantial opposition existing with respect to such agenda item(s) and (c) such agenda item(s), if approved, would not materially or adversely affect the rights of holders of shares, and (2) the depositary has obtained an opinion of counsel, in form and substance satisfactory to the depositary, confirming that (i) the granting of such discretionary proxy does not subject the depositary to any reporting obligations in the Cayman Islands, (ii) the granting of
such proxy will not result in a violation of the laws, rules, regulations or permits of the Cayman Islands, (iii) the voting arrangement and deemed instruction as contemplated herein will be given effect under the laws, rules and regulations of the Cayman Islands, and (iv) the granting of such discretionary proxy will not under any circumstances result in the shares represented by the ADSs being treated as assets of the depositary under the laws, rules or regulations of the Cayman Islands.
The depositary may from time to time access information available to it to consider whether any of the circumstances described above exist, or request additional information from us in respect thereto. By taking any such action, the depositary shall not in any way be deemed or inferred to have been required, or have had any duty or responsibility (contractual or otherwise), to monitor or inquire whether any of the circumstances described above existed. In addition to the limitations provided for in the deposit agreement, ADR holders and beneficial owners are advised and agree that (a) the depositary will rely fully and exclusively on us to inform it of any of the circumstances set forth above, and (b) neither the depositary, the custodian nor any of their respective agents shall be obliged to inquire or investigate whether any of the circumstances described above exist and/or whether we complied with our obligation to timely inform the depositary of such circumstances. Neither the depositary, the custodian nor any of their respective agents shall incur any liability to ADR holders or beneficial owners (i) as a result of our failure to determine that any of the circumstances described above exist or our failure to timely notify the depositary of any such circumstances or (ii) if any agenda item which is approved at a meeting has, or is claimed to have, a material or adverse effect on the rights of holders of shares. Because there is no guarantee that ADR holders and beneficial owners will receive the notices described above with sufficient time to enable such ADR holders or beneficial owners to return any voting instructions to the depositary in a timely manner, ADR holders and beneficial owners may be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us in such circumstances, and neither the depositary, the custodian nor any of their respective agents shall incur any liability to ADR holders or beneficial owners in such circumstances.
ADR holders are strongly encouraged to forward their voting instructions to the depositary as soon as possible. For instructions to be valid, the ADR department of the depositary that is responsible for proxies and voting must receive them in the manner and on or before the time specified, notwithstanding that such instructions may have been physically received by the depositary prior to such time. The depositary will not itself exercise any voting discretion in respect of deposited securities. The depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given, or deemed to be given pursuant to the terms of the deposit agreement, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy (or deemed to have been instructed pursuant to the terms of the deposit agreement), or for the effect of any such vote. Notwithstanding anything contained in the deposit agreement or any ADR, the depositary may, to the extent not prohibited by any law, regulation, or requirement of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the depositary in connection with any meeting of or solicitation of consents or proxies from holders of deposited securities, distribute to the registered holders of ADRs a notice that provides such ADR holders with or otherwise publicizes to such ADR holders instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).
We have advised the depositary that under Cayman Islands law and our constituent documents, each as in effect as of the date of the deposit agreement, voting at any meeting of shareholders is by show of hands unless a poll is (before or on the declaration of the results of the show of hands) demanded. In the event that voting on any resolution or matter is conducted on a show of hands basis in accordance with our constituent documents, the depositary will refrain from voting and the voting instructions received by the depositary from ADR holders shall lapse. The depositary will not demand a poll or join in demanding a poll, whether or not requested to do so by ADR holders or beneficial owners.
There is no guarantee that you will receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
Reports and Other Communications
Will ADR holders be able to view our reports?
The depositary will make available for inspection by ADR holders at the offices of the depositary and the custodian the deposit agreement, the provisions of or governing deposited securities, and any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities.
Additionally, if we make any written communications generally available to holders of our shares, and we furnish copies thereof (or English translations or summaries) to the depositary, it will distribute the same to registered ADR holders.
Fees and Expenses
What fees and expenses will I be responsible for paying?
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, $5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, canceled or surrendered, or upon which a share distribution or elective distribution is made or offered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall also be incurred by the ADR holders, the beneficial owners, by any party depositing or withdrawing shares or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
•a fee of U.S.$0.05 or less per ADS held for any cash distribution made, or for any elective cash/stock dividend offered, pursuant to the deposit agreement;
•an aggregate fee of U.S.$0.05 or less per ADS per calendar year (or portion thereof) for services performed by the depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision);
•a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of ADR holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate basis against ADR holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such ADR holders or by deducting such charge from one or more cash dividends or other cash distributions);
•a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the $0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those ADR holders entitled thereto;
•stock transfer or other taxes and other governmental charges;
•SWIFT, cable, telex and facsimile transmission and delivery charges incurred at the request of the persons depositing or holders delivering shares, in connection with the deposit or delivery of shares, ADRs or deposited securities;
•transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; and
•fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/or private sale of securities under the deposit agreement.
To facilitate the administration of various depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the depositary may engage the foreign exchange desk within JPMorgan Chase Bank, N.A., or the Bank, and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars. For certain currencies, foreign exchange transactions are entered into with the Bank or an affiliate, as the case may be, acting in a principal capacity. For other currencies, foreign exchange transactions are routed directly to and managed by an unaffiliated local custodian (or other third party local liquidity provider), and neither the Bank nor any of its affiliates is a party to such foreign exchange transactions.
The foreign exchange rate applied to an foreign exchange transaction will be either (a) a published benchmark rate, or (b) a rate determined by a third party local liquidity provider, in each case plus or minus a spread, as applicable. The depositary will disclose which foreign exchange rate and spread, if any, apply to such currency on the “Disclosure” page (or successor page) of www.adr.com. Such applicable foreign exchange rate and spread may (and neither the depositary, the Bank nor any of their affiliates is under any obligation to ensure that such rate does not) differ from rates and spreads at which comparable transactions are entered into with other customers or the range of foreign exchange rates and spreads at which the Bank or any of its affiliates enters into foreign exchange transactions in the relevant currency pair on the date of the foreign exchange transaction. Additionally, the timing of execution of an foreign exchange transaction varies according to local market dynamics, which may include regulatory requirements, market hours and liquidity in the foreign exchange market or other factors. Furthermore, the Bank and its affiliates may manage the associated risks of their position in the market in a manner they deem appropriate without regard to the impact of such activities on the depositary, us, holders or beneficial owners. The spread applied does not reflect any gains or losses that may be earned or incurred by the Bank and its affiliates as a result of risk management or other hedging related activity.
Notwithstanding the foregoing, to the extent we provide U.S. dollars to the depositary, neither the Bank nor any of its affiliates will execute a foreign exchange transaction as set forth herein. In such case, the depositary will distribute the U.S. dollars received from us.
Further details relating to the applicable foreign exchange rate, the applicable spread and the execution of foreign exchange transactions will be provided by the depositary on ADR.com. Each holder and beneficial owner by holding or owning an ADR or ADS or an interest therein, and we, each acknowledge and agree that the terms applicable to foreign exchange transactions disclosed from time to time on ADR.com will apply to any foreign exchange transaction executed pursuant to the deposit agreement.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary.
The right of the depositary to receive payment of fees, charges and expenses survives the termination of the deposit agreement, and shall extend for those fees, charges and expenses incurred prior to the effectiveness of any resignation or removal of the depositary.
The fees and charges described above may be amended from time to time by agreement between us and the depositary.
The depositary may make available to us a set amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary will generally set off the amounts owing from distributions made to holders of ADSs. If, however, no distribution exists and payment owing is not timely received by the depositary, the depositary may refuse to provide any
further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the depositary.
Payment of Taxes
ADR holders or beneficial owners must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If any taxes or other governmental charges (including any penalties and/or interest) shall become payable by or on behalf of the custodian or the depositary with respect to any ADR, any deposited securities represented by the ADSs evidenced thereby or any distribution thereon, including, without limitation, any Chinese Enterprise Income Tax owing if the SAT Circular 82 issued by the SAT or any other circular, edict, order or ruling, as issued and as from time to time amended, is applied or otherwise, such tax or other governmental charge shall be paid by the ADR holder thereof to the depositary and by holding or owning, or having held or owned, an ADR or any ADSs evidenced thereby, the ADR holder and all beneficial owners thereof, and all prior ADR holders and beneficial owners thereof, jointly and severally, agree to indemnify, defend and save harmless each of the depositary and its agents in respect of such tax or other governmental charge. Notwithstanding the depositary’s right to seek payment from current and former beneficial owners, by holding or owning, or having held or owned, an ADR, the ADR holder thereof (and prior ADR holder thereof) acknowledges and agrees that the depositary has no obligation to seek payment of amounts owing from any current or former beneficial owner. If an ADR holder owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities (by public or private sale) and deduct the amount owing from the net proceeds of such sale. In either case the ADR holder remains liable for any shortfall. If any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities until such payment is made. If any tax or governmental charge is required to be withheld on any cash distribution, the depositary may deduct the amount required to be withheld from any cash distribution or, in the case of a non-cash distribution, sell the distributed property or securities (by public or private sale) in such amounts and in such manner as the depositary deems necessary and practicable to pay such taxes and distribute any remaining net proceeds or the balance of any such property after deduction of such taxes to the ADR holders entitled thereto.
As an ADR holder or beneficial owner, you will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective officers, directors, employees, agents and affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced rate of withholding at source or other tax benefit obtained.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or (ii) any distributions of shares or other property not made to holders of ADRs or (iii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to, and shall if reasonably requested by us:
•amend the form of ADR;
•distribute additional or amended ADRs;
•distribute cash, securities or other property it has received in connection with such actions;
•sell any securities or property received and distribute the proceeds as cash; or
•none of the above.
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADSs without your consent for any reason. ADR holders must be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, SWIFT, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or otherwise prejudices any substantial existing right of ADR holders or beneficial owners. Such notice need not describe in detail the specific amendments effectuated thereby, but must identify to ADR holders and beneficial owners a means to access the text of such amendment. If an ADR holder continues to hold an ADR or ADRs after being so notified, such ADR holder and any beneficial owner are deemed to agree to such amendment and to be bound by the deposit agreement as so amended. No amendment, however, will impair your right to surrender your ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.
Any amendments or supplements which (i) are reasonably necessary (as agreed by us and the depositary) in order for (a) the ADSs to be registered on Form F-6 under the Securities Act of 1933 or (b) the ADSs or shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by ADR holders, shall be deemed not to prejudice any substantial rights of ADR holders or beneficial owners. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require amendment or supplement of the deposit agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the deposit agreement in such circumstances may become effective before a notice of such amendment or supplement is given to ADR holders or within any other period of time as required for compliance. Notice of any amendment to the deposit agreement or form of ADRs shall not need to describe in detail the specific amendments effectuated thereby, and failure to describe the specific amendments in any such notice shall not render such notice invalid, provided, however, that, in each such case, the notice given to the ADR holders identifies a means for ADR holders and beneficial owners to retrieve or receive the text of such amendment (i.e., upon retrieval from the SEC’s, the depositary’s or our website or upon request from the depositary).
How may the deposit agreement be terminated?
The depositary may, and shall at our written direction, terminate the deposit agreement and the ADRs by mailing notice of such termination to the registered holders of ADRs at least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered ADR holders unless a successor depositary shall not be operating under the deposit agreement within 60 days of the date of such resignation, and (ii) been removed as depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating under the deposit agreement on the 60th day after our notice of removal was first provided to the depositary.
After the date so fixed for termination, (a) all direct registration ADRs shall cease to be eligible for the direct registration system and shall be considered ADRs issued on the ADR register maintained by the depositary and (b) the depositary shall use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its nominees shall thereafter be a registered holder of ADRs. At such time as the ADSs cease to be DTC eligible and/or neither DTC nor any of its nominees is a registered holder of ADRs, the depositary shall (a) instruct its custodian to deliver all shares to us along with a general stock power that refers to the names set forth on the ADR register maintained by the depositary and (b) provide us with a copy of the ADR register maintained by the depositary. Upon receipt of such shares and the ADR register maintained by the depositary, we have agreed to use our best efforts to issue to each registered ADR holder a Share certificate representing the Shares represented by the ADSs reflected on the ADR register maintained by the depositary in such registered ADR holder’s name and to deliver such Share certificate to the registered ADR holder at the address set forth on the ADR register maintained by the depositary. After providing such instruction to the custodian and delivering a copy of the ADR register to us, the depositary and its agents will perform no further acts under the deposit agreement or the ADRs and shall cease to have any obligations under the deposit agreement and/or the ADRs.
Notwithstanding anything to the contrary, in connection with any such termination, the depositary may, in its sole discretion and without notice to us, establish an unsponsored American depositary share program (on such terms as the depositary may determine) for our shares and make available to ADR holders a means to withdraw the shares represented by the ADSs issued under the deposit agreement and to direct the deposit of such shares into such unsponsored American depositary share program, subject, in each case, to receipt by the depositary, at its discretion, of the fees, charges and
expenses provided for under the deposit agreement and the fees, charges and expenses applicable to the unsponsored American depositary share program.
Limitations on Obligations and Liability to ADR holders
Limits on our obligations and the obligations of the depositary; limits on liability to ADR holders and holders of ADSs
Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, and from time to time in the case of the production of proofs as described below, we or the depositary or its custodian may require:
•payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement;
•the production of proof satisfactory to it of (i) the identity of any signatory and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial or other ownership of, or interest in, any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and
•compliance with such regulations as the depositary may establish consistent with the deposit agreement.
The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, may be suspended, generally or in particular instances, when the ADR register or any register for deposited securities is closed or when any such action is deemed advisable by the depositary; provided that the ability to withdraw shares may only be limited under the following circumstances: (i) temporary delays caused by closing transfer books of the depositary or our transfer books or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends, (ii) the payment of fees, taxes, and similar charges, and (iii) compliance with any laws or governmental regulations relating to ADRs or to the withdrawal of deposited securities.
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents, provided, however, that no disclaimer of liability under the Securities Act of 1933 is intended by any of the limitations of liabilities provisions of the deposit agreement. The deposit agreement provides that each of us, the depositary and our respective agents will:
•incur or assume no liability (including, without limitation, to holders or beneficial owners) if any present or future law, rule, regulation, fiat, order or decree of the Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, nationalization, expropriation, currency restrictions, work stoppage, strike, civil unrest, revolutions, rebellions, explosions, computer failure or circumstance beyond our, the depositary’s or our respective agents’ direct and immediate control shall prevent or delay, or shall cause any of them to be subject to any civil or criminal penalty in connection with, any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting);
•incur or assume no liability (including, without limitation, to holders or beneficial owners) by reason of any non-performance or delay, caused as aforesaid, in the performance of any act or things which by the terms of the deposit agreement it is provided shall or may be done or performed or any exercise or failure to exercise discretion under the deposit agreement or the ADRs including, without limitation, any failure to determine that any distribution or action may be lawful or reasonably practicable;
•incur or assume no liability (including, without limitation, to holders or beneficial owners) if it performs its obligations under the deposit agreement and ADRs without gross negligence or willful misconduct; in the case of
the depositary and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities the ADSs or the ADRs;
•in the case of us and our agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities the ADSs or the ADRs, which in our or our agents’ opinion, as the case may be, may involve it in expense or liability, unless indemnity satisfactory to us or our agent, as the case may be against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be requested;
•not be liable (including, without limitation, to holders or beneficial owners) for any action or inaction by it in reliance upon the advice of or information from any legal counsel, any accountant, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information and/or, in the case of the depositary, us; or
•may rely and shall be protected in acting upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed, presented or given by the proper party or parties.
Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities, the ADSs or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADRs or otherwise related to the deposit agreement or ADRs to the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or other regulators. The depositary shall not be liable for the acts or omissions made by, or the insolvency of, any securities depository, clearing agency or settlement system. Furthermore, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, the insolvency of any custodian that is not a branch or affiliate of JPMorgan. Notwithstanding anything to the contrary contained in the deposit agreement or any ADRs, the depositary shall not be responsible for, and shall incur no liability in connection with or arising from, any act or omission to act on the part of the custodian except to the extent that any registered ADR holder has incurred liability directly as a result of the custodian having (i) committed fraud or willful misconduct in the provision of custodial services to the depositary or (ii) failed to use reasonable care in the provision of custodial services to the depositary as determined in accordance with the standards prevailing in the jurisdiction in which the custodian is located. The depositary and the custodian(s) may use third party delivery services and providers of information regarding matters such as, but not limited to, pricing, proxy voting, corporate actions, class action litigation and other services in connection with the ADRs and the deposit agreement, and use local agents to provide services such as, but not limited to, attendance at any meetings of security holders of issuers. Although the depositary and the custodian will use reasonable care (and cause their agents to use reasonable care) in the selection and retention of such third party providers and local agents, they will not be responsible for any errors or omissions made by them in providing the relevant information or services. The depositary shall not have any liability for the price received in connection with any sale of securities, the timing thereof or any delay in action or omission to act nor shall it be responsible for any error or delay in action, omission to act, default or negligence on the part of the party so retained in connection with any such sale or proposed sale.
The depositary has no obligation to inform ADR holders or beneficial owners about the requirements of the laws, rules or regulations or any changes therein or thereto of the Cayman Islands, Hong Kong, the People’s Republic of China, the United States or any other country or jurisdiction or of any governmental or regulatory authority or any securities exchange or market or automated quotation system.
Additionally, none of us, the depositary or the custodian shall be liable for the failure by any registered holder of ADRs or beneficial owner therein to obtain the benefits of credits or refunds of non-U.S. tax paid against such ADR holder’s or beneficial owner’s income tax liability. The depositary is under no obligation to provide the ADR holders and beneficial owners, or any of them, with any information about our tax status. Neither we nor the depositary shall incur any liability for any tax or tax consequences that may be incurred by registered ADR holders or beneficial owners on account of their ownership or disposition of ADRs or ADSs.
Neither the depositary nor its agents will be responsible for any failure to carry out any instructions to vote any of the deposited securities, for the manner in which any voting instructions are given, or deemed to be given pursuant to the terms of the deposit agreement, including instructions to give a discretionary proxy to a person designated by us, for the manner in which any vote is cast, including, without limitation, any vote cast by a person to whom the depositary is instructed to grant a discretionary proxy (or deemed to have been instructed pursuant to the terms of the deposit agreement), or for the effect of any such vote. The depositary may rely upon instructions from us or our counsel in respect of any approval or license required for any currency conversion, transfer or distribution. The depositary shall not incur any liability for the content of any information submitted to it by us or on our behalf for distribution to ADR holders or for any inaccuracy of any translation thereof, for any investment risk associated with acquiring an interest in the deposited securities, for the validity or worth of the deposited securities, for the credit-worthiness of any third party, for allowing any rights to lapse upon the terms of the deposit agreement or for the failure or timeliness of any notice from us. The depositary shall not be liable for any acts or omissions made by a successor depositary whether in connection with a previous act or omission of the depositary or in connection with any matter arising wholly after the removal or resignation of the depositary. Neither the depositary nor any of its agents shall be liable for any indirect, special, punitive or consequential damages (including, without limitation, legal fees and expenses) or lost profits, in each case of any form incurred by any person or entity (including, without limitation holders or beneficial owners of ADRs and ADSs), whether or not foreseeable and regardless of the type of action in which such a claim may be brought.
In the deposit agreement each party thereto (including, for avoidance of doubt, each ADR holder and beneficial owner) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory). No provision of the deposit agreement or the ADRs is intended to constitute a waiver or limitation of any rights which an ADR holder or any beneficial owner may have under the Securities Act of 1933 or the Securities Exchange Act of 1934, to the extent applicable.
The depositary and its agents may own and deal in any class of securities of our company and our affiliates and in ADRs.
Disclosure of Interest in ADSs
To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of, or interest in, deposited securities, other shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, you as ADR holders or beneficial owners agree to comply with all such disclosure requirements and ownership limitations and to comply with any reasonable instructions we may provide in respect thereof.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary’s direct registration system. Registered holders of ADRs may inspect such records at the depositary’s office at all reasonable times, but solely for the purpose of communicating with other ADR holders in the interest of the business of our company or a matter relating to the deposit agreement. Such register may be closed at any time or from time to time, when deemed expedient by the depositary or, in the case of the issuance book portion of the ADR Register, when reasonably requested by the Company solely in order to enable the Company to comply with applicable law.
The depositary will maintain facilities for the delivery and receipt of ADRs.
Appointment
In the deposit agreement, each registered holder of ADRs and each beneficial owner, upon acceptance of any ADSs or ADRs (or any interest in any of them) issued in accordance with the terms and conditions of the deposit agreement will be deemed for all purposes to:
•be a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs,
•appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the applicable ADR or ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion may deem necessary or appropriate to carry out the purposes of the deposit agreement and the applicable ADR or ADRs, the taking of such actions to be the conclusive determinant of the necessity and appropriateness thereof; and
•acknowledge and agree that (i) nothing in the deposit agreement or any ADR shall give rise to a partnership or joint venture among the parties thereto, nor establish a fiduciary or similar relationship among such parties, (ii) the depositary, its divisions, branches and affiliates, and their respective agents, may from time to time be in the possession of non-public information about us, ADR holders, beneficial owners and/or their respective affiliates, (iii) the depositary and its divisions, branches and affiliates may at any time have multiple banking relationships with us, ADR holders, beneficial owners and/or the
•affiliates of any of them, (iv) the depositary and its divisions, branches and affiliates may, from time to time, be engaged in transactions in which parties adverse to us, ADR holders, beneficial owners and/or their respective affiliates may have interests, (v) nothing contained in the deposit agreement or any ADR(s) shall (A) preclude the depositary or any of its divisions, branches or affiliates from engaging in any such transactions or establishing or maintaining any such relationships, or (B) obligate the depositary or any of its divisions, branches or affiliates to disclose any such transactions or relationships or to account for any profit made or payment received in any such transactions or relationships, (vi) the depositary shall not be deemed to have knowledge of any information held by any branch, division or affiliate of the depositary and (vii) notice to an ADR holder shall be deemed, for all purposes of the deposit agreement and the ADRs, to constitute notice to any and all beneficial owners of the ADSs evidenced by such ADR holder’s ADRs. For all purposes under the deposit agreement and the ADRs, the ADR holders thereof shall be deemed to have all requisite authority to act on behalf of any and all beneficial owners of the ADSs evidenced by such ADRs.
Governing Law
The deposit agreement, the ADSs and the ADRs are governed by and construed in accordance with the internal laws of the State of New York. In the deposit agreement, we have submitted to the non-exclusive jurisdiction of the courts of the State of New York and appointed an agent for service of process on our behalf. Any action based on the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby may also be instituted by the depositary against us in any competent court in the Cayman Islands, Hong Kong, the People’s Republic of China, the United States and/or any other court of competent jurisdiction.
Under the deposit agreement, by holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each irrevocably agree that any legal suit, action or proceeding against or involving ADR holders or beneficial owners brought by us or the depositary, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may be instituted in a state or federal court in New York, New York, irrevocably waive any objection which you may have to the laying of venue of any such proceeding, and irrevocably submit to the non-exclusive jurisdiction of such courts in any such suit, action or proceeding. By holding or owning an ADR or ADS or an interest therein, ADR holders and beneficial owners each also irrevocably agree that any legal suit, action or proceeding against or involving the depositary brought by ADR holders or beneficial owners, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated thereby, may only be instituted in a state or federal court in New York, New York.
Notwithstanding the foregoing, (i) the depositary may, in its sole discretion, elect to institute any dispute, suit, action, controversy, claim or proceeding directly or indirectly based on, arising out of or relating to the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, including without limitation any question regarding its or their existence, validity, interpretation, performance or termination, against any other party or parties to the deposit agreement (including, without limitation, against ADR holders and beneficial owners of interests in ADSs), by having the matter referred to and finally resolved by an arbitration conducted under the terms described below, and (ii) the depositary may in its sole discretion require, by written notice to the relevant party or parties, that any dispute, suit, action, controversy, claim or proceeding against the depositary by any party or parties to the deposit agreement (including, without limitation, by ADR holders and beneficial owners of interests in ADSs) shall be referred to and finally settled by an
arbitration conducted under the terms described below. Any such arbitration shall be conducted in the English language either in New York, New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association or in Hong Kong following the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).
Jury Trial Waiver
In the deposit agreement, each party thereto (including, for the avoidance of doubt, each holder and beneficial owner of, and/or holder of interests in, ADSs or ADRs) irrevocably waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any suit, action or proceeding against the depositary and/or us directly or indirectly arising out of or relating to the shares or other deposited securities, the ADSs or the ADRs, the deposit agreement or any transaction contemplated therein, or the breach thereof (whether based on contract, tort, common law or any other theory), including any claim under the U.S. federal securities laws.
If we or the depositary were to oppose a jury trial demand based on such waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable state and federal law, including whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. The waiver to right to a jury trial in the deposit agreement is not intended to be deemed a waiver by any holder or beneficial owner of ADSs of our or the depositary’s compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.
Exhibit 4.4
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT (this “Amendment”) to that certain Amended and Restated Employment Agreement, dated August 1, 2022 (the “Employment Agreement”) by and between Legend Biotech USA Inc, together with its subsidiaries and parent company, Legend Biotech Corporation (collectively, the “Company”), and Ying Huang, Ph.D. (the “Executive”), is made on December 14, 2023 (the “Effective Date”).
WHEREAS, the Company and the Executive are parties to the Employment Agreement, and Section 17 of the Employment Agreement provides that the parties may amend the Employment Agreement by mutual written agreement;
WHEREAS, the Company and the Executive entered into an Intellectual Property Rights Agreement, Non- Competition, and Confidentiality Agreement at the inception of the Executive’s employment, as amended by Exhibit B to the Employment Agreement (as amended, the “Restrictive Covenants Agreement”), which agreement continues to govern and apply to the Executive’s employment with the Company); and
WHEREAS, the Company and the Executive now desire to amend the Employment Agreement and the Restrictive Covenants Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.Effective as of the Effective Date, Section 8(b)(iii) of the Employment Agreement is hereby amended and restated in its entirety to read as follows:
“(iii) notwithstanding anything to the contrary in any applicable restricted share unit award agreement, stock option agreement or other stock-based award agreement or applicable equity plan, (A) any unvested and outstanding equity awards held by the Executive as of the Date of Termination that would have vested during the Severance Period had the Executive remained employed shall be accelerated, such that such then-unvested equity awards shall immediately vest and become fully exercisable or non-forfeitable without regard to any time or individual performance-based requirements, but only so long as any applicable corporate performance goals are achieved, with vesting to be accelerated as of the Executive’s Date of Termination if there are no corporate performance goals, or if there are corporate performance goals, then within thirty (30) days following the determination of the attainment of corporate performance goals, provided, such corporate performance goals are achieved during the Severance Period; and (B) the post-termination exercise period attributable to any stock options (which, the Executive hereby acknowledges will disqualify any existing incentive stock options as of the date of this Agreement from its status as “incentive stock options”) shall be extended to eighteen (18) months (but no later than the original expiration date applicable to the option) from the Executive’s Date of Termination (and the Executive acknowledges that if such options are not exercised within 90 days after termination, any “incentive stock options” granted after the date hereof will lose such treatment); and”
1.Effective as of the Effective Date, the Executive agrees that the Restrictive Covenants Agreement is amended in accordance with Exhibit B-2 attached hereto, and as so amended continues to govern and apply to his ongoing employment with the Company.
2.All other provisions of the Employment Agreement shall remain in full force and effect according to their respective terms, and nothing contained herein shall be deemed a waiver of any right or abrogation of any obligation otherwise existing under the Employment Agreement except to the extent specifically provided for herein.
3.Notwithstanding the place where this Amendment may be executed by any of the parties hereto, the parties expressly agree that all of the terms and provisions hereof shall be construed in accordance with and governed by the laws of New Jersey.
4.This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures on this Amendment may be conveyed by facsimile or other electronic transmission and shall be binding upon the parties so transmitting their signatures. Counterparts with original signatures shall be provided to the other parties following the applicable facsimile or other electronic transmission; provided, that failure to provide the original counterpart shall have no effect on the validity or the binding nature of this Amendment.
[remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
LEGEND BIOTECH USA INC.
By: /s/ Lori Macomber_________________
Name: Lori Macomber
Title: Treasurer, Chief Financial Officer
EXECUTIVE
/s/ Ying Huang_______________________
Ying Huang, Ph.D.
EXHIBIT B-2
Amendment to Restrictive Covenants Agreement
By signing the Employment Agreement to which this Exhibit B-2 is attached, Section 13 of the Restrictive Covenants Agreement is modified by adding a new Sub-Section 13.8, as follows:
13.8 Protected Disclosures. I agree that nothing contained in this Agreement, any other agreement with the Company, or any Company policy limits my ability, with or without notice to the Company, to: (i) file a charge or complaint with any federal, state or local governmental agency or commission (a “Government Agency”), including without limitation, the Equal Employment Opportunity Commission, the National Labor Relations Board or the Securities and Exchange Commission; (ii) communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including by providing non-privileged documents or information; (iii) share compensation information concerning myself or others (provided that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information); (v) discuss or disclose information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that I have reason to believe is unlawful; or (vi) testify truthfully in a legal proceeding. I agree that any such communications and disclosures must not violate applicable law and the information disclosed must not have been obtained through a communication that was subject to the attorney-client privilege (unless disclosure of that information would otherwise be permitted consistent with such privilege or applicable law).
Exhibit 4.6
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT (this “Amendment”) to that certain Amended and Restated Employment Agreement, dated September 28, 2022 (the “Employment Agreement”) by and between Legend Biotech USA Inc, together with its subsidiaries and parent company, Legend Biotech Corporation (the “Company”), and Lori Macomber (the “Executive”), is made on December 14, 2023 (the “Effective Date”).
WHEREAS, the Company and the Executive are parties to the Employment Agreement, and Section 17 of the Employment Agreement provides that the parties may amend the Employment Agreement by mutual written agreement;
WHEREAS, the Company and the Executive entered into an Intellectual Property Rights Agreement, Non- Competition, and Confidentiality Agreement at the inception of the Executive’s employment, as amended by Exhibit B to the Employment Agreement (as amended, the “Restrictive Covenants Agreement”), which agreement continues to govern and apply to the Executive’s employment with the Company); and
WHEREAS, the Company and the Executive now desire to amend the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1.Effective as of the Effective Date, Section 8(b)(iii) of the Employment Agreement is hereby amended and restated in its entirety to read as follows:
“(iii) notwithstanding anything to the contrary in any applicable restricted share unit award agreement, stock option agreement or other stock-based award agreement or applicable equity plan, (A) any unvested and outstanding equity awards held by the Executive as of the Date of Termination that would have vested during the Severance Period had the Executive remained employed shall be accelerated, such that such then-unvested equity awards shall immediately vest and become fully exercisable or non-forfeitable without regard to any time or individual performance-based requirements, but only so long as any applicable corporate performance goals are achieved, with vesting to be accelerated as of the Executive’s Date of Termination if there are no corporate performance goals, or if there are corporate performance goals, then within thirty (30) days following the determination of the attainment of corporate performance goals, provided, such corporate performance goals are achieved during the Severance Period; and (B) the post-termination exercise period attributable to any stock options (which, the Executive hereby acknowledges will disqualify any existing incentive stock options as of the date of this Agreement from its status as “incentive stock options”) shall be extended to twelve (12) months (but no later than the original expiration date applicable to the option) from the Executive’s Date of Termination (and the Executive acknowledges that if such options are not exercised within 90 days after termination, any “incentive stock options” granted after the date hereof will lose such treatment); and”
1.Effective as of the Effective Date, the Executive agrees that the Restrictive Covenants Agreement is amended in accordance with Exhibit B-2 attached hereto, and as so amended continues to govern and apply to his ongoing employment with the Company.
2.All other provisions of the Employment Agreement shall remain in full force and effect according to their respective terms, and nothing contained herein shall be deemed a waiver of any right or abrogation of any obligation otherwise existing under the Employment Agreement except to the extent specifically provided for herein.
3.Notwithstanding the place where this Amendment may be executed by any of the parties hereto, the parties expressly agree that all of the terms and provisions hereof shall be construed in accordance with and governed by the laws of New Jersey.
4.This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures on this Amendment may be conveyed by facsimile or other electronic transmission and shall be binding upon the parties so transmitting their signatures. Counterparts with original signatures shall be provided to the other parties following the applicable facsimile or other electronic transmission; provided, that failure to provide the original counterpart shall have no effect on the validity or the binding nature of this Amendment.
[remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.
LEGEND BIOTECH USA INC.
By: /s/ Ying Huang_________________
Name: Ying Huang, Ph.D.
Title: Chief Executive Officer
EXECUTIVE
/s/ Lori Macomber__________________
Lori Macomber
EXHIBIT B-2
Amendment to Restrictive Covenants Agreement
By signing the Employment Agreement to which this Exhibit B-2 is attached, Section 13 of the Restrictive Covenants Agreement is modified by adding a new Sub-Section 13.8, as follows:
13.8 Protected Disclosures. I agree that nothing contained in this Agreement, any other agreement with the Company, or any Company policy limits my ability, with or without notice to the Company, to: (i) file a charge or complaint with any federal, state or local governmental agency or commission (a “Government Agency”), including without limitation, the Equal Employment Opportunity Commission, the National Labor Relations Board or the Securities and Exchange Commission; (ii) communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including by providing non-privileged documents or information; (iii) share compensation information concerning myself or others (provided that this does not permit me to disclose compensation information concerning others that I obtain because my job responsibilities require or allow access to such information); (v) discuss or disclose information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that I have reason to believe is unlawful; or (vi) testify truthfully in a legal proceeding. I agree that any such communications and disclosures must not violate applicable law and the information disclosed must not have been obtained through a communication that was subject to the attorney-client privilege (unless disclosure of that information would otherwise be permitted consistent with such privilege or applicable law).
EXHIBIT 4.11
Legend Biotech Corporation
Non-Employee Director Compensation Policy
Each member of the Board of Directors (the “Board”) who is not also serving as an employee of Legend Biotech Corporation (the “Company”) and is not affiliated with an entity that beneficially owns 5% or more of the Company’s outstanding share capital (each such member, an “Eligible Director”) will receive the compensation described in this Eligible Director Compensation Policy for his or her Board service upon and following the date of the underwriting agreement between the Company and the underwriters managing the initial public offering of ordinary shares, par value $0.0001 per share, of the Company (the “Ordinary Shares”) in the form of American Depositary Shares (collectively with the Ordinary Shares, the “Securities”), pursuant to which the Securities are priced in such initial public offering (the “Effective Date”). An Eligible Director may decline all or any portion of his or her compensation by giving notice to the Company prior to the date cash may be paid or equity awards are to be granted, as the case may be. This policy is effective as of the Effective Date and may be amended at any time in the sole discretion of the Board or the Compensation Committee of the Board.
Annual Cash Compensation
All Eligible Directors shall receive an annual board service retainer of $75,000. Unless a director elects otherwise, the annual board service retainer amount set forth above is payable in cash in equal quarterly installments, payable in advance during the first 30 days of each quarter in which the service will occur. If an Eligible Director joins the Board at a time other than effective as of the first day of a fiscal quarter, the annual board service retainer set forth above will be pro-rated based on days served in the applicable fiscal year, with the pro-rated amount paid for the first fiscal quarter in which the Eligible Director provides the service (payable not later than 30 days after the Eligible Director commences such service), and regular full quarterly payments thereafter.
Equity Compensation
The equity compensation set forth below will be granted under the Company’s Share Option Scheme (“Option Scheme”) and the Company’s Restricted Shares Plan (the “RSU Plan”). All share options granted under the Option Scheme will be nonstatutory share options, with an exercise price per share equal to 100% of the Fair Market Value (as defined in the Option Scheme) of the underlying Ordinary Shares on the date of grant, and have a term of five years from the date of grant (subject to earlier termination in connection with a termination of service as provided in the Option Scheme).
1. Initial Grant: For each Eligible Director who is serving on the Board on the Effective Date or is first elected or appointed to the Board following the Effective Date, on the later of the Effective Date and the date of such Eligible Director’s initial election or appointment to the Board (or, if such date is not a market trading day, the first market trading day thereafter), the Eligible Director will be automatically, and without further action by the Board or Compensation Committee of the Board, granted: (a) an option to purchase 30,000 ordinary shares (the “Initial Option Grant”) and (b) a restricted share unit award for a number of shares equal to $200,000 divided by one half of the closing price of the Company’s Securities on the date of grant (the “Initial RSU Grant”). The shares subject to each Initial Option Grant will vest over a period of five years as follows: (i) twenty percent (20%) of the total shares subject to the option shall vest on the first anniversary of the date of grant and (ii) 1/5th of total shares subject to the option shall vest annually thereafter over the remaining four years of the vesting period, subject to the
1.
224871162 v5
Eligible Director’s continuing to be a Participant (as defined in the Option Scheme) through such vesting date. The shares subject to each Initial RSU Grant will vest over a period of three years as follows: (i) one-third of the total shares underlying the Initial RSU Grant will vest on the first anniversary of the grant date and one-twelfth of the total shares subject to the Initial RSU Grant shall vest quarterly thereafter over the remaining two years of the vesting period, subject to the Eligible Director’s continuing to be a Participant (as defined in the RSU Plan) through such vesting date.
2. Annual Grant: On the date of each annual general shareholders meeting of the Company held after the Effective Date, each Eligible Director who continues to serve as a non-employee member of the Board following such shareholders meeting will be automatically, and without further action by the Board or Compensation Committee of the Board, granted a restricted share unit award for a number of shares equal to $200,000 divided by one half of the closing price of the Company’s Securities on the date of grant (the “Annual Grant”). The shares subject to each Annual Grant will vest over a period of three years as follows: (i) one-third of the total shares underlying the Annual Grant will vest on the first anniversary of the grant date and one-twelfth of the total shares subject to the Annual Grant shall vest quarterly thereafter over the remaining two years of the vesting period, subject to the Eligible Director’s continuing to be a Participant (as defined in the RSU Plan) through such vesting date.
2.
224871162 v5
Exhibit 4.23
CERTAIN INFORMATION IN THIS EXHIBIT IDENTIFIED BY [***] IS CONFIDENTIAL AND HAS BEEN EXCLUDED BECAUSE IT (I) IS NOT MATERIAL AND (II) THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS THAT INFORMATION AS PRIVATE OR CONFIDENTIAL.
CLINICAL SUPPLY SERVICES AGREEMENT FOR BCMA CAR-T PRODUCT
This amendment #1 (hereinafter “Amendment”) is effective as of the date of last signature below and entered into by and among Janssen Research & Development, LLC with registered offices at 920 US Route 202, Raritan, NJ 08869 (hereinafter referred to as “Company”), Legend Biotech USA Inc. with registered offices at 2101 Cottontail Lane, Somerset, NJ 08873 (hereinafter referred to individually as “Legend” and collectively with Company as “Collaboration Partners”) and Novartis Pharmaceuticals Corporation with registered offices at One Health Plaza, East Hanover, NJ 07936 (hereinafter referred to as “Provider”). Company, Legend and Provider may be hereinafter referred to collectively as the “Parties” and individually as a “Party”. This Amendment amends the Master Technology Transfer, Manufacturing and Clinical Supply Services Agreement for BCMA CAR-T Product with an Effective Date of April 12, 2023 by and among Company, Legend and Provider (the “Agreement”). All terms not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.
WHEREAS, Company, Legend and Provider find it in their respective interests to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises and covenants herein contained, the Parties hereto agree as follows:
1.Exhibit F to the Agreement is hereby replaced with the new Exhibit F attached hereto.
1.Except as specifically amended hereby, all terms of the Agreement remain in full force and effect. In the event of any conflict between the Agreement and this Amendment, the provisions of this Amendment shall prevail.
[Signature page follows]
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized representatives, on the date set forth below, each Party acknowledging receipt of one copy.
The Parties explicitly agree to execute this Amendment by way of an electronic signature and agree this shall constitute a valid and enforceable agreement between the Parties. The present Amendment is made in pdf-version which is signed electronically by each Party.
| Janssen Research & Development, LLC | Novartis Pharmaceuticals Corporation | |||||||
| By: [***] Name: [***] Title: [***] Date: December 13, 2023 | By: [***] Name: [***] Title: [***] Date: December 11, 2023 | |||||||
| Legend Biotech USA Inc. | ||||||||
By: /s/ Ying Huang______________ Name: Ying Huang Title: CEO Date: December 13, 2023 | ||||||||
Exhibit F
[***]
CERTAIN INFORMATION (INDICATED BY “[***]”) HAS BEEN EXCLUDED FROM THIS AGREEMENT BECAUSE (I) SUCH INFORMATION IS NOT MATERIAL AND (II) THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS THAT INFORMATION AS PRIVATE OR CONFIDENTIAL.
CONFIDENTIAL
Execution Copy
Exhibit 4.24
LICENSE AGREEMENT
by and between
Novartis Pharma AG
and
Legend Biotech Ireland Limited
November 10, 2023
TABLE OF CONTENTS
Page
EXHIBIT A – LICENSED PATENTS
EXHIBIT B – HANDOVER PACKAGE
EXHIBIT C – SAMPLE INVOICE
EXHIBIT D – LEGEND DEVELOPMENT PLAN AND BUDGET
EXHIBIT E – FORM OF DEVELOPMENT AND COMMERCIALIZATION UPDATE FOR LICENSED PRODUCT
EXHIBIT F – MANUFACTURING KNOW-HOW AND MATERIAL TRANSFER PLAN
EXHIBIT G – SUPPLY TERMS
EXHIBIT H – FORM OF CONSENT LETTER
EXHIBIT I – EXPEDITED ARBITRATION
EXHIBIT J – KNOWN LEGEND SUBCONTRACTORS
EXHIBIT K – CONTROLLER-TO-CONTROLLER ADDENDUM
EXHIBIT L – EXAMPLE ROYALTY REDUCTION CALCULATIONS
EXHIBIT M – LEGEND BANK ACCOUNT INFORMATION
EXHIBIT N – FORM OF PRESS RELEASE
EXHIBIT O – [***] CODE
EXHIBIT P – ANNUAL COMPLIANCE CONFIRMATION FORM
US-LEGAL-12215559/6 155114-0134 | ||
LICENSE AGREEMENT
This License Agreement (this “Agreement”) is made as of November 10, 2023 (the “Execution Date”), by and between Novartis Pharma AG, a company organized under the laws of Switzerland located at Lichtstrasse 35, 4002 Basel, Switzerland (“Novartis”) and Legend Biotech Ireland Limited, a company organized under the laws of Ireland, located at 10A Ballymoss Road, Sandyford Business Park, Dublin 18, Ireland (“Legend”). Novartis and Legend are referred to in this Agreement individually as a “Party” and collectively as the “Parties”.
RECITALS
WHEREAS, Legend is developing LB2102 and owns or otherwise Controls certain Patent Rights and Know-How related thereto;
WHEREAS, subject to the terms and conditions of this Agreement, Novartis wishes to obtain, and Legend wishes to grant, a license and other rights to the Licensed CAR and Licensed Products in the Field in the Territory;
WHEREAS, subject to the terms and conditions of this Agreement, such rights include the right to Develop, Manufacture and Commercialize Licensed Products in the Field in the Territory; and
WHEREAS, subject to the terms and conditions of this Agreement, Legend wishes to retain, and Novartis is willing to agree that Legend retains, responsibility for conducting the Legend Phase 1 Clinical Trial Activities.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, Novartis and Legend hereby agree as follows:
Article 1
DEFINITIONS
DEFINITIONS
Unless the context otherwise requires, the terms in this Agreement with initial letters capitalized shall have the meanings set forth below:
1.1“AB Training” shall have the meaning set forth in Section 13.5(c).
1.2“[***]T-cell” means a T-cell that [***].
1.3“Accounting Standards” means (a) with respect to Novartis, International Financial Reporting Standards (“IFRS”) and (b) with respect to Legend, IFRS, in each case, as used and consistently applied throughout the applicable Party’s organization for the preparation of such Party’s (or, if applicable, its Affiliate’s) publicly reported financial results. Each Party shall [***] notify the other Party in the event that it changes the Accounting Standards pursuant to which its records are maintained; provided, that [***].
1.4“Act” shall have the meaning set forth in Section 6.6.
1.5“Acquired Product” shall have the meaning set forth in Section 2.4(b).
1.6“Acquiring Entities” shall have the meaning set forth in Section 16.16.
1.7“Acquirer Technology” shall have the meaning set forth in Section 16.16.
1.8“Adverse Event” means any untoward medical occurrence in a patient or clinical investigation subject administered a pharmaceutical product (including, for clarity, any therapy) and that does not necessarily have a causal relationship with the relevant treatment. An adverse event can therefore be any unfavorable and unintended sign (including an abnormal laboratory finding), symptom, or disease temporally associated with the use of a medicinal (investigational) product, whether or not causally related to the medicinal (investigational) product.
1.9“Affiliate” means, with respect to any Person, any other Person that now or hereinafter controls, is controlled by, or is under common control with, such Person, in each case, solely for so long as such control exists. For purposes of this definition, “control” shall mean, direct or indirect, ownership of at least fifty percent (50%) of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interest in the case of any other type of legal entity, status as a general partner in any partnership or any other arrangement whereby the Person controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity, or the ability to direct the management and policies of a corporation or other entity. The Parties acknowledge that in the case of entities organized under the laws of certain countries where the maximum percentage ownership permitted by law for a foreign investor is less than fifty percent (50%), such lower percentage shall be substituted in the preceding sentence; provided, that such foreign investor has the power to direct the management and policies of such entity.
1.10“Agreement” shall have the meaning set forth in the Preamble.
1.11“Alliance Manager” shall have the meaning set forth in Section 3.1.
1.12“Allogeneic Therapy” means a CAR T-Cell Therapy [***].
1.13“Annual Compliance Confirmation” shall have the meaning set forth in Section 13.5(g).
1.14“Applicable Laws” means any national, international, supra-national, federal, state or local laws, treaties, statutes, ordinances, rulings, rules and regulations, including any rules, regulations, legally binding guidance or guidelines, or requirements of any regulatory authorities, national securities exchanges or securities listing organizations, governmental authorities, courts, tribunals, agencies, legislative bodies and commissions that are in effect from time to time during the term of this Agreement and applicable to a particular activity hereunder, including GCP, GMP, GLP and GVP, as applicable.
1.15“Auditor” shall have the meaning set forth in Section 9.9(a).
1.16“Autologous Competing Product” means [***].
1.17“Autologous Licensed Know-How” means Know-How Controlled by Legend or any of its Affiliates [***]: (a) [***]; (b) [***]; or (c) [***] in each case ((a), (b) and (c)), in the Field in the Territory.
2
1.18“Autologous Licensed Patents” means the Patent Rights identified in Exhibit A and any other Patent Rights, in each case, Controlled by Legend or any of its Affiliates [***]: (a) [***]; or (b) [***]; in each case ((a) and (b)), in the Field in the Territory.
1.19“Autologous Licensed Product” means: (a) LB2102, and (b) any other Autologous Therapy which [***] and which is (i) [***] Directed to DLL3 or (ii) [***].
1.20“Autologous Licensed Technology” means the Autologous Licensed Know-How and the Autologous Licensed Patents.
1.21“Autologous Therapy” means a CAR T-Cell Therapy having [***].
1.22[***].
1.23[***].
1.24[***].
1.25“Bayh-Dole Act” means the Patent and Trademark Law Amendments Act of 1980, codified at 35 U.S.C. §§ 200-212, as amended, as well as any regulations promulgated pursuant thereto, including in 37 C.F.R. Part 401.
1.26“Binding Domain” means the region of a CAR that binds to the antigen Directed to by such CAR [***].
1.27“BLA” means a Biologics License Application, as defined in the U.S. Public Health Service Act and applicable regulations promulgated thereunder by the FDA. For clarity, BLA does not include an application for Pricing Approval, and BLA approval does not include Pricing Approval.
1.28“Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to be closed, as the case may be, in Basel, Switzerland, or New York City, New York. In addition, none of December 24-January 2 shall constitute a Business Day.
1.29“Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31, during the Term, or the applicable part thereof during the first or last calendar quarter of the Term.
1.30“Calendar Year” means any calendar year ending on December 31, or the applicable part thereof during the first or last calendar year of the Term.
1.31“CAR” means a chimeric antigen receptor, which consists of, at a minimum, [***].
1.32“CAR T-Cell Therapy” means [***].
1.33“CDR” means the complementarity-determining region of an antigen binding region of an antibody as [***].
1.34“Change of Control” means, with respect to a Party, (a) a merger, reorganization, combination or consolidation of such Party (or, if applicable, a parent company of such Party)
3
with a Third Party that results in the holders of beneficial ownership of the voting securities or other voting interests of such Party (or, if applicable, a parent company of such Party) immediately prior to such merger, reorganization, combination or consolidation ceasing to hold beneficial ownership of at least fifty percent (50%) of the combined voting power of the surviving entity or the applicable parent of the surviving entity immediately after such merger, reorganization, combination or consolidation; (b) a transaction or series of related transactions in which a Third Party, together with its Affiliates, becomes the beneficial owner of fifty percent (50%) or more of the combined voting power of the outstanding securities or other voting interest of such Party or a parent company of such Party; or (c) the sale or other transfer (in one (1) transaction or a series of related transactions) to a Third Party of all or substantially all of such Party’s or its parent company’s assets.
1.35“China” means the People’s Republic of China[***].
1.36“China Regulatory Approval” means (a) with respect to a Licensed Product not Requiring a Companion Diagnostic, Regulatory Approval by China’s National Medical Products Administration (“NMPA”), or any successor Governmental Authority that is responsible for approving the sale of pharmaceuticals in China, of such Licensed Product and (b) with respect to a Licensed Product Requiring a Companion Diagnostic, [***].
1.37“Claim” means any demand, claim, action, litigation, arbitration or other proceeding brought by a Third Party.
1.38“Clinical Trial” means a Phase 1 Clinical Trial, Phase 1b Clinical Trial, Phase 2 Clinical Trial, Phase 3 Clinical Trial or such other study in humans that is conducted in accordance with GCP and is designed to generate data in support or maintenance of a BLA, MAA or other similar marketing application in accordance with Applicable Laws.
1.39“Clinical Trial Follow-up Activities” means, with respect to any Clinical Trial, [***]. For clarity, any Legend Phase 1 Clinical Trial Activities conducted to terminate, wind-down or cease conducting the Legend Phase 1 Clinical Trial following a Safety Determination or Select Novartis Termination Notice shall not be considered Clinical Trial Follow-up Activities.
1.40“CMO” means contract manufacturing organization.
1.41“Code” means the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.
1.42“Combination Products” shall have the meaning set forth in the definition of Net Sales.
1.43“Commercialize” or “Commercialization” means all activities directed to branding, marketing, promoting, pricing, distributing, importing, exporting, offering to sell or selling a product, including any Companion Diagnostic, or conducting other commercialization, including all activities directed to obtaining Pricing Approvals. For clarity, Commercialization shall not include Manufacturing.
1.44“Commercially Reasonable Efforts” means, with respect to [***].
1.45“Committee” means the JSC, JDC, JMC, JPC or any joint subcommittee established by the JSC, as applicable.
4
1.46“Companion Diagnostic” means an approved IVD that provides information essential to the safe and effective use of a Licensed Product [***].
1.47“Competing Product” means any Autologous Competing Product or In Vivo Competing Product.
1.48“Competitive Product Infringement” shall have the meaning set forth in Section 10.3(a).
1.49“Completion of the Legend Phase 1 Clinical Trial” means that delivery of the Handover Package [***] ([***]) is deemed complete in accordance with Section 2.5(c)(ii).
1.50“Confidential Information” of a Party means all Know-How and other proprietary information and data of a financial, commercial or technical nature that is disclosed or otherwise made available by or on behalf of such Party or any of its Affiliates, directly or indirectly, to the other Party or any of its Affiliates, whether disclosed or made available orally, in writing or in electronic form, [***].
1.51“Confidentiality Agreement” shall have the meaning set forth in Section 16.9.
1.52“Consent Letter” shall have the meaning set forth in Section 2.5(e).
1.53“Control” or “Controlled” means, with respect to any Know-How, Patent Rights, other intellectual property rights, or any proprietary or trade secret information, the legal authority or right (whether by ownership, license or otherwise) of a Party or its Affiliate to grant a license or a sublicense of or under, or access to or right to use, such Know-How, Patent Rights, or intellectual property rights to another Person, or to otherwise disclose to another Person or allow another Person to use, such proprietary or trade secret information, in each case, on the terms and set forth in this Agreement, without [***]. For clarity, [***].
1.54“Cover” means, with respect to given product (or component thereof) and Patent Right, that a Valid Claim of such Patent Right would, absent a license thereunder or ownership thereof, be infringed by the [***].
1.55[***].
1.56“CTA” means clinical trial application.
1.57“Cure Period” shall have the meaning set forth in Section 12.5.
1.58“Data” means [***].
1.59“Data Integrity” means the procedures and controls then put in place by Legend to ensure that all data (including electronic records) are Attributable, Legible, Contemporaneous, Original, Accurate, Complete, Available, Consistent and Enduring (ALCOA+) through from their creation, processing, review, reporting and retention (over the data lifecycle).
1.60“Debarred Person” shall have the meaning set forth in Section 13.1(f).
1.61“Develop” or “Development” means all [***] clinical drug development activities in connection with obtaining Regulatory Approval in the applicable country or regulatory jurisdiction for any product [***], in each case, whether alone or for use together, or
5
in combination, with another active agent or pharmaceutical or other product, including test method development and stability testing, assay development and toxicology (including GLP toxicology studies), [***], cleaning validation, statistical analysis, report writing, non-clinical and clinical studies, packaging development, regulatory affairs, and the preparation, filing and prosecution of BLAs, MAAs and other applications for Regulatory Approval for such pharmaceutical or other product, as well as all regulatory activities related to any of the foregoing. For clarity, (a) Development shall include the conduct of Phase 3 Clinical Trials and any post-Regulatory Approval Clinical Trial; and (b) Development shall not include Manufacturing.
1.62“Development Breach” shall have the meaning set forth in Section 4.1(c).
1.63[***].
1.64“Development Costs” means the sum of (a) Out-of-Pocket Development Costs and (b) Development FTE Costs. For clarity, Development Costs [***].
1.65“Development FTE Costs” shall mean the product of (a) the actual number of FTEs of Legend or its Affiliates utilized in the [***] and (b) the FTE Rate.
1.66“Development Milestone Event” shall have the meaning set forth in Section 9.2(a).
1.67“Development Milestone Payment” shall have the meaning set forth in Section 9.2(a).
1.68“Development Update” shall have the meaning set forth in Section 5.3.
1.69“Diligence Markets” means (a) [***], (b) [***], (c) [***], and (d) [***].
1.70“Directed to” means, with respect to a given active ingredient, [***].
1.71“Disbandment Notice” shall have the meaning set forth in Section 3.7.
1.72“Disclosing Party” shall have the meaning set forth in Section 11.1(a).
1.73“Disease Indication” means, with respect to a Licensed Product, a given disease, disorder or condition. [***].
1.74“Dispute” shall have the meaning set forth in Section 16.5(a).
1.75“DLL3” means Delta-like protein 3 – [***].
1.76“DOJ” shall have the meaning set forth in Section 15.1.
1.77“Dollar” means the U.S. dollar, and “$” shall be interpreted accordingly.
1.78“Earlier Development Milestone Event” shall have the meaning set forth in Section 9.2(d).
1.79“Effective Date” shall have the meaning set forth in Section 15.1.
6
1.80[***].
1.81“EMA” means the European Medicines Agency or any successor entity thereto, other than any corresponding regulatory authority in the United Kingdom.
1.82[***].
1.83“EU” means the European Union, as its membership may be constituted from time to time, and any successor thereto; provided, that, for purposes of this Agreement, the EU will be deemed to include France, Germany, Italy, Spain, and the United Kingdom, irrespective of whether any such country is actually in the European Union.
1.84“EU Regulatory Approval” means (a) with respect to a Licensed Product not Requiring a Companion Diagnostic, receipt of Regulatory Approval of such Licensed Product by EMA or the relevant Regulatory Authority in [***]; and (b) with respect to a Licensed Product Requiring a Companion Diagnostic, [***].
1.85“Excluded Upstream Licenses” means, any agreement that is deemed an “Excluded Upstream License” pursuant to Section 2.3.
1.86“Exclusivity Period” means the period beginning on [***] and ending upon [***].
1.87“Execution Date” shall have the meaning set forth in the Preamble.
1.88“Executive Officers” means, (a) for Legend, the Chief Executive Officer of Legend or his/her designee, and (b) for Novartis, [***] or his/her designee; provided, that, in each case ((a) and (b)), such person is not a member of the JDC at the time that the applicable disagreement or Dispute arises.
1.89“Exploit” means, with respect to a product (including any Companion Diagnostic) or other subject matter, to Develop, have Developed, make, have made, use, have used, Manufacture, have Manufactured, Commercialize or have Commercialized or otherwise exploit such product or subject matter. “Exploitation” and “Exploiting” will be construed accordingly.
1.90“FDA” means the United States Food and Drug Administration or any successor entity thereto.
1.91“Field” means all uses in humans and animals.
1.92“First Commercial Sale” means, with respect to a given country, the first sale of a Licensed Product by Novartis, its Affiliate, or a Sublicensee to a Third Party in such country [***] for sale of such Licensed Product in such country. [***].
1.93“FTC” shall have the meaning set forth in Section 15.1.
1.94“FTE” means a full-time, dedicated employee person year or, in the case of less than a full-time, dedicated employee person year, a full-time equivalent person year, in each case, based upon a total of [***]. In the case that any full-time person works partially on activities under this Agreement and partially on other work in a given year, then the full-time equivalent to be attributed to such person’s work hereunder shall be equal [***].
7
1.95“FTE Rate” means the rate of [***] per FTE per year.
1.96“Force Majeure” shall have the meaning set forth in Section 16.1.
1.97“GAAP” means the U.S. generally accepted accounting principles, consistently applied.
1.98[***].
1.99[***].
1.100“GCP” means the then-current good clinical practice standards for Clinical Trials for biopharmaceutical products, as set forth in the Act or other Applicable Law, and such standards of good clinical practice as are required by the Regulatory Authorities of the EU and other countries for which the applicable biopharmaceutical product is intended to be developed and in which a Party is performing Development activities, to the extent such standards are not less stringent than United States GCP.
1.101[***].
1.102“GLP” means the then-current good laboratory practice standards as promulgated or endorsed by FDA as defined in 21 C.F.R. Part 58 or the successor thereto, or comparable applicable regulatory standards in jurisdictions outside the United States.
1.103“GMP” or “cGMP” means the then-current good manufacturing practices as specified in 21 C.F.R. Parts 11, 210 and 211, ICH Guideline Q7A, or equivalent laws, rules, or regulations of an applicable Regulatory Authority at the time of manufacture.
1.104“GVP” means the then-current set of measures under Applicable Laws for: (a) the performance of pharmacovigilance in the EU and (b) monitoring the safety of medicines on sale to the public in the U.S. and other countries.
1.105“GxP” means GMP, GCP, GLP or GVP.
1.106“GxP Audit” means a GxP audit, which is comprised of an evaluation of the state of compliance of the systems and sub-systems, applicable to a manufacturing site, non-manufacturing site, investigator site or service provider site or a GxP system or process, with EU and U.S. standards and ICH Guidelines, and the applicable regulations in the countries where a Licensed Product or any component thereof is Manufactured or Commercialized.
1.107“Governmental Authority” means any national, international, federal, state, provincial or local government, or political subdivision thereof, any multinational organization or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof, or any governmental arbitrator or arbitral body).
1.108“Handover Deficiencies” shall have the meaning set forth in Section 2.5(c)(i).
1.109“Handover Package” means the [***] listed on Exhibit B.
1.110“HGRAC” means the Human Genetic Resources Administration of China or any successor entity thereto.
8
1.111“HSR Act” means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules promulgated thereunder.
1.112“HSR Filings” shall have the meaning set forth in Section 15.2(a).
1.113“ICC” shall have the meaning set forth in Section 16.5(b).
1.114“ICC Rules” shall have the meaning set forth in Section 16.5(b).
1.115“ICH Guidelines” means the guidelines adopted or promulgated by the International Conference on Harmonization, including those referencing the Technical Requirements for Registration of Pharmaceuticals for Human Use.
1.116“IFRS” shall have the meaning set forth in the definition of Accounting Standards.
1.117[***].
1.118[***].
1.119“IND” means an Investigational New Drug application in the U.S. filed with the FDA or the corresponding application for the investigation of pharmaceutical products in any other country or group of countries (including CTAs), as defined in the Applicable Laws and filed with the Regulatory Authority of such country or group of countries.
1.120“Indemnification Claim Notice” shall have the meaning set forth in Section 14.3(a).
1.121“Indemnified Party” shall have the meaning set forth in Section 14.3(a).
1.122“Indemnifying Party” shall have the meaning set forth in Section 14.3(a).
1.123“Indirect Tax” shall have the meaning set forth in Section 9.8(b).
1.124“Inflation Reduction Act” means 42 U.S.C. § 1320f et seq., as amended.
1.125“Initiate” or “Initiation” means, [***].
1.126“INN” shall have the meaning set forth in Section 8.3.
1.127“Insolvency Event” shall have the meaning set forth in Section 12.2(d).
1.128“Invention” means any invention, discovery or other Know-How that [***], including all right, title and interest in and to the intellectual property rights, including Patent Rights, therein and thereto.
1.129“Investigator Notification” means a notification for all participating investigators of any Serious Adverse Event which is unexpected or suspected or presents any findings that suggest significant risk for the applicable patient.
1.130“In Vivo Competing Product” means any In Vivo Therapy expressing a CAR that is Directed [***] DLL3 [***].
9
1.131[***].
1.132[***].
1.133[***].
1.134[***].
1.135[***].
1.136“Invoice” means an invoice from Legend in substantially the form used by Legend in the ordinary course of its business, provided that such invoice includes at least the information set forth in Exhibit C.
1.137“IVD” or “In Vitro Diagnostic” means a product or service for in vitro testing of patient or subject specimens, or other biological materials, for use in the diagnosis or evaluation of a disease, including to identify any genomic alterations or signatures, or for the prediction or monitoring of a response to any product (or other agent) or other prognostic use, whether used for research, exploratory purposes or as a clinical diagnostic. For clarity, IVDs or In Vitro Diagnostics include “Investigation Use Only” products, “Research Use Only” products, companion diagnostics and complementary diagnostics.
1.138“Japan Regulatory Approval” means (a) with respect to a Licensed Product not Requiring a Companion Diagnostic, receipt of Regulatory Approval of such Licensed Product by the Ministry of Health, Labor and Welfare of Japan, or any successor Governmental Authority that is responsible for approving the sale of pharmaceuticals in Japan (“MHLW”), of such Licensed Product; and (b) with respect to a Licensed Product Requiring a Companion Diagnostic, [***].
1.139“Joint Inventions” shall have the meaning set forth in Section 10.1(a).
1.140“Joint Patents” shall have the meaning set forth in Section 10.1(a).
1.141“JDC” shall have the meaning set forth in Section 3.3.
1.142“JMC” shall have the meaning set forth in Section 3.4.
1.143“JPC” shall have the meaning set forth in Section 3.5.
1.144“JSC” shall have the meaning set forth in Section 3.2.
1.145“Know-How” means any and all [***].
1.146“Known Legend Subcontractor” shall have the meaning set forth in Section 4.1(b).
1.147“LB Third Party IP” shall have the meaning set forth in Section 9.3(d)(iv).
1.148“LB2102” means that certain Autologous Therapy designated by Legend, as of the Execution Date, as “LB2102” and [***].
1.149“Legend” shall have the meaning set forth in the Preamble.
10
1.150[***].
1.151“Legend Development Plan and Budget” means the development plan and budget for the Legend Phase 1 Clinical Trial attached to this Agreement as Exhibit D [***].
1.152“Legend Indemnitees” shall have the meaning set forth in Section 14.2.
1.153“Legend Mark” shall have the meaning set forth in Section 8.3.
1.154“Legend Parties” shall have the meaning set forth in Section 13.5(a).
1.155“Legend Phase 1 Clinical Trial” means the Phase 1 Clinical Trial sponsored by Legend, entitled, “DLL3-Directed Chimeric Antigen Receptor T-cells in Subjects with Extensive Stage Small Cell Lung Cancer” and identified by ClinicalTrials.gov Identifier: NCT05680922.
1.156“Legend Phase 1 Clinical Trial Activities” means the activities undertaken by or on behalf of Legend or its Affiliates in connection with the Legend Phase 1 Clinical Trial, including (a) [***], (b) [***] and (c) [***].
1.157[***].
1.158[***].
1.159“Licensed CAR” means [***].
1.160“Licensed Know-How” means the [***] Licensed Know-How and the [***].
1.161“Licensed Patents” means the [***] Licensed Patents and the [***].
1.162“Licensed Products” means the [***] Licensed Products and the [***].
1.163“Licensed Product Third Party IP” shall have the meaning set forth in Section 9.3(d)(iv).
1.164“Licensed Technology” means the Licensed Know-How and the Licensed Patents.
1.165“Losses” means any and all losses, liabilities, costs, damages and expenses, including reasonable attorneys’ fees and costs.
1.166“Loss of Market Exclusivity” means, [***] except to the extent that: (a) [***] or (b) [***]. For purposes hereof, a “Third Party Competing Product” means [***].
1.167“LVV GMP Materials” means lentiviral vector materials Manufactured in accordance with GMP.
1.168“MAA” means an application for the authorization to market a pharmaceutical product in any country or group of countries outside the United States, as defined in the Applicable Laws and filed with the Regulatory Authority of such country or group of countries.
1.169“Major European Markets” means [***].
11
1.170“Major Markets” means [***].
1.171“Manufacture” or “Manufacturing” means, with respect to a product, activities directed to the sourcing and purchasing of materials, producing, manufacturing, processing, compounding, filling, finishing, packing, packaging, labeling, leafleting, assembly, quality assurance, quality control testing and release, shipping, storage, and sample retention of such product (or any components or process steps involving any such product).
1.172“Manufacturing Know-How” means any and all Know-How which is owned or otherwise Controlled by a Party or any of its Affiliates [***].
1.173“Manufacturing Know-How and Material Transfer” shall have the meaning set forth in Section 2.5(a).
1.174“Manufacturing Know-How and Material Transfer Plan” shall have the meaning set forth in Section 2.5(a).
1.175“Manufacturing Transition Date” means [***].
1.176“Materials” means any tangible compositions of matter, articles of manufacture, assays, chemical, biological or physical materials, and other similar tangible materials.
1.177“Maximum Development Cost Reimbursement Amount” means the sum of: (a) [***] and (b) [***] approved [***] in accordance with Section 3.3.
1.178“Maximum Fair Price” means, with respect to a Selected IRA Drug, the price negotiated pursuant to Section 1194 under the Inflation Reduction Act for such drug.
1.179“MHLW” shall have the meaning set forth in the definition of Japan Regulatory Approval.
1.180“MHRA” means the Medicines and Healthcare Products Regulatory Agency of the United Kingdom, or any successor Governmental Authority that is responsible for approving the sale of pharmaceuticals in the United Kingdom.
1.181“Milestone Events” means the Development Milestone Events and the Sales Milestone Events.
1.182“Milestone Payments” means the Development Milestone Payments and the Sales Milestone Payments.
1.183[***].
1.184[***].
1.185“Net Sales” means the net sales recorded by Novartis or any of its Affiliates or their Sublicensees for any Licensed Product sold to Third Parties other than Sublicensees as determined [***]. The deductions eligible to be booked on an accrual basis by Novartis and its Affiliates [***] to calculate the recorded net sales from gross sales [***]:
(a)[***];
12
(b)[***];
(c)[***];
(d)[***];
(e)[***];
(f)[***]; and
(g)[***].
With respect to the calculation of Net Sales:
(i)[***];
(ii)[***];
(iii)[***]; and
(iv)[***].
1.186“New Licensed Technology Term” means the portion of the Term ending upon the earlier of: (a) [***] or (b) [***].
1.187“NMPA” shall have the meaning set forth in the definition of China Regulatory Approval.
1.188“Novartis” shall have the meaning set forth in the Preamble.
1.189“Novartis Background Technology” means any Know-How and Patent Rights that are owned or otherwise Controlled by Novartis or any of its Affiliates, which Know-How and Patent Rights: (a) [***]; or (b) [***].
1.190“Novartis Clinical Trial” means a Clinical Trial conducted by or on behalf of Novartis, its Affiliates or Sublicensees with respect to one or more Licensed Products.
1.191[***].
1.192“Novartis Development Activities” means Development activities conducted by or on behalf of Novartis, its Affiliates or Sublicensees with respect to the Licensed CAR or Licensed Products, including all Novartis Clinical Trials.
1.193[***].
1.194[***].
1.195“Novartis Indemnitees” shall have the meaning set forth in Section 14.1.
1.196“Novartis Trademarks” shall have the meaning set forth in Section 8.3.
13
1.197“Novartis Technology” means any Know-How and Patent Rights that are owned or otherwise Controlled by Novartis or any of its Affiliates[***] (a) [***], (b) [***] and (c) [***].
1.198[***].
1.199[***] that certain Donnelley Financial Solutions Venue maintained by Legend for Novartis in contemplation of the Parties’ entering into this Agreement (the “VDR”).
1.200“Out-of-Pocket Development Costs” means, with respect to any Development activity for a Licensed Product in the Territory (or any Manufacturing activity for or in support of such Development activity), expenses or amounts paid or payable by or on behalf of Legend or its Affiliates to Third Parties to the extent: (a) [***] and (b) [***]; provided, that [***].
1.201“Outside Date” shall have the meaning set forth in Section 15.1.
1.202“Party” or “Parties” shall have the meaning set forth in the Preamble.
1.203“Patent Challenge” shall have the meaning set forth in Section 12.2(e).
1.204“Patent Rights” means all patents and patent applications, including all divisionals, continuations, substitutions, continuations-in-part, re-examinations, reissues, additions, renewals, extensions, registrations, supplemental protection certificates, utility models, design patents and the like of any of the foregoing.
1.205“Patent Term Extension” shall have the meaning set forth in Section 10.4.
1.206“Person” means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization, Governmental Authority or other entity.
1.207“Personal Data” means any information that relates to an identified or identifiable person.
1.208“Pharmacovigilance Agreement” shall have the meaning set forth in Section 6.4.
1.209“Phase 1 Clinical Trial” means, with respect to a Licensed Product, a clinical study in human patients or healthy individuals with the principal purpose to make a preliminary determination of safety in human patients or healthy individuals as described in 21 C.F.R. § 312.21(a) or a comparable clinical study in a country other than the United States.
1.210“Phase 1b Clinical Trial” means, with respect to a Licensed Product, a clinical study in human patients or healthy individuals, or an arm or portion of such a clinical study, in which the study of a Licensed Product is expanded with respect to one or more additional or different doses or dosing strategies, cohorts, patients, diseases or disorders, or lines of therapy, in each case, with the principal purpose to make a further or additional determination of dose optimization, safety, efficacy, metabolism, pharmacokinetic properties or clinical pharmacology as described in 21 C.F.R. § 312.21(a) or a comparable clinical study in a country other than the United States. For clarity, any portion or arm of a Phase 1 Clinical Trial that satisfies the foregoing description shall be deemed a Phase 1b Clinical Trial.
14
1.211“Phase 2 Clinical Trial” means, with respect to a Licensed Product, a clinical study in human patients with the principal purpose to make a preliminary determination concerning the Licensed Product’s efficacy as described in 21 C.F.R. § 312.21(b) or a comparable clinical study in a country other than the United States.
1.212“Phase 3 Clinical Trial” means, with respect to a Licensed Product, a clinical study in human patients: (a) for confirmation of efficacy and safety with the aim to obtain Regulatory Approval in any country, as described in 21 C.F.R. § 312.21(c) or a comparable clinical study in a country other than the United States or (b) that (i) [***], or that (ii) [***].
1.213[***].
1.214“Pricing Approval” means, in any country where a Governmental Authority [***].
1.215“Product Infringement” shall have the meaning set forth in Section 10.3(a).
1.216“Product-Specific Patent” means any Licensed Patent (taking into account the entire scope of all claims therein) that [***].
1.217“Proposed Disclosure” shall have the meaning set forth in Section 11.8.
1.218[***].
1.219[***].
1.220“Publications” shall have the meaning set forth in Section 11.6(a).
1.221[***].
1.222[***].
1.223“Quality Agreement” shall have the meaning set forth in Section 7.2(a).
1.224“Receiving Party” shall have the meaning set forth in Section 11.1(a).
1.225“Records” means all [***] in performance of Legend’s activities under this Agreement (including in connection with the Legend Phase 1 Clinical Trial).
1.226“Records Retention Period” means the period for which each of the Records must be maintained, i.e., until the date which is the latest of: (a) [***]; and (b) [***].
1.227“Regulatory Approval” means all licenses, registrations, authorizations and approvals (including approvals of BLAs and MAAs, supplements and amendments, pre- and post- approvals and labeling approvals) necessary for the marketing, promotion and sale of a Licensed Product [***].
1.228“Regulatory Authority” means with respect to a country in the Territory, any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other Governmental Authority involved in granting Regulatory Approvals or Pricing Approvals for biopharmaceutical products in such country, including the FDA in the United States, the EMA or European Commission (and any successor entity thereto),
15
as applicable, in the EU, the MHLW in Japan, the MHRA in the United Kingdom, NMPA in China and any corresponding national or regional regulatory authorities in any country that is a counterpart to the foregoing agencies.
1.229“Regulatory Exclusivity” means any exclusive legal rights (other than Patent Rights) conferred by any Regulatory Authority with respect to a Licensed Product in a country or jurisdiction in the Territory, including orphan drug exclusivity, pediatric exclusivity, rights conferred in the U.S. under the Act, rights in the EU under Directive 2001/83/EC, or rights similar thereto in other countries or regulatory jurisdictions in the Territory, or other exclusive legal right by operation of the Applicable Laws in such country or jurisdiction, to market and sell such Licensed Product in such country or jurisdiction, and such right precludes either (a) [***], or (b) [***].
1.230“Regulatory Materials” means all regulatory applications, submissions, notifications, communications, correspondences, registrations, approvals and other filings submitted to, received from or otherwise conducted with a Regulatory Authority in order to Develop, Manufacture, Commercialize or otherwise Exploit a Licensed Product in a particular country or jurisdiction, and all supporting Data, including INDs, BLAs, MAAs, and other Regulatory Approvals.
1.231[***].
1.232“Require a Companion Diagnostic” means, with respect to any Licensed Product in any country in the Territory, that the use of a Companion Diagnostic [***]. Any such Companion Diagnostic is referred to herein as a “Required Companion Diagnostic.” [***].
1.233“Research” means all research and discovery activities, [***]
1.234“Restricted Confidential Information” shall have the meaning set forth in Section 16.16.
1.235“Right of Reference” shall have the meaning set forth in 21 C.F.R. § 314.3(b) or comparable regulatory standards in jurisdictions outside the United States.
1.236[***].
1.237“Royalty Term” shall have the meaning set forth in Section 9.3(b).
1.238“Safety Determination” shall have the meaning set forth in Section 4.4(b)(ii).
1.239“Sales & Royalty Report” means, with respect to a given period, a written report or reports showing, on a Licensed Product-by-Licensed Product, and country-by-country basis, each of: (a) [***]; (b) [***]; and (c) [***].
1.240“Sales Milestone Event” shall have the meaning set forth in Section 9.2(b).
1.241“Sales Milestone Payment” shall have the meaning set forth in Section 9.2(b).
1.242“Security Incident” shall have the meaning set forth in Section 13.5(h).
1.243[***].
16
1.244“Select Novartis Termination Notice” shall have the meaning set forth in Section 12.8.
1.245“Serious Adverse Event” means any Adverse Event that at any dose: (a) [***]; (b) [***]; (c) [***]; (d) [***]. In the case of other Adverse Events, [***]. Such events may be important medical events that may not be immediately life-threatening or result in death or hospitalization but which may jeopardize the patient or may require intervention to prevent one of the other outcomes listed in the first sentence of this definition.
1.246“Sole Inventions” shall have the meaning set forth in Section 10.1(a).
1.247[***].
1.248“Sublicense Agreement” shall have the meaning set forth in Section 2.1(b).
1.249“Sublicensee” means any Third Party (excluding [***]) to whom Novartis or any of its Affiliates or Sublicensees has granted either: (a) a sublicense under any of the rights licensed to Novartis hereunder or (b) the right to market or promote a Licensed Product.
1.250“T-Charge” means the T-Charge™ proprietary platform developed by or on behalf of Novartis and any extensions and improvements thereof.
1.251“Target” means [***].
1.252“Term” shall have the meaning set forth in Section 12.1.
1.253“Terminated Countries” shall have the meaning set forth in Section 12.3(a).
1.254“Terminated Products” shall have the meaning set forth in Section 12.3(a).
1.255“Territory” means worldwide, subject to Section 2.6.
1.256“Third Party” means any Person other than a Party or an Affiliate of a Party.
1.257“Third Party Acquiror Product” shall have the meaning set forth in Section 2.4(c).
1.258“Third Party Competing Product” shall have the meaning set forth in the definition of Loss of Market Exclusivity.
1.259“Trademarks” means all trademarks, service marks, trade names, service names, internet domain names, brand names, logos, protectable slogans, and trade dress rights, whether registered or unregistered, and all applications, registrations, and renewals thereof.
1.260“United States” or “U.S.” means the United States of America, including its territories and possessions.
1.261“Upstream License” shall have the meaning set forth on Section 2.3(b). For clarity, Upstream License does not include any Excluded Upstream License.
1.262“Upstream Licensor” shall have the meaning set forth on Section 2.3(b).
17
1.263“Urgent Safety Measure” means an appropriate expedited action taken by the study sponsor or the supplying party to protect clinical trial participants against an immediate hazard.
1.264“U.S. Regulatory Approval” means (a) with respect to a Licensed Product not Requiring a Companion Diagnostic, Regulatory Approval by the FDA of such Licensed Product; and (b) with respect to a Licensed Product Requiring a Companion Diagnostic, [***].
1.265“USAN” shall have the meaning set forth in Section 8.3.
1.266“Valid Claim” means, with respect to a particular Licensed Product in a given country, a claim of any issued and unexpired Patent Right, or a pending claim of a good faith patent application which: (a) Covers such Licensed Product in the Field in such country and (b) with respect to a claim of an issued and unexpired Patent Right, has not (i) irretrievably lapsed, been abandoned, cancelled, withdrawn, revoked, dedicated to the public or disclaimed or (ii) been subject to a holding, finding or decision of invalidity, unenforceability, or non-patentability by a court, governmental agency, national or regional patent office, or other appropriate governmental body that has competent jurisdiction, such holding, finding or decision being final and unappealable or unappealed within the time allowed for appeal; provided, however, [***].
1.267“Valid Claim Prong” shall have the meaning set forth in Section 9.3(b).
1.268“VAT” means any value added or similar tax.
1.269“VDR” shall have the meaning set forth in the definition of [***].
1.270[***].
1.271[***].
1.272Interpretation. Except where the context expressly requires otherwise, (a) the use of any gender herein shall be deemed to encompass references to either or both genders, and the use of the singular shall be deemed to include the plural (and vice versa); (b) the words “include”, “includes” and “including” shall (i) be deemed to be followed by the phrase “without limitation” and (ii) not be construed to limit the generality of any description preceding such term; (c) the word “will” will be construed to have the same meaning and effect as the word “shall”; (d) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein); (e) any reference herein to any Person shall be construed to include the Person’s successors and assigns; (f) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof; (g) the word “or” is used in the inclusive sense (“and/or”), unless explicitly indicated otherwise by the term “either/or”; (h) the word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase does not mean simply “if”; (i) all references herein to Sections or Exhibits shall be construed to refer to Sections or Exhibits of this Agreement, and references to this Agreement include all Exhibits hereto and all of Novartis’ obligations with respect to Upstream Licenses pursuant to Section 2.3; (j) the word “notice” means notice in writing (whether or not specifically stated) and shall include notices, consents, approvals and other written communications contemplated under this Agreement; (k) provisions that require that a Party, the Parties or any Committee “agree,” “consent” or “approve” or the like shall require that
18
such agreement, consent or approval be specific and in writing, whether by written agreement, letter, approved minutes (solely with respect to any Committee) or otherwise (but excluding instant messaging) and shall not be subject resolution pursuant to binding arbitration under Section 16.5, (l) the headings and recitals in this Agreement are for information only and shall not be considered in the interpretation of this Agreement; (m) references to any specific law, rule or regulation, or article, section or other division thereof, shall be deemed to include the then-current amendments thereto or any replacement or successor law, rule or regulation thereof; and (n) the phrase “to the extent” means “solely to the extent”. The Parties agree that the terms and conditions of this Agreement are the result of negotiations between the Parties and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party participated in the preparation of this Agreement. This Agreement shall be interpreted in its entirety and the fact that certain provisions of this Agreement may be cross-referenced shall not be deemed or construed to limit the application of other provisions of this Agreement to such cross-referenced provision and vice versa.
Article 2
LICENSES; EXCLUSIVITY
LICENSES; EXCLUSIVITY
2.1Licenses to Novartis.
(a)License Grants. Subject to the terms and conditions of this Agreement, Legend hereby grants, on behalf of itself and its Affiliates, to Novartis an exclusive (even as to Legend and its Affiliates except as provided in Section 2.1(d)), royalty-bearing, sublicensable (subject to Section 2.1(b)) and transferable (solely in accordance with Section 16.2) license, under the: (i) [***] Licensed Technology, to Exploit (1) the Licensed CAR [***] within Autologous Licensed Product and (2) Autologous Licensed Products; and (ii) [***], to [***]; in each case ((i) and (ii)), in the Field in the Territory, [***]. The foregoing license includes the exclusive (even as to Legend and its Affiliates) right to designate and engage Third Parties to Develop, Manufacture and Commercialize [***]; provided that, for clarity, the foregoing sentence does not restrict either Party from designating or engaging a Third Party to Develop, Manufacture or Commercialize [***]; provided further, that Legend, its Affiliates and its and their designees Developing or Commercializing a [***] shall not be restricted from Commercializing such [***].
(b)Sublicenses. Subject to the terms and conditions of this Agreement, Novartis shall have the right to grant to its Affiliates or Sublicensees, [***] sublicenses under the license granted by Legend to Novartis under Section 2.1(a); provided, that: (i) each such sublicense shall be granted pursuant to a written sublicense agreement (each, a “Sublicense Agreement”) that shall be subject and subordinate to, and consistent with, the terms and conditions of this Agreement; (ii) Novartis and its Affiliates shall not, without Legend’s prior consent, grant any such sublicense to a Third Party with respect to [***], provided that this clause (ii) shall not prohibit Novartis and its Affiliates from granting at any time to its and their Third Party subcontractors (excluding any Sublicensee) a sublicense to (x) [***] or (y) [***], in each case, on behalf of Novartis or its Affiliates; and (iii) [***]. Upon the execution of any Sublicense Agreement (or any material amendment thereto) with a Third Party ([***]), Novartis shall provide Legend with a complete and accurate copy thereof; provided that [***].
(c)Subcontracting. Novartis, its Affiliates or Sublicensees (subject to Section 2.1(b)) and Legend and its Affiliates (subject to Section 4.1(b)) may subcontract to Third Parties the performance of tasks and obligations with respect to the [***] of the Licensed Product in the Territory as it deems appropriate; provided that: (i) [***], and (ii) [***].
19
(d)Retained Rights. Notwithstanding the exclusive license granted by Legend to Novartis under Section 2.1(a), Legend and its Affiliates each retains the rights under the Licensed Technology, itself or with or through its permitted subcontractors, to perform Legend’s obligations and to exercise its rights under this Agreement, including to perform the Legend Phase 1 Clinical Trial Activities.
(e)No Modifications. [***].
2.2No Implied Licenses; Novartis Technology.
(a)No Implied License. Except as expressly set forth herein, neither Party shall acquire any license or other intellectual property interest, by implication or otherwise, under or to any Patent Rights, Know-How, or other intellectual property owned or otherwise Controlled by the other Party. Notwithstanding anything to the contrary in this Agreement ([***]), [***].
(b)Retention of Rights to Novartis Technology. For clarity and except as expressly provided in Sections 12.3(d)-12.3(e), neither Legend nor any Affiliate nor any Upstream Licensor thereof is or shall at any time, including on or after expiration or termination of this Agreement, have or be granted any license, interest, access to, disclosure of or other right with respect to [***].
2.3Addition of Upstream Licenses.
(a)Notice of Potential Upstream Licenses. If [***], Legend or its Affiliate enters into any agreement with a Third Party pursuant to which it obtains a licensable or sublicensable (in accordance with the terms of this Agreement) right or license from such Third Party to any Know-How or Patent Rights that would, but for the provisions of this Section 2.3, constitute Licensed Technology, then Legend shall [***] notify Novartis in writing setting out, (i) [***], (ii) [***], and (iii) [***].
(b)Addition of Upstream Licenses. If, within [***] after the receipt of such notice, Novartis provides Legend with written notice indicating interest in obtaining a license or sublicense under such Know-How or Patent Rights, then Legend shall [***] provide Novartis with [***]. If, within [***] after receipt of such [***], Novartis provides Legend with written notice in which (i) Novartis consents to including the applicable Know-How or Patent Rights in the Licensed Technology; (ii) Novartis agrees, that it shall be obligated under this Agreement, subject to Section 2.3(d) and Section 9.3(d)(iv), to [***], in each case, to the extent arising out of the grant, maintenance or exercise of a license or sublicense to or by Novartis under such Know-How or Patent Rights, including Novartis’ and its Affiliates’ and Sublicensees’ Development, Manufacture, Commercialization or other Exploitation of Licensed Products; (iii) Novartis acknowledges and agrees in writing that its license or sublicense under such agreement is subject to the terms and conditions of such agreement [***] and (iv) Novartis agrees under this Agreement to be bound by and comply with, and that it shall cause its Affiliates and Sublicensees to comply, with such terms and conditions to the extent applicable to it, its Affiliate or a Sublicensee in its or their capacity as a licensee or sublicensee under such Know-How or Patent Rights, then (and only then) shall (A) such agreement shall be deemed an “Upstream License” and such Third Party licensor shall be deemed an “Upstream Licensor” and (B) any such Know-How or Patent Rights, to the extent falling within the definition of Licensed Technology, shall be added to Licensed Technology licensed or sublicensed to Novartis under this Agreement; provided that [***]. Until such time as such agreement becomes an Upstream License in the case that Novartis timely provides such a written notice to Legend, or in the case that Novartis does not provide such a written notice to Legend within such [***].
20
(c)Without limiting Section 2.3(b), with respect to any Upstream License: (i) all (sub)licenses and rights granted pursuant thereto to Novartis, and obligations of Legend, under this Agreement are [***], (ii) to the extent an Upstream License expressly requires that provisions thereof be included or incorporated into the applicable agreement for a (sub)license granted thereunder, such provisions are hereby expressly deemed included and incorporated in this Agreement by reference; and (iii) in the event that the actions or inactions of Novartis, its Affiliates, or Sublicensees would, (A) [***] or (B) [***] in the case of foregoing clause (A), Legend shall have the right, as sufficient for Legend to [***]and, in the case of foregoing clause (B), Novartis shall [***].
(d)Novartis Rights. Nothing in this Section 2.3 shall limit or restrict Novartis’ right to [***], in which case the terms of [***] shall be eligible to apply with respect to [***].
2.4Exclusivity.
(a)Exclusivity Obligations. Subject to Sections 2.4(b) and 2.4(c), except for activities conducted pursuant to and in accordance with this Agreement, (i) neither Legend nor its Affiliates shall, whether by itself or with or through any of its Affiliates or any Third Party (including any Sublicensee), conduct, (A) any Clinical Trials or Commercialization activities for any Autologous Competing Product for any indication in the Territory during the Exclusivity Period or (B) any [***] (including Clinical Trials but excluding [***]) for any In Vivo Competing product for any indication in the Territory during [***] at any time prior to [***]; and (ii) neither Novartis nor its Affiliates shall, whether by itself or with or through any of its Affiliates or any Third Party (including any Sublicensee), conduct, (A) any Commercialization activities for any Competing Product for any indication in the Territory during the Exclusivity Period or (B) any (1) Clinical Trial for any Competing Product for any indication in the Territory during [***] at any time prior to [***] or (2) [***] during [***] at any time prior to [***].
(b)Acquisition of a Competing Product. The Parties acknowledge that after the Execution Date a Party or any of its Affiliates may in-license or otherwise acquire rights (including through any merger or business combination but excluding through a Change of Control) to perform activities with respect to a Competing Product that would violate Section 2.4(a) (such Competing Product, an “Acquired Product”). [***] provided that, (i) [***] within the immediately following clause (ii) which such Party or its applicable Affiliate(s) shall take [***], and (ii) notwithstanding anything to the contrary in this Agreement, (A) [***], such Party and its Affiliates shall [***], or (B) [***], such Party (and all of its Affiliates) shall [***]. During the period between the closing of a transaction to acquire rights to an Acquired Product and the date that the applicable Party [***], such Party must [***]; provided that, [***].
(c)Change of Control. If there is a Change of Control involving a Party (where such Party or its Affiliate is the entity that is subject of such Change of Control), then the obligations of Section 2.4(a) will not apply to [***] that (i) [***] and (ii) [***] (such product, an “Third Party Acquiror Product”); provided that (A) [***](B) [***]and (C) [***]; provided that, [***].
2.5Manufacturing Know-How and Material Transfer and Cooperation; Supply of Materials.
(a)Manufacturing Know-How and Material Transfer and Assistance. From and after the Effective Date and on an ongoing basis until [***], Legend shall disclose and
21
transfer, or shall cause to be disclosed and transferred, as applicable, to Novartis or one of its designated Affiliate(s) all [***].
(b)Supply of Materials. The Parties acknowledge that Legend has agreed to supply [***] to Novartis or its designee pursuant to and in accordance with the supply terms set forth in Exhibit G.
(c)Handover Package Documents and Data; Handover Deficiencies.
(i)Delivery of Documents. Legend shall deliver to Novartis all [***] and provide Novartis with electronic access to all [***], in multiple installments in accordance with the timelines set forth therein. At any time prior to the completion of such deliveries and provision of such access, Novartis may provide written notice to Legend of [***] that were required to be provided to Novartis pursuant to this Section 2.5(c)(i) but are missing, incomplete or otherwise non-compliant with this Section 2.5(c)(i) (“Handover Deficiencies”). Upon receipt of any such notice, [***].
(ii)Handover Package Completion. If Legend reasonably and in good faith determines that the delivery of the Handover Package is complete (including, as described in Section 2.5(c)(iii), [***]), it shall provide Novartis [***] written notice thereof, following which Novartis shall have [***] to identify any outstanding Handover Deficiencies[***]. If Novartis [***] within such [***] period, [***]. The provisions of this Section 2.5(c)(ii) shall apply seriatim until delivery of the Handover Package is complete.
(iii)[***].
(d)Licensed Know-How. Without limiting or duplicating the other provisions of this Section 2.5, from and after the Effective Date and on a continuing basis no more than once every [***] during the Term until [***], Legend, [***], shall disclose and transfer to Novartis or its designated Affiliate [***] which was not previously provided, as reasonably requested by Novartis or reasonably determined by Legend to be [***] for Novartis to [***].
(e)Third Party Agreements. Within [***] of the Effective Date, Legend shall, to the extent not previously delivered, deliver to [***], a consent letter substantially in the form set forth in Exhibit H [***] (“Consent Letter”) in order for Novartis to [***] and thereafter [***]. In addition, Legend shall [***], subject to and in accordance with the terms of this Agreement.
(f)Legend Assistance. Legend, [***] until the [***], shall [***] provide reasonable assistance to Novartis and its Affiliates in connection with understanding and using [***] provided to Novartis as described in Sections 2.5(a)-(d) for purposes consistent with licenses and rights granted to Novartis hereunder. Such cooperation and assistance shall, [***], include [***]. At Novartis’ reasonable request [***], as Legend may agree, [***].
(g)Conditions. Notwithstanding anything to the contrary in this Section 2.5, in no event shall Legend be required to: (i) generate, obtain or provide to Novartis pursuant to such obligations any Know-How either (1) are not within Legend’s or its Affiliates’ possession and Control at the time Legend would otherwise be required to provide such Know-How pursuant to such obligations or (2) [***] or (ii) provide to [***].
22
2.6China. In the event that Novartis, its Affiliates or Sublicensees have not [***] within[***]with respect to a Licensed Product conducted by or on behalf of Novartis, its Affiliates or Sublicensees, Legend, by written notice to Novartis, shall have the right to[***]; provided that, [***]. Notwithstanding any other provision of this Agreement, in no event will Novartis be required to [***].
2.7[***]
(a)[***].
(b)[***].
(c)[***].
(d)[***].
(e)[***].
Article 3
GOVERNANCE
GOVERNANCE
3.1Alliance Managers. Within [***], each Party shall appoint a representative to act as its alliance manager under this Agreement (each, an “Alliance Manager”) by providing written notification to the other Party. The Alliance Managers shall be primarily responsible for facilitating the flow of information and otherwise promoting communication, coordination and collaboration between the Parties under this Agreement and providing support and guidance to the JSC. Unless otherwise agreed upon in writing by the Alliance Managers, all requests for information from one Party to the other Party shall be made through the Alliance Managers. The Alliance Managers shall have the right to attend all meetings of the JSC, JDC, JMC, JPC and all other Committees (if any) as non-voting members, and shall bring matters to the attention of the relevant Committee if the Alliance Manager reasonably believes that such matter warrants such attention. Each Party may replace its Alliance Manager at any time upon written notice to the other Party.
3.2Joint Steering Committee.
(a)Responsibilities. Within [***], the Parties shall establish a joint steering committee (the “JSC”), composed of [***]. The JSC shall facilitate communications between the Parties with respect to activities under this Agreement and perform such other functions as appropriate to further the purposes of this Agreement, as expressly set forth in this Agreement or allocated to it by the Parties’ written agreement. Without limiting the generality of the foregoing, [***], Novartis shall: (i) provide the JSC with a [***] update on progress and plans [***]; and (ii) answer Legend’s reasonable questions with respect to the foregoing or any Development Update provided by Novartis pursuant to Section 5.3. [***].
(b)Term. The JSC shall continue to exist until [***].
3.3Joint Development Committee.
(a)Responsibilities. Within [***], the Parties shall establish a joint development committee (the “JDC”) composed of [***], each of whom will have the appropriate experience and expertise to perform its responsibilities on the JDC. The JDC shall:
23
(i) oversee the Legend Phase 1 Clinical Trial Activities and facilitate communications between the Parties with respect to the Legend Phase 1 Clinical Trial Activities; (ii) [***] (iii) [***] (iv) discuss planned activities to be undertaken in connection with the Legend Phase 1 Clinical Trial Activities, including the anticipated timeline for initiating and completing such activities; (v) [***] (vi) [***] and (vii) perform such other functions as may be appropriate and mutually agreed by the Parties to further Development activities under this Agreement. [***].
(b)Term. The JDC shall continue to exist until the earlier to occur of: (i) [***] or (ii) [***].
(c)Consensus; Escalation. All decisions within the decision-making authority of the JDC shall be made by [***], [***]. If the JDC is unable to reach agreement as to a particular matter within its jurisdiction, within [***] after such matter has been brought to the JDC for resolution, then such disagreement shall be referred to the Executive Officers of the Parties for resolution.
(d)Final Decision Making. If the Executive Officers do not fully resolve any matter within the JDC’s decision-making authority and referred to them under Section 3.3(c) within [***] of the matter being referred to them, then, except as provided below, and subject to Section 3.3(e), [***]shall have the final decision-making authority with respect to [***] except to the extent [***], in which case [***] shall have final decision-making authority with respect [***] Notwithstanding the foregoing, [***].
(e)Limitations of JDC Authority. The JDC shall only have the powers expressly assigned to it in this Section 3.3 and elsewhere in this Agreement and the JDC shall not have authority (and a Party shall not have final decision-making authority) to: (i) modify or amend the terms and conditions of this Agreement; (ii) waive or determine either Party’s compliance with the terms and conditions of this Agreement; or (iii) decide any issue, (A) in a manner that would conflict with the express terms and conditions of this Agreement or (B) that this Agreement expressly provides to be made by agreement or with a Party’s consent or approval. [***].
3.4Joint Manufacturing Committee.
(a)Responsibilities. Within [***], the Parties shall establish a joint manufacturing committee (the “JMC”) composed of [***], each of whom will have the appropriate experience and expertise to perform its responsibilities on the JMC. The JMC shall: (i) [***]; and (iii) perform such other functions as may be appropriate to further the purposes of this Agreement with respect to [***] as determined by the Parties. [***].
(b)Term. The JMC shall continue to exist until [***].
3.5Joint Patent Committee.
(a)Responsibilities. Within [***], the Parties shall establish a joint patent committee (the “JPC”), composed of [***], each of whom will have appropriate experience prosecuting patents and the appropriate experience and expertise to perform its responsibilities on the JPC. The JPC shall serve as the primary contact between the Parties regarding the exchange of information with respect to intellectual property matters arising under this Agreement. Without limiting the foregoing and to the extent consistent with the terms of Article 10, the JPC shall: (i) [***] (ii) [***] (iii) [***] (iv) [***] (v) [***] (vi) [***] (vii) [***] (viii) [***] and (ix) [***].
24
(b)Term. The JPC shall continue to exist until [***] or until the Parties mutually agree to disband and no longer participate in the JPC, whichever is earlier.
(c)Consensus; Escalation. All decisions within the decision-making authority of the JPC shall be made by [***]. If the JPC is unable to reach agreement as to such a decision, within [***] after such matter has been brought to the JPC for resolution, then, at the request of either Party, such disagreement shall be referred to the Executive Officers of the Parties for resolution.
(d)Final Decision Making. If the Executive Officers do not fully resolve any matter within the JPC’s decision-making authority and referred to them under Section 3.5(c) within [***] of the matter being referred to them, then, subject to Section 3.5(e),
(i)if the matter involves the filing, prosecution, maintenance, defense or enforcement of a Licensed Patent or Joint Patent, [***] shall have the final decision-making authority with respect to such matter; provided that if [***] notifies the JPC of its good-faith belief that such decision would [***];
(ii)if the matter involves the filing, prosecution, maintenance, defense or enforcement of a Product-Specific Patent, [***] shall have the final decision-making authority with respect to such matter; provided that if [***] notifies the JPC of its good-faith belief that such decision would [***]; provided, further, that [***] shall not have the right to exercise such final decision-making authority in a manner that would [***]; and
(iii)if the matter involves (A) [***], (B) [***] or (C) [***], then in each case ((A)-(C)), upon written notice from either Party, such matter shall be resolved by an expedited arbitration proceeding by [***]pursuant to the terms set forth on Exhibit I.
(e)Limitations of JPC Authority. The JPC shall only have the powers expressly assigned to it in this Section 3.5 and elsewhere in this Agreement and the JPC shall not have authority (and a Party shall not have final decision-making authority) to: (i) modify or amend the terms and conditions of this Agreement; (ii) waive or determine either Party’s compliance with the terms and conditions of under this Agreement; or (iii) decide any issue, (A) in a manner that would conflict with the express terms and conditions of this Agreement or (B) that this Agreement expressly provides to be made by agreement or with a Party’s consent or approval. At the request of either Party, the Parties will enter into a common interest agreement with respect to information exchanged, disclosed and discussed by the Parties at the JPC.
3.6Committee Membership and Meetings.
(a)Committee Members. Within [***], each Party shall appoint its representatives on the JSC, JDC, JMC and JPC by providing written notification to the other Party. Each Party may replace its representatives on any Committee on written notice to the other Party, but each Party shall strive to maintain continuity in the representation of its Committee members. Each Party shall appoint [***] on each Committee to act as [***] of such Committee. The co-chairpersons shall jointly prepare and circulate agendas to the applicable Committee’s members at least [***] before each Committee meeting and shall direct the preparation of reasonably detailed minutes for each Committee meeting, which shall be approved by the co-chairpersons and circulated to Committee members within [***] of such meeting. Each Party shall be solely responsible for the costs incurred by its representatives in attending any Committee meeting.
25
(b)Meetings. Each Committee shall hold meetings at such times as the Parties mutually agree, but in no event shall such meetings be held less frequently than (i) for the JSC, once every [***]; (ii) for the JDC, once every [***]; (iii) for the JMC, [***] and (iv) for the JPC, [***]. Committee meetings may be held in person or by audio or video teleconference; provided, that unless otherwise agreed by both Parties, at least [***] shall be held in person. All in-person meetings shall alternate between locations designated by each Party. Notwithstanding the foregoing, each Party may also call for a special telephonic or videoconference meeting of the JDC to be held to review, discuss and make decisions on [***] upon [***] prior written notice (or such shorter period of time as such Party may determine in good faith is required by exigent circumstances) to the other Party. For the avoidance of doubt, notwithstanding any agreed meeting schedule of the JPC, the Parties shall communicate as necessary in order to ensure the effective management of the Parties’ intellectual property rights set forth in Article 10. Each Party shall be responsible for [***] of participating in any Committee meetings. No action taken or decision made at any Committee meeting shall be effective unless at least [***] of each Party is participating.
(c)Non-Member Attendance. Each Party may from time to time invite a reasonable number of participants, in addition to its representatives, to attend the Committee meetings in a non-voting capacity; provided, that if either Party intends to have any Third Party (including any consultant) attend such a meeting, then such Party shall provide [***] written notice to the other Party and obtain the other Party’s approval for such Third Party to attend such meeting, which approval shall not be unreasonably withheld, conditioned, or delayed. Such Party shall ensure that such Third Party is bound by confidentiality and non-use obligations consistent with (i.e., at least as protective of the other Party’s Confidential Information as) the terms of this Agreement.
3.7Disbandment. Notwithstanding the foregoing of this Article 3, after [***], [***] shall have the right to disband all Committees upon prior written notice to [***] referencing this Section 3.7 (“Disbandment Notice”). Following [***] receipt of a Disbandment Notice, the Committees shall disband and thereafter: (a) the Committees shall have no further authority with respect to any activities under this Agreement, (b) all matters to be agreed upon or determined by a Committee will be agreed upon or determined by mutual agreement of the Parties, provided, however, [***], and (c) any requirement of either Party to provide information or documents to a Committee or consult with a Committee shall be deemed a requirement to provide such information or document to or consult with the other Party.
Article 4
LEGEND PHASE 1 CLINICAL TRIAL
LEGEND PHASE 1 CLINICAL TRIAL
4.1Performance of the Legend Phase 1 Clinical Trial.
(a)Legend Development Plan and Budget; Compliance. Except as otherwise expressly set forth in Section 4.4(b), Legend shall be responsible for, and shall [***] perform, the Legend Phase 1 Clinical Trial in accordance with the Legend Development Plan and Budget. Legend shall [***] conduct and complete all activities in the Legend Development Plan and Budget in accordance with the budget and timelines set forth therein; provided, [***]. Legend shall perform all Legend Phase 1 Clinical Trial Activities in good scientific manner and in compliance with all Applicable Laws, and shall [***], allocate sufficient time, effort, equipment, and skilled personnel as necessary to complete all Legend Phase 1 Clinical Trial Activities successfully and [***]. Legend shall be solely responsible for [***] with respect to the Legend Phase 1 Clinical Trial.
26
(b)Subcontracting. Without [***], Legend shall not subcontract or otherwise delegate performance of any Legend Phase 1 Clinical Trial Activities (excluding [***]) to any Third Parties, other than [***] disclosed on Exhibit J (each, a “Known Legend Subcontractor”). With respect to any [***] subcontractors, Legend shall [***] oversee the performance by its subcontractors of the subcontracted activities in a manner that would [***]. Any agreement pursuant to which Legend engages a subcontractor (other than [***])) for performance of Legend Phase 1 Clinical Trial Activities must, (i) be consistent with this Agreement, and (ii) [***] (A) [***], (B) [***] and (C) [***]; provided that it shall not be a breach of this Agreement if such agreement [***]. No such [***] subcontracting shall relieve Legend of any obligation hereunder, and any act or omission of its subcontractors shall constitute the act or omission of Legend for all purposes hereunder, which act or omission of its subcontractors, [***].
(c)Development Breach. If Legend is in material breach of, has materially failed to comply with Applicable Laws with respect to or has committed fraud, gross negligence or wilful misconduct with respect to its obligations to [***] in accordance with this Agreement or [***] (each, a “Development Breach”) and such Development Breach remains unremedied for [***] after Legend’s receipt of a written notice from Novartis of such Development Breach, then [***]; provided, however that, [***].
4.2Legend Development Reports.
(a)Prior to Completion of the Legend Phase 1 Clinical Trial. Within [***], Legend shall provide to the JDC (and Novartis through the JDC) (i) a [***] report or presentation, in a format to be agreed upon by the Parties, of [***]which report or presentation shall contain [***] to enable the JDC to assess Legend’s compliance with the Legend Development Plan and Budget and this Agreement; and (ii) access to or copies of any other written reports or presentations to the extent pertaining to [***].
(b)Following Completion of the Legend Phase 1 Clinical Trial. Within [***]: (i) [***], and (ii) [***], in each case ((i) and (ii)), Legend shall provide to Novartis (A) a [***] written report, in a format to be agreed upon the Parties, of [***]; and (B) access to or copies of any other written reports to the extent pertaining to such report [***]. Upon the reasonable request of Novartis from time to time, Legend shall up to [***] make appropriate personnel [***] available to Novartis to discuss by teleconference such [***].
(c)Ongoing Stability Study. Within [***] of the Ongoing Stability Study (as defined in Exhibit G), Legend shall provide to the JDC (and Novartis through the JDC) a reasonably detailed update with respect to the status of the Ongoing Stability Study during such [***], which update shall contain sufficient detail to enable the JDC to assess [***]. Following [***], Legend shall [***].
(d)Data. Upon the reasonable request of Novartis [***], prior to [***], Legend shall provide to Novartis [***] arising from the Legend Phase 1 Clinical Trial Activities [***] within the Licensed Know-How not previously provided.
(e)Conditions. Notwithstanding the other provisions of Section 4.1 or this Section 4.2, with respect to Legend’s obligations under Section 4.1 and this Section 4.2, in no event shall Legend be required to [***], (i) [***] or (ii) [***].
4.3Development Costs.
27
(a)Reimbursement of Development Costs. Novartis shall reimburse Legend in accordance with this Section 4.3 for all Development Costs [***] in performing the Legend Phase 1 Clinical Trial Activities, [***], in each case, as set forth in this Section 4.3, including Section 4.3(f).
(b)Reporting. Within [***] in which Legend incurs or pays Developments Costs for which it is entitled to be reimbursed under this Section 4.3, Legend shall submit to Novartis a report setting forth the Development Costs [***].
(c)Invoicing and Payment. Novartis shall reimburse Legend [***], within [***] receipt of an Invoice provided [***]
(i)[***];
(ii)[***];
(iii)[***];
(iv)[***]; and
(v)[***].
[***] (A) Development Costs incurred by Legend in the performance of the Development activities [***] and (B) Development Costs incurred [***] within [***] after receipt of an Invoice provided by Legend [***] (or, if none, [***]).
Each Invoice provided by Legend pursuant to this Section 4.3(c) shall [***].
(d)Disputed Amounts. If Novartis disputes in good faith any portion of an Invoice for Development Costs provided by Legend pursuant to this Section 4.3, Novartis shall [***] notify Legend and the Parties shall [***]. Any Development Costs subject to such dispute shall be paid by Novartis within [***]; provided that [***].
(e)Compliance with Budget. The Development Costs to be reimbursed to Legend by Novartis must be incurred in accordance with the Legend Development Plan and Budget or Wind-Down Budget, as applicable. For the avoidance of doubt, Development Costs shall be deemed incurred in accordance with the Legend Development Plan and Budget or Wind Down Budget, as applicable, and subject to reimbursement by Novartis in accordance with this Section 4.3, [***]. Legend shall [***]. Any such Development Costs in excess thereof shall be borne[***].
(f)Maximum Reimbursement. Notwithstanding any other provision of this Agreement, in no event will Novartis be obligated to reimburse Legend for Development Costs ([***].
4.4Regulatory Matters.
(a)Regulatory Communications. As between the Parties, Legend shall have the sole responsibility to maintain all INDs necessary to perform the Legend Phase 1 Clinical Trial Activities under the Legend Development Plan and Budget, and to conduct communications with the applicable Regulatory Authorities with respect to such INDs; provided that [***] shall be subject to review and comment by Novartis at least [***] (unless an earlier
28
response is required by the applicable Regulatory Authority, in which case the Parties shall work in good faith to provide a response within such timeframe) prior to their submission to the applicable Regulatory Authorities. Subject to Section 3.3(e), Legend shall, and shall cause its Affiliates to, [***] such comments of Novartis on such Regulatory Materials. Subject to the immediately following sentence, Legend shall provide Novartis with (i) access to or copies of all material written or electronic correspondence to the extent pertaining to its [***] Legend or its Affiliates ([***]) from, or forwarded by Legend or its Affiliates ([***]) to, the Regulatory Authorities in the Territory, and (ii) copies of all meeting minutes and summaries of all meetings, conferences, and discussions held by Legend or its Affiliates [***] with the Regulatory Authorities to extent relating to [***], including copies of all contact reports produced by Legend or its Affiliates [***] regarding the same, in each case ((i) and (ii)) within [***]. If such written or electronic correspondence so received from any such Regulatory Authority relates to [***], Legend shall notify Novartis and provide Novartis with copies of such written or electronic correspondence as soon as practicable, but not later than [***] after receipt of such correspondence. Legend shall provide Novartis with prior written notice, to the extent Legend or its Affiliates has advance knowledge, of [***], within [***] after [***]. Novartis shall have the right to [***]; provided that, (A) [***], and (B) [***]
(b)Handling of Safety and Pharmacovigilance Matters.
(i)JDC Oversight. All safety and pharmacovigilance matters arising out of the Legend Phase 1 Clinical Trial Activities shall be performed in a coordinated manner under the oversight of the JDC. The JDC shall facilitate timely information sharing, analysis, and discussions and alignment with respect to all safety and pharmacovigilance issues arising out of the Legend Phase 1 Clinical Trial. The Parties acknowledge that they shall strive for consensus on safety and pharmacovigilance matters within the purview of the JDC; provided, that, [***]; provided, further, that [***]. For avoidance of doubt, nothing in this Section 4.4(b) shall be construed to expand the scope of the JDC’s decision-making authority.
(ii)Safety Determination. Notwithstanding anything to the contrary in this Agreement, if the JDC determines that [***] (“Safety Determination”), then Legend shall not Initiate or shall [***] terminate, wind-down and cease conducting the Legend Phase 1 Clinical Trial in accordance with the Wind-Down Budget, as applicable. [***].
(iii)Information Sharing. Legend will share with the JDC the following information arising out of the Legend Phase 1 Clinical Trial (other than the Clinical Trial Follow-up Activities with respect to the Legend Phase 1 Clinical Trial): (A) Serious Adverse Events and pregnancy reports (preferably in CIOMS I format) for all patients within [***] of Legend’s receipt of reports of any fatal and life-threatening Serious Adverse Events and within [***] of Legend’s receipt of reports of all other Serious Adverse Events; (B) Investigator Notifications within [***] of Legend’s receipt of any information prompting the applicable Investigator Notification; (C) all available final versions of aggregate safety reports (e.g., Development Safety Update Reports) within [***] following the due date for submission to the applicable Regulatory Authority of the applicable aggregate safety report by Legend; and (D) any safety finding that requires an Urgent Safety Measure [***] (which Legend [***] provide within [***] and, in any case, within [***] after Legend makes a decision to issue an urgent safety communication related to such safety finding. In the event that Legend commences the Legend Phase 1 Clinical Trial Activities prior to the Effective Date of this Agreement, Legend shall provide to Novartis and the JDC copies of all such Serious Adverse Events, pregnancy reports and Investigator Notifications that Legend becomes aware of since the commencement of the Legend Phase 1 Clinical Trial within [***]. For avoidance of doubt, Legend shall be deemed to [***].
29
(iv)[***] Plans. Legend shall provide Novartis with drafts of Legend’s [***] for Novartis’ review and comments prior to the submission of such plans to the applicable Regulatory Authority.
(v)Legend’s Expense. For clarity, all [***] shall be conducted by Legend at its sole expense.
4.5No Other Development Activities. Except for [***], neither Legend nor its Affiliates shall conduct (or have conducted) any Development of Licensed Products without Novartis’ prior written consent, which consent may be withheld or conditioned in Novartis’ sole discretion.
4.6Novartis Development Activities. For clarity, nothing in this Agreement shall limit in any way Novartis’ right to conduct Development or any other activities with respect to the Exploitation of Licensed Products [***].
Article 5
DEVELOPMENT
DEVELOPMENT
5.1General. As between the Parties, other than the Legend Phase 1 Clinical Trial Activities, Novartis shall be solely responsible for conducting, at its expense and in its sole discretion (subject to Section 5.2), Development of Licensed Products in the Field in the Territory.
5.2Development Diligence. Novartis shall (by itself or with or through its Affiliates, Sublicensees, or other Third Parties) [***] Develop and obtain Regulatory Approval for [***]. For clarity and without limiting Novartis’ rights or obligations under this Agreement, unless determined otherwise by Novartis, [***], and, to the extent required pursuant to its obligations under this Section 5.2, Novartis shall [***]. Except as expressly provided in this Section 5.2, [***].
5.3Development Updates. Novartis shall provide Legend, through the JSC, [***] written report[***], which describes [***] performed since the last report and planned Development activities with respect to Licensed Products (each, a “Development Update”). For clarity, all Development Updates shall constitute Confidential Information of Novartis.
5.4Companion Diagnostics. From time to time, as reasonably requested by Novartis, Legend shall [***].
Article 6
REGULATORY
REGULATORY
6.1General. As between the Parties, subject to Section 4.4, Novartis shall (a) be solely responsible, at its expense, for obtaining and maintaining Regulatory Approvals for the Licensed Products in the Field in the Territory in the name of Novartis or its Affiliates or Sublicensees, including submission of all Regulatory Materials, all communications with Regulatory Authorities and any other activities in connection with obtaining such Regulatory Approvals; and (b) [***] all Regulatory Materials for Licensed Products in the Field in the Territory. Legend shall [***] cooperate with and provide assistance to Novartis from time to time as [***] requested in connection with obtaining such Regulatory Approvals, [***].
30
6.2Right of Reference. To the extent [***] for the Exploitation of [***] in the Field in the Territory, Legend hereby grants on behalf of itself and its Affiliates to Novartis and its Affiliates and Sublicensees a Right of Reference with respect to [***]. If requested by Novartis, Legend shall [***] if and to the extent required by Applicable Laws or the Regulatory Authority in the applicable country or jurisdiction. In the event that any Affiliate of Legend holds any Regulatory Materials to which Novartis is granted a Right of Reference under this Section 6.2, Legend shall cause such Affiliate to grant a Right of Reference to Novartis to the same extent that Legend is required to grant such Right of Reference under this Section 6.2. The Right of Reference granted to Novartis pursuant to this Section 6.2 shall include [***].
6.3Clinical Trial Disclosures. [***].
6.4Safety and Pharmacovigilance Matters.
(a)Pharmacovigilance Agreement. The Parties shall cooperate with regard to the reporting and handling of safety information involving or relating to the [***] to the extent required by Applicable Laws. To the extent required by Applicable Laws or any Regulatory Authority (e.g., if Novartis elects to run studies with a version of the Licensed Product that was considered by the applicable Regulatory Authorities to be exactly the same as the version of the Licensed Product as used in the Legend Phase 1 Clinical Trial), the Parties shall [***] a written agreement containing reasonable and customary terms that will govern the exchange of Adverse Event and other safety information reporting obligations relating to the Licensed Product (the “Pharmacovigilance Agreement”) to ensure that Adverse Events and other safety information involving or relating to the Licensed Product is exchanged and reported to the relevant Regulatory Authorities in compliance with Applicable Laws and the requirements of Regulatory Authorities. In the event that a Pharmacovigilance Agreement is not so required, the Parties shall enter into [***] that will govern the exchange of validated safety signals for the Licensed Product, which agreement shall be entered into [***].
(b)Transfer of Legacy Safety Data. Any legacy safety data within the Licensed Know-How arising from the Legend Phase 1 Clinical Trial that [***] shall be transferred from Legend to Novartis in accordance with the applicable data security and data privacy laws. The Parties acknowledge that transfer of such legacy safety data will require mutual cooperation between the Parties and the Parties will use reasonable efforts to complete such transfer as soon as possible.
(c)Legend Phase 1 Clinical Trial. Notwithstanding the foregoing, the processes and procedures for sharing Adverse Events and other safety information arising out of the Legend Phase 1 Clinical Trial shall be overseen by [***].
6.5Recalls. Subject to Section 4.4(b), Novartis shall [***] and have [***] responsibility for and control over any recall or market withdrawal of any Licensed Product or other corrective action in any country and the manner in which any such recall, market withdrawal or corrective action shall be conducted, at its sole cost and expense.
6.6Compliance. Each Party agrees that, in performing its obligations under this Agreement: (a) it shall comply with all applicable current international regulatory standards, including GMP, GLP, GCP, GVP and other rules, regulations and requirements; and (b) it will not employ or use any person that has been debarred under Section 306(a) or 306(b) of the US Federal Food, Drug and Cosmetic Act (21 U.S.C. 335a) (the “Act”).
31
6.7Personal Data. The Parties agree to be bound by the terms set forth in Exhibit K establishing the procedures to be used by the Parties to ensure compliance with all data security and data privacy laws in connection with the exchange of Personal Data between the Parties. The Parties’ compliance with such procedures shall be subject to any obligations of Legend under Applicable Laws, including the filing of any documents required for approvals from HGRAC in order to provide such Personal Data to Novartis.
Article 7
MANUFACTURE AND QUALITY MATTERS
MANUFACTURE AND QUALITY MATTERS
7.1Allocation of Responsibility. As between the Parties, Legend shall be solely responsible for the Manufacture and supply of LB2102 and any components thereof for purposes of conducting the Legend Phase 1 Clinical Trial and any other Legend Phase 1 Clinical Trial Activities, [***], subject to Section 4.3. As between the Parties, Novartis shall be solely responsible, subject to Sections 2.5(a) and 2.5(b), for all other Manufacture and supply of Licensed Products and components thereof, at its expense, for purposes of Development and Commercialization in the Territory, such Manufacture and supply to be conducted by Novartis, its Affiliates, Sublicensees or subcontractors. Legend shall reasonably cooperate with Novartis, at Novartis’ reasonable request, in requesting waivers from complying with the Manufacturing requirements of the Bayh-Dole Act, to the extent such requirements are applicable.
7.2Quality.
(a)Quality Agreement. Within [***], the Parties will [***] (the “Quality Agreement”). In the event of a discrepancy between this Agreement and the Quality Agreement, the Quality Agreement shall govern with respect to [***] and this Agreement governs with respect to all other matters.
(b)Records Retention. Legend will, [***] ensure that its Affiliates, employees, directors, officers, [***] and agents will, keep and maintain in good scientific manner complete, appropriate and accurate Records in accordance with the Records Retention Period, in detail reasonably necessary to [***]. Without limiting Legend’s information security obligations under this Agreement, Legend will [***]. Following the Records Retention Period, Legend shall provide Novartis [***] advance notice of Legend’s proposed destruction of the Records required to be maintained pursuant to the applicable requirements of GxP, and transfer, to the extent not previously provided to Novartis, such Records to Novartis upon Novartis’ request to be provided [***].
(c)Regulatory Authority Inspections. If a Regulatory Authority desires to conduct an inspection or GxP Audit of Legend, its Affiliates, [***] relating to [***], Legend shall [***] notify Novartis upon Legend becoming aware thereof. Legend shall permit Regulatory Authorities to conduct inspections or audits of Legend, its Affiliates, or, to the extent Legend or its Affiliates has the right, its or their subcontractors (including CMOs), relating to [***], and shall ensure that such Affiliates and, to the extent Legend or its Affiliates has the right, [***] ensure such subcontractors (including CMOs), permit such inspections and audits. Unless prohibited by Applicable Law, (i) Legend shall permit Novartis to attend and observe the aforementioned inspections or audits (provided that [***]), (ii) Legend shall provide Novartis with a [***] of any findings of a Regulatory Authority following a regulatory audit or inspection that are communicated to Legend by such Regulatory Authority, as a result of the inspection or any submitted document(s) or in a correspondence with such Regulatory Authority (e.g., EIR, 483s, warning letters, EMA or European inspection reports, serious breaches, safety urgency measures, issued on PSURs, DSURs) and corresponding proposed responses, in each case related
32
to [***], and (iii) in the event any such inspection could reasonably be expected to [***], Legend shall, no later than [***] the date of such inspection, provide to Novartis [***] of the relevant inspection report or correspondence provided to Legend by the applicable Regulatory Authority. Legend will [***] cooperate with Novartis in the preparation of any response thereto to Regulatory Authorities and any mutually agreed corrective action plans which could reasonably be expected to affect Legend’s Data Integrity or be considered critical findings regarding any IND, MAA or other Regulatory Materials relevant to [***]. In the event that any Regulatory Authority desires to conduct an inspection or audit of Novartis relating to the Licensed Products or Licensed Technology, such as any pre-approval inspection, Legend shall [***] cooperate with Novartis upon request in responding to such audit or inspection, including attending such audit or inspection if so requested by Novartis.
(d)Novartis Audits.
(i)For the purpose of ensuring Legend’s compliance with this Agreement, Legend agrees and will ensure that its employees, directors, officers, [***] (to the extent Legend or its Affiliates has the right) and agents agree (where necessary) that Novartis or one of its designated Affiliates or a Third Party auditor [***] shall have the right, [***] upon reasonable prior notice (of no less than [***]) from Novartis, [***], but no more than [***] (inclusive of any initial qualification audit conducted pursuant to Section 7.2(d)(vi)), for a period of up to [***], to audit and have access to: (A) [***]; (B) [***]; and (C) [***], in each case ((A)–(C)), to the extent necessary to confirm Legend’s compliance with Article 4 of this Agreement. The audit and access rights referenced under this Section 7.2(d), include without limitation the right to conduct face to face or on-line interviews with Legend’s employees, directors, officers, [***] and agents, the right to access and review (in both soft and hard copy) any and all internal policies, internal audit reports, standard operating procedures, procedures, guidelines, or other internal documentation of Legend (including non-confidential documentation with Third Parties relating to the audit scope and Legend’s corporate structure), respective evidence and proof and all written explanations provided by Legend reasonably necessary to [***]. Any audit (and related data collection activities) shall be carried out in compliance with Applicable Laws.
(ii)Each Party shall, subject to Section 4.3, [***] of any audit conducted pursuant to this Section 7.2(d).
(iii)Following any such audit, Novartis may provide Legend with an audit report, which shall enable Legend to, [***], prepare a corrective action plan (including a timetable to implement and complete the plan) to address any major or critical deviations or deficiencies identified in the audit for Novartis’ review. [***] shall review and approve ([***]) the corrective action plan, and Legend shall [***] implement any reasonable corrections in accordance with such mutually agreed corrective action plans. Notwithstanding any recommendations provided by Novartis to Legend, [***]. Legend will conduct its obligations with respect to a corrective action plan, subject to Section 4.3, [***].
(iv)Nothing in this Section 7.2(d) requires Legend to provide information on profits, margins, overheads or costs of capital [***] for the purposes of an audit, or to provide any confidential information of a Third Party. All information obtained through, and the results and findings of, any such audit shall be the Confidential Information solely of Legend. Any Third Party auditor acting on Novartis’ or its Affiliates’ behalf shall agree to be bound by written obligations and confidentiality and non-use at least as restrictive as the terms of this Agreement and for which Legend is a designated third party beneficiary.
33
(v)To the extent access to certain areas of its sites or facilities would constitute a breach of its confidentiality undertakings to Third Parties, [***]. In respect of Records, Legend shall have the right to [***].
(vi)Without limiting the foregoing, (A) [***] within [***] and (B) [***] during [***] (as defined in Exhibit G).
Article 8
COMMERCIALIZATION
8.1General. As between the Parties, Novartis shall be solely responsible, at its expense [***], for all aspects of Commercialization of Licensed Products in the Field in the Territory, [***].
8.2Commercial Diligence. Novartis shall (by itself or with or through its Affiliates, Sublicensees, or other Third Parties) [***] Commercialize in [***]. Except as expressly provided in this Section 8.2, Novartis shall have no obligation to Commercialize Licensed Products in any jurisdiction.
8.3Trademarks; INN/USAN. Novartis shall have the right to brand the Licensed Products using Trademarks and any other branding elements it determines appropriate, which may vary by country or within a country, but excluding any Trademarks owned or otherwise controlled by Legend or any of its Affiliates (the “Novartis Trademarks”); provided that: to the extent permitted by Applicable Law, at Legend’s election, [***] (the “Legend Mark”) to be placed in a size and location reasonably determined by [***] consistent with the practice in the biopharmaceutical industry; provided, further, that the Legend Mark, shall, (i) be used in a consistent and noticeable manner sufficient to constitute trademark usage under Applicable Law, (ii) be clearly identified as a trademark (i.e., through the use of a “®”, “™” or other appropriate identifier), and (iii) not be used as combination marks with other marks or trademarks. Novartis shall obtain Legend’s review and approval prior to the first use of the Legend Mark in such packaging and promotional materials, [***]. As between the Parties, Legend shall retain ownership of and goodwill associated with the Legend Mark. As between the Parties, Novartis shall exclusively own all rights in and goodwill associated with such Novartis Trademarks and shall select, file, register, maintain, enforce and defend such Novartis Trademarks in the countries and regions that it determines reasonably necessary, at Novartis’ expense. In the event that any Novartis Trademark used or intended for use for the Commercialization of the Licensed Products in the Territory is infringed by a Third Party, Novartis may request reasonable assistance from Legend to enforce its rights and defend against such infringement, and Novartis shall reimburse Legend’s costs and expenses for such assistance. Novartis shall be responsible for applying for an International Nonproprietary Name (“INN”) and United States Adopted Name (“USAN”) for the Licensed Products for Commercialization in the Territory, including by creating name candidates for the INN application and communicating such name candidates to Legend for information prior to filing the INN application. The costs for the INN and the USAN applications, including costs for external clearance searches, will be borne by Novartis. Novartis may request reasonable assistance from Legend to prepare the INN and USAN applications, and Legend agrees to provide such assistance at Novartis’ cost.
34
Article 9
FINANCIAL PROVISIONS
9.1Upfront Payment. In partial consideration of the licenses and rights granted to Novartis hereunder, Novartis shall pay to Legend a one-time, upfront payment of One Hundred Million Dollars ($100,000,000) [***].
9.2Milestone Payments.
(a)Development Milestone Events. In further consideration of the licenses and rights granted to Novartis hereunder, upon [***] achievement by Novartis, its Affiliates, or its or their Sublicensees of a Development Milestone Event set forth below [***], the corresponding [***] Development Milestone Payment shall become payable by Novartis to Legend:
| Development Milestone Event | Development Milestone Payment | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
Total | [***] | ||||
(b)Sales Milestones. In further consideration of the licenses and rights granted to Novartis hereunder, [***], upon [***] achievement by Novartis, its Affiliates, or its or their Sublicensees of a Sales Milestone Event set forth below [***], the corresponding [***] Sales Milestone Payments shall become payable by Novartis to Legend:
| Sales Milestone Event | Sales Milestone Payment | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
Total | [***] | ||||
35
(c)Limitations. Notwithstanding any other provision of this Agreement: (i) each Development Milestone Payment shall be payable [***]; (ii) the maximum aggregate Development Milestone Payments that may become payable shall not exceed [***]; (iii) the maximum aggregate Sales Milestone Payments that may become payable for each Licensed Product shall not exceed [***]; (iv) each Sales Milestone Payment shall be payable [***]t, provided that, for clarity, if more than one of the Sales Milestone Events is achieved in a given Calendar Year, all Sales Milestone Payments for such Sales Milestone Events shall become payable with respect to such Calendar Year; and (v) [***]. For the purposes of [***] Net Sales of a Licensed Product for purposes of the Sales Milestones in Section 9.2(b) and royalty rate tiers in Section 9.3(a), [***], provided that (x) [***], (y) [***], and (z) [***].
(d)Skipped Milestones. Further, effective as of the date that any Development Milestone Event is achieved, all Earlier Development Milestone Events that have not yet been achieved shall be deemed achieved and, accordingly, all Development Milestone Payments for all such Earlier Development Milestone Events shall be payable by Novartis to Legend. “Earlier Development Milestone Event” means, with respect to a given Development Milestone Event, all Development Milestone Events that [***], provided, however, that, [***]. For example, if [***] Further, for example, if [***].
9.3Royalty Payments.
(a)Royalty Rates. In further consideration of the licenses and rights granted to Novartis hereunder, on a Licensed Product-by-Licensed Product and country-by-country basis, during the applicable Royalty Term for such Licensed Product [***], Novartis will make royalty payments to Legend on the aggregate worldwide Net Sales of Licensed Products by Novartis, its Affiliates and its and their Sublicensees as calculated by multiplying the applicable royalty rate set forth in the table below by the corresponding [***] incremental annual [***]:
[***] aggregate annual worldwide Net Sales of a Licensed Product in a given Calendar Year: | Royalty Rate | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
1)[***] | [***] | ||||
(b)Royalty Term. Novartis’ royalty payment obligations under Section 9.3(a) shall begin, on a Licensed Product-by-Licensed Product and country-by-country basis, upon the [***] and shall expire, [***], upon the later of: (i) [***] of the First Commercial Sale of such Licensed Product in such country; (ii) the expiration of the last-to-expire Valid Claim of Licensed Patents that Covers such Licensed Product [***] ([***]) (the “Valid Claim Prong”) and (iii) [***] (clauses (i), (ii) and (iii) collectively, the “Royalty Term”). Following the expiration of the Royalty Term [***], Novartis’ licenses under Section 2.1(a) with respect to [***] shall [***]. For purposes hereof, [***].
(c)Royalties Payable Once. For clarity, royalties shall be payable only once with respect to the same unit of Licensed Product.
36
(d)Royalty Reductions.
(i)Know-How Royalty. On a Licensed Product-by-Licensed Product and country-by-country basis, if a Licensed Product is sold in a country in the Territory during the applicable Royalty Term at a time when the Valid Claim Prong of the Royalty Term has expired with respect to such Licensed Product in such country, then, [***].
(ii)Loss of Market Exclusivity. On a Licensed Product-by-Licensed Product and country-by-country basis, if a Licensed Product is sold [***] in the Territory during the applicable Royalty Term at a time when a Loss of Market Exclusivity has occurred with respect to such Licensed Product [***], then, for the purposes of Section 9.3(a), the royalty rate applicable to the Net Sales of such Licensed Product in such country during the Calendar Quarter in which such Loss of Market Exclusivity occurred and each Calendar Quarter(s) thereafter during the remainder of the applicable Royalty Term, shall [***].
| [***] | [***] | ||||
| [***] | [***] | ||||
| [***] | [***] | ||||
| [***] | [***] | ||||
(iii)[***]. [***].
(iv)Third Party Obligations. If [***] reasonably determines that rights to any [***] owned or otherwise Controlled by a Third Party Cover and are [***] in order to [***] (the “LB Third Party IP”) or to [***] ([***]) in [***] the Territory and [***] acquires such rights through a license or otherwise [***] ([***]), Novartis shall have the right to [***] hereunder for the applicable Licensed Product in such country (x) [***] and (y) [***], in each case ((x) and (y)), of [***]; provided that [***].
(v)Example Royalty Reduction Calculations. Exhibit L sets forth examples of the application of the royalty reductions set forth in this Section 9.3(d).
(e)Royalty Floor; Carry Forward. In no event will the royalty payment by Novartis to Legend hereunder, in respect of [***], (i) be reduced [***] nor (ii) be reduced [***]); provided, that [***].
(f)[***].
(g)[***].
9.4Reports and Payment Terms.
(a)Milestones. Novartis shall provide Legend with written notice of the achievement of (i) each Development Milestone Event [***] and (ii) each Sales Milestone Event [***] such Sales Milestone Event was achieved. After receipt of a notice of the achievement of a Milestone Event, [***]; provided [***].
(b)Royalties. Within [***], Novartis shall provide Legend with a Sales & Royalty Report. [***]. Novartis shall pay such royalty amount [***].
37
(c)Other Payments. For any payment not described in Sections 9.1 or 9.4(a)-(b) above or Section 4.3, [***].
(d)Effective Date. [***].
(e)Late Payment. If Novartis fails to make a payment by the date such payment is due under this Agreement, Novartis shall pay Legend interest on such overdue payments at a rate per [***] or the maximum rate allowable by Applicable Laws, whichever is lower, calculated on the number of days such payment is overdue. All such interest payments becoming payable under this Section 9.4 shall become payable to Legend [***].
(f)Non-Refundable. All payments under this Agreement shall be non-refundable and, except as expressly set forth herein, non-creditable, and except to the extent expressly set forth in this Agreement, not subject to any deduction, offset or any reduction or delay. Notwithstanding the non-refundable or non-creditable nature of any payments hereunder, nothing in this Agreement shall limit Novartis’ rights to assert or obtain Losses for breach of this Agreement, including Losses calculated based on the payments made under this Agreement.
9.5Upstream License Payments. Legend shall remain responsible for the payment of all applicable royalty, milestone and other payment obligations, if any, due to Third Parties under any Upstream Licenses, subject to reimbursement, if applicable, by Novartis pursuant to Section 2.3. All such payments owed by Legend or its applicable Affiliate to the applicable Upstream Licensor shall be [***] made by [***].
9.6Currency; Exchange Rate. All amounts payable and calculations under this Agreement shall be in Dollars. All payments to be made by Novartis to Legend under this Agreement shall be made in Dollars by bank wire transfer in immediately available funds to a bank account set forth in Exhibit M. Any payment which falls due on a date which is not a Business Day in the location from which the payment will be made may be made on the next succeeding Business Day in such location. The rate of exchange to be used in computing the amount of currency equivalent in Dollars for the payment due shall be made by using [***].
9.7Currency Restrictions. In the event that, by reason of Applicable Laws in any country, it becomes impossible or illegal under Applicable Laws for a Party to transfer, or have transferred on its behalf, payments owed the other Party under this Agreement, such transferring Party will [***] notify the other Party of such conditions preventing such transfer and such payments will [***]. The Parties shall cooperate in good faith to overcome [***] and [***], any such transfer prohibition.
9.8Tax.
(a)Income Taxes. Except as otherwise provided in this Section 9.8, each Party [***].
(b)Indirect Taxes. Except as otherwise provided in this Section 9.8, any payments made under this Agreement are exclusive of any transfer taxes such as sales, use, transfer, documentary, stamp, registration, VAT, goods or service (GST), or similar tax (each, an “Indirect Tax”), which shall be added thereon as applicable. If any Indirect Tax is required with respect to the transactions, payments or the related transfer of rights or other property pursuant to the terms of this Agreement pursuant to Applicable Laws, Novartis shall pay such Indirect Tax at the applicable rate with respect to any such payments following the receipt of an invoice issued in full compliance with Applicable Laws applicable to Indirect Taxes. The Parties will
38
reasonably cooperate to issue valid tax invoices for all amounts due under this Agreement consistent with Applicable Laws irrespective of whether the sums may be netted for settlement purposes. The Parties shall reasonably cooperate to report, eliminate or minimize the amount of any Indirect Tax imposed on the transactions contemplated in this Agreement.
(c)Withholding Taxes.
(i)In the event any payments made by Novartis to Legend pursuant to this Agreement shall become subject to withholding taxes under the Applicable Laws of any jurisdiction, or if it is unclear whether Applicable Laws require such withholding, including extra-territorial taxation, Novartis shall [***]; provided, that, if Novartis becomes aware that any such withholding may be required, it shall: (A) [***] (B) [***] Law. Novartis shall deliver to Legend proof of the withholding tax payment. [***].
(ii)Novartis and Legend shall [***] obtain relief or reduction of withholding tax under the applicable tax treaties, including the submission or issuance of requisite forms and information. If a special procedure is required for treaty relief by law, a treaty relief based on a tax treaty will [***] be taken into account if Legend submits an exemption certificate to Novartis in accordance with legal requirements [***]. If no withholding tax deduction has been made but tax authorities subsequently take the position that a withholding tax deduction should have been made, Legend shall provide, [***], [***] support to Novartis to obtain relief or reduction of withholding under the Applicable Laws and tax treaties, including the submission or issuance of requisite forms and information.
(iii)If Novartis assigns its rights or obligations under this Agreement, including its obligation to make any payments under this Agreement, including pursuant to and without limiting Section 16.2, and such assignment increases the amounts required to be deducted or withheld with respect to a payment otherwise payable hereunder, such assignee shall [***].
9.9Records and Audit Rights.
(a)Each Party shall keep complete, true and accurate financial books and records in accordance with its Accounting Standards in relation to this Agreement, including, with respect to Novartis, in relation to Net Sales and royalties, and, with respect to Legend, in relation to the Development Costs. Each Party will keep such books and records for [***].
(b)A Party may, upon written request, cause an [***] accounting firm [***] (the “Auditor”) to inspect the relevant records of the audited Party and its Affiliates to verify such Development Costs, Net Sales or royalty payments and the related reports, statements and books of accounts, as applicable. Before beginning its audit, the Auditor shall execute an agreement acceptable to the audited Party pursuant to which the Auditor agrees to keep confidential all information reviewed during the audit. The Auditor shall have the right to disclose to the auditing Party only [***] regarding any payments owed under this Agreement.
(c)The audited Party and its Affiliates shall make their records available for inspection by the Auditor during regular business hours at such place or places where such records are customarily kept, upon receipt of reasonable advance notice from the auditing Party. The records shall be reviewed [***] to verify the accuracy of payments made by the audited Party. Such inspection right shall not be exercised [***]. In addition, the auditing Party shall only be entitled to audit the books and records of the audited Party from the [***] in which the audit request is made. The auditing Party agrees to hold in strict confidence all information
39
received and all information learned in the course of any audit or inspection, which information shall constitute the Confidential Information of the audited Party, except to the extent necessary to enforce its rights under this Agreement or to the extent required to comply with any Applicable Laws.
(d)The Auditor shall provide its audit report and basis for any determination to the audited Party at the time such report is provided to the auditing Party before it is considered final; provided that [***], the Auditor shall provide [***] to [***]. The audited Party shall have the right to request a further determination by such Auditor as to matters which the audited Party disputes within [***] receipt of such report. The audited Party will provide the auditing Party and the Auditor with [***] and the Auditor shall undertake to complete such further determination within [***] the dispute notice is provided, which determination shall be limited to the disputed matters. Any matter that remains unresolved shall be resolved in accordance with the dispute resolution procedures contained in Section 16.5.
(e)In the event that the final result of the inspection reveals an undisputed underpayment or overpayment by the audited Party, the underpaid or overpaid amount shall be settled [***], including in the case of any overpayment, [***].
(f)The auditing Party shall [***]. In addition, if [***] is discovered, the fees and expenses charged by the Auditor shall be paid by [***].
9.10No Projections. Legend and Novartis acknowledge and agree that nothing in this Agreement shall be construed as representing an estimate or projection of whether any Milestone Event will be achieved or of anticipated sales of any Licensed Product, and that the Milestone Events and Net Sales levels set forth above or elsewhere in this Agreement or that have otherwise been discussed by the Parties are merely intended to define the Milestone Payments and royalty obligations to Legend in the event the corresponding Milestone Events or such Net Sales levels are achieved. [***].
Article 10
INTELLECTUAL PROPERTY RIGHTS
INTELLECTUAL PROPERTY RIGHTS
10.1Ownership of Inventions.
(a)By Inventorship. Except as set forth in this Section 10.1(a), ownership of all Inventions shall be based on inventorship, as determined in accordance with the rules of inventorship under United States patent laws. Each Party shall solely own any Inventions made solely by it and its Affiliates’, licensees’ and sublicensees’ employees, agents, or independent contractors (“Sole Inventions”). The Parties shall jointly own any Inventions that are made jointly by employees, agents, or independent contractors of one Party and its Affiliates, licensees or sublicensees together with employees, agents, or independent contractors of the other Party and its Affiliates, licensees or sublicensees (“Joint Inventions”). All Patent Rights filed on patentable Joint Inventions shall be referred to herein as “Joint Patents”. Legend’s interest in any Joint Inventions or Joint Patents shall [***]. Except to the extent either Party is restricted by the licenses granted to the other Party under this Agreement or Section 2.4(a), each Party shall be entitled to practice, license (through multiple tiers), assign and otherwise exploit the Joint Inventions and Joint Patents in all countries and jurisdictions without the duty of accounting or seeking consent from the other Party. However, neither Party shall [***]. Notwithstanding the provisions of this Section 10.1(a), [***]; provided, however, notwithstanding anything to the contrary in this Agreement, Legend shall have the right [***]: (i) [***], or (ii) [***].
40
(b)Disclosure. Each Party shall [***] disclose to the other Party all Inventions, including all invention disclosures or other similar documents submitted to such Party or its Affiliates’, licensees or sublicensees’, together with employees, agents or independent contractors of such Party or its Affiliates, licensees or sublicensees relating to such Inventions, and shall also respond [***] to reasonable requests from the other Party for additional information relating to such Inventions.
(c)Personnel Obligations. Each employee, agent or independent contractor of a Party or its respective Affiliates, licensees or sublicensees performing work under this Agreement shall, prior to commencing such work, be bound by invention assignment obligations, including: (i) [***]; (ii) presently assigning to the applicable Party, its Affiliate, licensee or sublicensee all of his or her right, title and interest in and to any such Invention; (iii) cooperating in the preparation, filing, prosecution, maintenance and enforcement of any patent and patent application with respect to any such Invention; and (iv) performing all acts and signing, executing, acknowledging and delivering any and all documents required for effecting the obligations and purposes of this Section 10.1(c). It is understood and agreed, however, that any such invention assignment agreement need not: (1) [***] or (2) [***].
10.2Patent Prosecution.
(a)Licensed Patents.
(i)As between the Parties, Legend shall have the first right, (but not, [***], the obligation), to file, prosecute and maintain all Licensed Patents ([***]) throughout the world, and Legend shall be solely responsible for [***] in connection with such filing, prosecution and maintenance. Legend shall keep Novartis (through the JPC) [***] informed of the status of such Licensed Patents and shall [***] provide Novartis (through the JPC) with material correspondence received from any patent authorities in connection therewith. In addition, [***] (through the JPC) [***] Legend [***]; provided, that, [***] (as applicable) for [***] at the next meeting of the JPC is reasonably likely to cause [***] within such period of time, then [***] shall be deemed to [***]). Subject to [***], in case of a disagreement between the Parties with respect to the filing, prosecution or maintenance of such Licensed Patents, the final decision shall be made by [***].
(ii)Legend shall notify Novartis of any decision to cease prosecution or maintenance of any Licensed Patent in any country. Legend shall provide such notice at least [***] prior to any filing or payment due date, or any other due date that requires action in order to avoid loss of rights, in connection with such Licensed Patent in such country. In such event, [***]; provided, however, that, [***].
(b)Product-Specific Patents. Legend, itself or through its Affiliate, shall [***] file [***] one or more Product-Specific Patents in a manner approved by the JPC [***] provided that: (i) Novartis shall have the right to [***] filings for such a Product-Specific Patent in accordance with the terms of Section 10.2(a)(i) applicable to the prosecution and maintenance of Licensed Patents and (ii) after the initial filing for a Product-Specific Patent, all further prosecution and maintenance of such Product-Specific Patent shall be governed by the terms of Section 10.2(a) applicable to Licensed Patents.
(c)Joint Patents. The Parties will, through the JPC, discuss and agree upon an allocation of responsibility between the Parties for the filing, prosecution and maintenance of Joint Patents, as set forth in Section 3.5(a). The Party selected by the JPC to control the filing, prosecution and maintenance of a given Joint Patent shall keep the other Party (through the JPC)
41
[***] informed of the status of such Joint Patent and shall [***] provide such other Party (through the JPC) with material correspondence received from any patent authorities in connection therewith. In addition, such controlling Party shall [***] provide such other Party (through the JPC) with drafts of all proposed material filings and correspondence to any patent authorities with respect to such Joint Patents to allow for such other Party’s [***] (through the JPC) prior to the submission of such proposed filings and correspondence; provided, that, in the event that delaying the making of any such proposed filing or correspondence (as applicable) for [***] at the next meeting of the JPC is reasonably likely to cause such controlling Party to not make such filing or correspondence by the due date that requires such action in order to avoid loss of rights with respect to the Joint Patents subject to such filing or correspondence, such controlling Party shall provide such proposed filings and correspondence directly to such reviewing Party and such reviewing Party shall [***] of receiving the draft filings and correspondence from such controlling Party, but in any event, prior to such due date (and if such reviewing Party does not provide such comments within such period of time, then such reviewing Party shall be deemed to have no comment to such proposed filings or correspondence).
(d)Other Legend Patents and Novartis Patents. As between the Parties, except as expressly set forth in this Agreement, a Party shall have the sole right, but not the obligation, to file, prosecute and maintain throughout the world all Patent Rights owned or otherwise controlled by such Party, and such Party shall be solely responsible for all costs and expenses incurred in connection with such filing, prosecution and maintenance.
(e)Cooperation. Each Party shall provide the other Party, at the other Party’s request [***], all reasonable assistance and cooperation in the patent prosecution efforts under this Section 10.2, including providing any necessary powers of attorney and executing any other required documents or instruments for such prosecution.
10.3Patent Enforcement.
(a)Notification. If either Party becomes aware (including through receipt of any indication or notice received in connection with an Abbreviated BLA or BLA filing (each, as defined in the Act, Biologics Price Competition and Innovation Act of 2009, or U.S. Patient Protection and Affordable Care Act), any regulatory filing based on Section 351(k) of the U.S. Public Health Service Act or Article 10(4) of the Directive 2001/83/EC, or any other similar regulation promulgated by the FDA, EMA, MHLW, or by any other applicable similar Governmental Authority) of any material infringement, misappropriation, or other violation anywhere in the world, of any of the Licensed Patents or Joint Patents by a product that falls within the scope of a Licensed Product (i.e., such product, if Exploited under this Agreement, would constitute a Licensed Product), or of any request for declaratory judgment, opposition, nullity action, interference, inter-partes reexamination, inter-partes review, post-grant review, derivation proceeding, or similar action or proceeding alleging the invalidity, unenforceability or non-infringement of any of such Licensed Patents or Joint Patents by a Third Party that [***] (collectively, a “Product Infringement”) in either case, which is a product that [***] (a “Competitive Product Infringement”), such Party shall [***] notify the other Party in writing to that effect.
(b)Enforcement Rights.
(i)Licensed Patents that are Product-Specific Patents. For any Competitive Product Infringement of a Licensed Patent that is a Product-Specific Patent ([***]), as between the Parties, [***] shall have the first right, but not the obligation, to bring an
42
appropriate suit or take other appropriate action against any Third Party engaged in such Competitive Product Infringement to remedy or defend against (as applicable) such Competitive Product Infringement, [***]. In the event that [***] provides [***] with a written request that [***] exercise such right to remedy or defend against (as applicable) such Competitive Product Infringement and [***] does not exercise such right within [***] such written request from [***] or, if earlier, prior to [***] the time limit, if any, set forth under Applicable Laws for the initial filing or defense of such actions, whichever comes first, [***] shall have the right, but not the obligation, to bring, defend and control any such action [***] and by counsel of its choice; provided, that: (A) for any Competitive Product Infringement of a Licensed Patent that is a Product-Specific Patent, [***] shall not have the right to bring and control such an enforcement action with respect to such Competitive Product Infringement without the prior written consent of [***] ([***]); and (B) if [***] notifies [***] in writing, prior to [***] before such time limit for the initial filing or defense of any such action, that [***] intends to file or defend such action before the time limit, then [***] shall be obligated to file or defend such action before such time limit, and [***] will not have the right to bring, defend and control such action.
(ii)Licensed Patents that are not Product-Specific Patents. For any Competitive Product Infringement of a Licensed Patent that is not a Product-Specific Patent ([***]), as between the Parties, [***] shall have the first right, but not the obligation, to bring an appropriate suit or take other appropriate action against any Third Party engaged in such Competitive Product Infringement to remedy or defend against (as applicable) such Competitive Product Infringement, [***]. In the event that [***] provides [***] with a written request that [***] exercise such right to remedy or defend against (as applicable) such Competitive Product Infringement and [***] does not exercise such right within [***] such written request from [***] or, if earlier, prior to [***] the time limit, if any, set forth under Applicable Laws for the initial filing or defense of such actions, whichever comes first, [***] shall have the right, but not the obligation, to bring, defend and control any such action [***] and by counsel of its choice; provided, that: (A) for any Competitive Product Infringement of a Licensed Patent that is not a Product-Specific Patent, [***] shall not have the right to bring and control such an enforcement action with respect to such Competitive Product Infringement without the prior written consent of [***] ([***]) [***], (1) [***] and (2) [***]; and (B) if [***] notifies [***] in writing, prior to [***] such time limit for the initial filing or defense of such action, that [***] intends to file or defend such action before the time limit, then [***] shall be obligated to file or defend such action before such time limit, and [***] will not have the right to bring, defend and control such action.
(iii)Joint Patents. For any infringement of a Joint Patent, the JPC shall determine which Party shall control the response to such Product Infringement, as set forth in Section 3.5(a).
(iv)Other Legend Patents and Novartis Patents. For any Product Infringement or other infringement, misappropriation, or other violation, or any action or proceeding alleging invalidity, unenforceability or non-infringement, anywhere in the world, by a Third Party of the Patent Rights owned or controlled by a Party, except as expressly set forth in Section 10.3(b)(i), Section 10.3(b)(ii) or Section 10.3(b)(iii) above, as between the Parties, such Party will have the sole right, but not the obligation, to bring and control any legal action in connection with any such infringement, misappropriation or other violation, action or proceeding, at its expense, including settling such action, as it reasonably determines appropriate.
(c)Regulatory Exclusivity Rights. [***] shall, after consultation with the JPC, file any regulatory challenges or enforcement actions in relation to a Licensed Product including, without limitation, citizens petitions; white papers; comments on biosimilar
43
equivalence, interchangeability guidance or third party citizen petitions; and actions associated with the enforcement of Regulatory Exclusivity rights, including regulatory data or market exclusivities (but excluding, for clarity, any Competitive Product Infringement or other infringement, misappropriation, or other violation, or any action or proceeding alleging invalidity, unenforceability or non-infringement, of any Patent Rights owned or controlled by a Party, all of which shall be governed the terms of Section 10.3 outside of this Section 10.3(c)). In the event of a disagreement between the Parties regarding any such activities, [***] shall have the final decision-making authority with respect to such activities.
(d)Cooperation. Each Party shall provide to the enforcing Party (i.e., the controlling Party) reasonable assistance in any enforcement claim, suit or other action brought or defended against under Section 10.3(b)(i), Section 10.3(b)(ii) or Section 10.3(b)(iii) above, [***], including to be named in such claim, suit or action if required by Applicable Laws to pursue such action. The enforcing Party shall keep the other Party regularly informed of the status and progress of such enforcement or defense efforts, shall reasonably consider the other Party’s comments on any such efforts, including determination of litigation strategy and filing of material papers to the competent court or tribunal. The non-enforcing Party shall be entitled to separate representation in such matter by counsel of its own choice [***], but such Party shall at all times reasonably cooperate fully with the enforcing Party. The enforcing Party shall not settle any such claim, suit, action or proceeding that it brought or controlled under Section 10.3(b)(i), Section 10.3(b)(ii) or Section 10.3(b)(iii) above, or enter into any agreement in connection therewith, in any manner that would negatively affect the applicable Patent Rights or the other Party’s rights under this Agreement, without the prior written consent of the other Party.
(e)Expenses and Recoveries. The enforcing Party bringing or defending an action under Section 10.3(b)(i), Section 10.3(b)(ii) or Section 10.3(b)(iii) shall [***]. Any recovery of monetary damages in connection with such action shall be allocated first to the reimbursement of any out-of-pocket costs [***], second to the reimbursement of any out-of-pocket costs [***], and any remaining amounts shall be: (i) [***] and (ii) [***].
10.4Patent Term Extension and Supplementary Protection Certificate. [***] shall have the [***] right, but not the obligation, to seek, after consultation with the JPC, in [***] name, if so required, patent term extensions, patent term restorations and supplemental protection certificates or the like that are now or become available under Applicable Laws, including 35 U.S.C § 156 and applicable foreign counterparts, in any country in the Territory (collectively, “Patent Term Extensions”) for [***]. Legend and Novartis shall cooperate in connection with all such activities. [***], its agents and attorneys shall give due consideration to all suggestions and comments of [***] regarding any such activities, but in the event of a disagreement between the Parties, [***] shall have the final decision-making authority with respect to such activities. If [***] or its Affiliate seeks a Patent Term Extension for any [***] that Cover a Licensed Product without [***] agreement, then [***].
10.5Unitary Patent System. The Party controlling the filing, prosecution and maintenance of certain Licensed Patents or Joint Patents pursuant to Section 10.2 shall, subject to and in accordance with Section 10.2, be solely responsible for all strategies for such Licensed Patents or Joint Patents with respect to the EU Unitary Patent System, including the filing or withdrawal of any action to opt-in or opt-out from the EU Unitary Patent System for any such Licensed Patent or Joint Patent and the validation of any such Licensed Patent or Joint Patent as a unitary patent or a European patent, except [***]. [***], its agents and attorneys shall give due consideration to all suggestions and comments of [***] regarding any such decisions, but in the event of a disagreement between the Parties, [***] shall have the final decision-making authority
44
with respect to such decision. Legend and Novartis shall cooperate in connection with all such activities.
10.6Patents Licensed From Third Parties. Each Party’s rights under Sections 10.2, 10.3 and 10.4 with respect to any Licensed Patent that is licensed by Legend from a Third Party shall be subject to the rights retained by such Third Party pursuant to, and the terms and conditions of, the applicable Upstream License.
Article 11
CONFIDENTIALITY; PUBLICATION
11.1Duty of Confidence. Subject to the other provisions of this Article 11:
(a)[***], all Confidential Information of a Party or any of its Affiliates (the “Disclosing Party”) shall be maintained in confidence and otherwise safeguarded by the other Party and its Affiliates (the “Receiving Party”), in the same manner and with the same protections as the Receiving Party maintains its own confidential information, but in no event with less than a reasonable standard of care;
(b)the Receiving Party may only use any such Confidential Information for the purposes of performing its obligations or exercising its rights under this Agreement; and
(c)the Receiving Party may only disclose Confidential Information of the other Party to: (i) its Affiliates, licensees and sublicensees; and (ii) employees and agents, and actual and prospective contractors, consultants and advisers, of the Receiving Party and its Affiliates and sublicensees, in each case ((i) and (ii)), to the extent reasonably necessary for the purposes of performing its obligations or exercising its rights under this Agreement; provided, that such Persons are bound by legally enforceable obligations to maintain the confidentiality and limit the use of the Confidential Information [***] with the confidentiality and non-use provisions of this Agreement; provided, further that, other than with respect to such Persons that are Affiliates of the Receiving Party or employees or agents of such Affiliates, [***]. The actions and inactions of any Person to whom the Receiving Party discloses the Disclosing Party’s Confidential Information, shall, with respect to such Confidential Information, be deemed to be the actions and inactions of such Receiving Party for all purposes of this Agreement.
11.2Exceptions. The foregoing obligations as to particular Confidential Information of a Disclosing Party shall not apply to the extent that the Receiving Party can demonstrate that such Confidential Information:
(a)is known by the Receiving Party at the time of its receipt without an obligation of confidentiality or non-use, and not through a prior disclosure by the Disclosing Party, as documented by the Receiving Party’s business records;
(b)is in the public domain before its receipt from the Disclosing Party, or thereafter enters the public domain through no fault of the Receiving Party;
(c)is subsequently disclosed to the Receiving Party without confidentiality or non-use obligations by a Third Party who may lawfully do so and is not under an indirect or direct obligation of confidentiality to the Disclosing Party; or
(d)is discovered or developed by the Receiving Party independently and without use of or reference to any Confidential Information received from the Disclosing Party,
45
as documented by the Receiving Party’s business records generated contemporaneously with such independent discovery or development.
Specific aspects or details of Confidential Information shall not be deemed to be within the public domain or in the possession of the Receiving Party merely because the Confidential Information is embraced by more general information in the public domain or in the possession of the Receiving Party. Further, any combination of Confidential Information shall not be considered in the public domain or in the possession of the Receiving Party merely because individual elements of such Confidential Information are in the public domain or in the possession of the Receiving Party unless the combination and its principles as a whole are in the public domain or in the possession of the Receiving Party.
11.3Authorized Disclosures. Notwithstanding the obligations set forth in Sections 11.1 and 11.7, a Party and its Affiliates may disclose the other Party’s Confidential Information (including this Agreement and the terms herein) to the extent:
(a)such disclosure is reasonably necessary: (i) to such Party’s or its Affiliates’ respective directors, attorneys, independent accountants or financial advisors for the [***]; provided, that in each such case such recipients, (A) are bound by confidentiality and non-use obligations [***] as those contained in this Agreement ([***]), or (B) are bound by professional fiduciary obligations to maintain in confidence and not use such Confidential Information; or (ii) to actual or potential (in each case) (A) investors, acquirors, underwriters, lenders, or, [***], [***], or (B) in the case of Legend with respect to the terms of this Agreement, to its actual or potential [***], provided [***]; provided, that in each such case ((A) and (B)), (y) such recipients are bound by confidentiality and non-use obligations [***] as those contained in the Agreement, and (z) [***].
(b)such disclosure is to a Governmental Authority and necessary or desirable (i) to obtain or maintain INDs or Regulatory Approvals for any Licensed Product within the Territory, (ii) in order to respond to inquiries, requests or investigations by such Governmental Authority relating to Licensed Products or this Agreement, or (iii) in connection with the filing, prosecution and maintenance of Patent Rights as permitted by and in accordance with this Agreement;
(c)such disclosure is required by Applicable Laws, or judicial or administrative process; provided, that (i) except for disclosures governed by Section 11.3(b) or Section 11.4 (which, for clarity, shall be governed by Section 11.3(b) and Section 11.4, respectively, and not this Section 11.3(c)), in such event such Party shall [***] inform the other Party of such required disclosure and provide the other Party [***], (ii) Confidential Information that is disclosed pursuant to Section 11.3(b) or this Section 11.3(c) shall remain otherwise subject to the confidentiality and non-use provisions of this Article 11 (provided, that such disclosure is [***]), and (iii) the Party disclosing Confidential Information pursuant to Applicable Laws or judicial or administrative process shall cooperate with and reasonably assist the other Party ([***]) if the other Party seeks a protective order or other remedy in respect of any such disclosure and furnish only that portion of the Confidential Information which, [***], is responsive to such requirement or request;
(d)such disclosure is necessary in order to enforce its rights under the Agreement; or
(e)such disclosure is reasonably necessary for Legend or its Affiliate to comply with its obligations under any Upstream Licenses.
46
11.4SEC Filings and Other Disclosures. Either Party and its Affiliates, may disclose the terms of this Agreement and make any other public written disclosure regarding the existence of, or a Party’s rights, obligations, disputes or performance under, this Agreement, to the extent required, in the reasonable opinion of such Party’s or such Affiliate’s legal counsel, to comply with Applicable Laws, including the rules and regulations promulgated by the United States Securities and Exchange Commission or any equivalent Governmental Authority, securities exchange or securities regulator in any country in the Territory. Before disclosing this Agreement or any of the then non-public terms hereof pursuant to this Section 11.4, [***]. The Party subject to such disclosure obligation shall [***].
11.5Return of Confidential Information. Upon early termination of this Agreement for any reason, each Party and its Affiliates shall immediately return to the other Party or destroy (at the Receiving Party’s discretion) all tangible items to the extent bearing or containing any of Disclosing Party’s Confidential Information (e.g., Confidential Information disclosed by the other Party or any of its Affiliates), except: (a) for one (1) copy which may be retained in its confidential files for archive or compliance purposes or (b) to the extent such Confidential Information is reasonably necessary for performance of such Party’s obligations, or exercise of such Party’s rights, under this Agreement that survive such termination. Each Party and its Affiliates will also be permitted to retain such additional copies of or any computer records or files containing the other Party’s or any of its Affiliates’ Confidential Information that have been created solely by automatic archiving and back-up procedures, to the extent [***]. All retained Confidential Information shall continue to be subject to the terms of this Agreement.
11.6Publications.
(a)Subject to Section 11.3 and Section 11.4, Legend (i) may publish manuscripts, or give other forms of public disclosure of such as abstracts and presentations (collectively, “Publications”) of [***]; and (ii) [***]; provided, that (A) in each case, ((i) and (ii)), such publication or disclosure [***] and (B) [***]. Notwithstanding the foregoing, Legend shall have the right to publish and disclose, [***].
(b)Subject to Section 11.3 and Section 11.4, Novartis or any of its Affiliates shall have the right to (i) [***] and (ii) [***]; provided, that (y) [***] and (z) [***].
(c)(i) The requirements and restrictions of this Section 11.6 are subject to and limited by the provisions of the publication rights of Third Party investigators and collaborators under the subcontractor agreements pursuant to which the applicable Data were generated, provided [***] and (ii) notwithstanding anything to the contrary in this Agreement, after a Publication by a Party in accordance with this Section 11.6, such Party may further publish or publicly disclose the information contained in such Publication without the need for further notice to, or review by, the other Party under this Section 11.6.
11.7Publicity.
(a)Press Releases or Other Public Statements. Except as permitted by and subject to Section 11.3, Section 11.4 or Section 11.6 above, each Party agrees not to issue any press release or other public statement, whether oral or written, disclosing the [***] without the prior written consent of the other Party (such consent not to be unreasonably withheld or delayed); provided that in connection with soliciting such consent, such Party [***] ([***]). Notwithstanding the previous sentence: (i) Legend may, following the Execution Date, issue a press release in the form set forth in Exhibit N, and (ii) Novartis [***] may [***]. Either Party may issue additional press releases or public statements without the consent or review of the
47
other Party where such press release or public statement only discloses the same information that has previously been the subject of a press release or public statement that has been consented to by the other Party.
(b)Use of Names and Trademarks. Subject to Section 11.4, neither Party shall use the name, symbol, trademark, trade name or logo of the other Party or any of its Affiliates in any press release, publication or other form of public disclosure concerning this Agreement without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), except for those disclosures for which consent has already been obtained. Notwithstanding the foregoing, [***].
11.8[***]; provided, that in each such case, such recipients are bound by confidentiality and non-use obligations [***] those contained in this Agreement. Following the Proposed Disclosure [***], [***]. [***].
Article 12
TERM AND TERMINATION
TERM AND TERMINATION
12.1Term. Subject to Article 15, the term of this Agreement shall commence upon the Effective Date and continue in full force and effect until the expiration of the last-to-expire Royalty Term for any Licensed Product, unless earlier terminated as permitted by this Agreement (the “Term”).
12.2Termination.
(a)Termination by Novartis for Convenience. Novartis may terminate this Agreement for any reason or no reason at any time in its entirety or, to the extent then-within the Territory, country-by-country basis, (i) at any time prior to [***], on [***] prior written notice to Legend and (ii) at any time on and after [***], on [***] prior written notice to Legend.
(b)Termination by Novartis for Safety Issue. Novartis may terminate this Agreement upon [***] prior written notice to Legend if a material safety event ([***]) occurs that [***], which notice expressly references this Section 12.2(b) and [***].
(c)Termination for Material Breach. If either Novartis or Legend is in material breach of this Agreement, the non-breaching Party may give written notice to the breaching Party specifying the claimed particulars of such breach, and in the event such material breach is not cured within [***] after the breaching Party’s receipt of such notice, the non-breaching Party shall have the right thereafter to terminate this Agreement immediately by giving written notice to the breaching Party to such effect; provided, however, [***]. If the breaching Party [***], then [***]. Any termination by any Party under this Section 12.2(c) and the effects of termination provided herein shall be without prejudice to any other rights or remedies of such Party, including the right to recover Losses or other legal or equitable remedies to which it may be entitled.
(d)Termination for Insolvency. To the extent permitted by Applicable Laws, either Party may terminate this Agreement following the Effective Date [***] (i) the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, including such proceedings commenced by the other Party seeking to have an order for relief entered with respect to such Party, seeking to adjudicate such Party as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to such Party or its debts, (ii) the appointment of a receiver, trustee,
48
custodian, conservator or other similar official over all or substantially all property of the other Party, (iii) an assignment of a substantial portion of the assets for the benefit of creditors by the other Party, or (iv) the other Party taking any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the matters set forth in clauses (i), (ii), or (iii) (each of the events or occurrences described in clauses (i) through (iv), an “Insolvency Event”); provided, however, that, in the case of any involuntary bankruptcy proceeding, such right to terminate will only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within [***] after the filing thereof.
(e)Termination for Patent Challenge. If [***] (each, a “Patent Challenge”), [***]. Notwithstanding the foregoing, [***] pursuant to this Section 12.2 with respect to a Patent Challenge: (i) [***], or (ii) in the case of any Patent Challenge that is: (A) [***] or (B) [***].
12.3Effects of Termination. Upon termination of this Agreement:
(a)All licenses and other rights granted by Legend to Novartis under this Agreement shall terminate, including all sublicenses granted by Novartis or its Affiliates to a Sublicensee; provided that any termination of this Agreement with respect to a given country, except as expressly set forth herein, will not terminate the licenses and other rights granted by Legend to Novartis with respect to countries for which this Agreement has not yet been terminated. All countries with respect to which this Agreement is terminated shall become “Terminated Countries” and all Licensed Products will be “Terminated Products” [***] with respect to the Exploitation thereof for such Terminated Country; provided that, in case of any termination of this Agreement: (i) in its entirety, all countries and Licensed Products will be deemed Terminated Countries and Terminated Products, respectively; and (ii) with respect to a given country, and as a result of such termination, there are no countries that are not Terminated Countries, in either case ((i) or (ii)), this Agreement will be deemed terminated in its entirety as of the effective date of such termination;
(b)Legend shall have the right to assume all prosecution, maintenance, enforcement and defense activities with respect to the Licensed Patents and Joint Patents for which [***] pursuant to Article 10 in any Terminated Country. Novartis shall cooperate and provide reasonable assistance to Legend in connection with [***] such prosecution, maintenance and enforcement activities to Legend;
(c)Novartis will have the right to sell or otherwise dispose of any inventory of any Terminated Product [***] for a period of [***] following the effective date of termination subject to the payments applicable to such Terminated Product (as if such Terminated Product remained a Licensed Product) under Article 9; provided that, on and after the expiration of such [***] period, Novartis shall (and shall cause its Affiliates and Sublicensees) to cease all Exploitation of Terminated Products.
(d)In the case of termination of this Agreement (i) [***] with respect to one or more Terminated Country(ies) ([***]), Legend shall have the right to use and disclose, and authorize the use and disclosure of, [***], or (ii) in its entirety, Novartis shall [***] assign and transfer, and upon any such termination, Novartis hereby does assign and transfer, to Legend [***], and shall take such actions and execute such other instruments, assignments and documents as may be necessary to effect the [***] to Legend; provided further, that [***];
(e)Novartis hereby grants, and shall cause its Affiliates to hereby grant, to Legend [***] ([***]) to [***], which license shall, in the case of termination of this Agreement
49
(i) in its entirety, be worldwide, and (ii) with respect to any given Terminated Country(ies), be for such Terminated Country(ies), and in either case ((i) and (ii)) shall be effective on the effective date of such termination;
(f)without limiting or expanding the other provisions of this Section 12.3, subject to Section 2.2(b), in the case of any termination of this Agreement with respect to a given Licensed Product or country ([***]), at either Party’s request, the Parties shall use good faith efforts to [***]; and
(g)Except as set forth in this Section 12.3 and Sections 12.4-12.8, the rights and obligations of the Parties hereunder shall terminate as of the effective date of such termination with respect to the Terminated Product. For clarity, the provisions of Section 2.4 shall [***].
12.4Rights in Insolvency. The Parties agree that this Agreement constitutes an executory contract under Section 365 of the Code for the license of “intellectual property” as defined under Section 101 of the Code and constitutes a license of “intellectual property” for purposes of any similar laws in any other country in the Territory. The Parties further agree that [***], as licensee of such rights under this Agreement, will retain and may fully exercise all of its protections, rights and elections under the Code, including under Section 365(n) of the Code, and any similar laws in any other country in the Territory. The Parties further agree that, in the event of an Insolvency Event by or against [***] under the Code and any similar laws in any other country in the Territory, [***] will be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property, and the same, if not already in its possession, will be [***] delivered to it: (a) upon any such commencement of an Insolvency Event upon its written request therefor, unless [***] elects to continue to perform all of its obligations under this Agreement; or (b) if not delivered under sub-clause (a), following the rejection of this Agreement by or on behalf of [***] upon written request therefor by [***]. All rights, powers and remedies of [***] provided for in this Section 12.4 are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including under the Code and any similar laws in any other country in the Territory). In the event of an Insolvency Event in relation to [***], [***], in addition to the rights, power and remedies expressly provided herein, shall be entitled to exercise all other such rights and powers and resort to all other such remedies as may now or hereafter exist at law or in equity (including under the Code).
12.5[***]:
(a)[***];
(b)[***]; and
(c)[***].
[***].
12.6Survival. Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination (including, for clarity, any financial obligation that became payable prior to such expiration or termination (which shall be paid by the applicable Party in accordance with the applicable payment terms of this Agreement)). Without limiting the foregoing of this Article 12, the following provisions shall
50
survive the expiration or termination of this Agreement: Article 1, Sections 2.1(a) and 2.1(b) (solely in the event of expiration, not termination, of this Agreement), Section 2.1(b) (solely clause (iii)), Section 2.1(c) (solely clause (ii)), Section 2.1(d), Section 2.1(e), Section 2.2, Sections 2.3(b) and 2.3(c) (each solely to the extent pertaining to Novartis’ obligations and Legend’s rights with respect to Upstream Licenses for which Novartis consented to include the applicable Know-How or Patent Rights in the Licensed Technology in accordance with Section 2.3(b) prior to the effective date of such expiration or termination, to the extent such obligations and rights continue to apply), Section 2.3(d), Section 3.6(c) (solely the final sentence), Section 4.1(a) (solely the final sentence), Section 4.1(b) (solely the penultimate and final sentences), Section 4.3 ([***]), Section 4.4(a) (solely the proviso of the penultimate sentence), Section 4.4(b)(v), Section 4.5 (solely in the event of expiration, not termination, of this Agreement), Section 5.3 (solely the final sentence), Section 6.4(a) (solely the first sentence), Section 6.5 (solely in the event of expiration, not termination, of this Agreement), Section 6.6 (solely with respect to a Party’s rights or obligations surviving such expiration or termination), Section 6.7, Section 7.2(b), Section 7.2(d)(ii) ([***]), Section 7.2(d)(iv), Section 8.3 (solely the second and third sentences, provided, that all of Section 8.3 will survive expiration, not termination, of this Agreement), Article 9 (to the extent pertaining to any payment accruing on or after the effective date of such termination in relation to amounts payable, (i) by a Party pursuant to its surviving rights or obligations or (ii) by Novartis to Legend with respect to Novartis’ exercise of its sell-off rights under Section 12.3(c); provided that, without limiting the foregoing, Section 9.9 shall survive solely for the period(s) set forth therein with respect to such payments), Section 9.3(b) (solely the second sentence in the event of expiration, not termination, of this Agreement), Section 10.1 (provided, that the final sentence of Section 10.1(a) will survive expiration, not termination, of this Agreement), Section 10.2(c) (subject to Section 12.3(b) and provided that, as of and following the effective date of such expiration or termination: (a) all matters to be agreed upon or determined by the JPC will be agreed upon or determined by [***], and (b) any requirement of either Party to provide information or documents to or consult with the JPC will be a requirement to provide such information or document to or consult with the other Party), Section 10.2(d), Section 10.2(e) (subject to Section 12.3(b) and solely with respect a Party’s surviving rights or obligations to the extent pertaining to Joint Patents), Section 10.3(b)(iii) (subject to Section 12.3(b) and provided that, as of and following the effective date of such expiration or termination, all determinations to be made by the JPC will be determined by [***]), Section 10.3(b)(iv), Section 10.3(d) (subject to Section 12.3(b) and solely with respect a Party’s surviving rights or obligations to the extent pertaining to Joint Patents), Section 10.3(e) (subject to Section 12.3(b) and solely to the extent pertaining to: (a) an action maintained with respect to one or more Joint Patents in accordance with [***] surviving rights or obligations, and (b) an action initiated with respect to one or more Licensed Patents that are not Joint Patents prior to the effective date of such expiration or termination), Section 10.5 (solely with respect [***] surviving rights or obligations to the extent pertaining to Joint Patents), Section 10.6, Sections 11.1 through 11.5 (provided that Sections 11.3(b), 11.3(d) and 11.3(e) will survive solely to the extent applicable to any surviving rights or obligations of [***] under this Agreement), Section 11.6 (solely in the event of expiration, not termination, of this Agreement; provided that, in the event of termination of this Agreement: (a) Legend shall have the right, without notice to or consent of Novartis, to [***], and (b) neither Novartis nor its Affiliates shall make a Publication pertaining to a Terminated Product without Legend’s prior written consent), Section 11.7 (in its entirety in the event of expiration of this Agreement and solely the first and final sentences of 11.7(a) and the first sentence of 11.7(b) in the event of termination of this Agreement), Section 11.8, Section 12.3, Section 12.4, this Section 12.6, Section 12.7, Section 12.8, Section 13.6, Article 14, Article 16, Exhibit G (solely: (a) [***] (b) [***] (c) [***] and (d) [***]), Exhibit K, and Exhibit M (solely to the extent pertaining to a Party’s surviving rights or obligations under Article 9).
51
Following any termination of this Agreement with respect to a given country (but not this Agreement in its entirety), the foregoing provisions of this Agreement, in addition to those other terms of this Agreement that are expressly stated to survive termination or expiration of this Agreement pursuant to this Article 12, shall remain in effect with respect to the Terminated Product(s) or Terminated Country(ies) subject to such termination (to the extent such provisions and terms would survive and apply in the event this Agreement expires or is terminated in its entirety or as otherwise necessary for the Parties to exercise their rights or perform their obligations with respect to such Terminated Product(s) or Terminated Country(ies)) and all provisions and terms not expressly surviving in accordance with this Article 12 shall terminate with respect to such Terminated Product(s) or Terminated Country(ies), as applicable, upon the effective date of such termination (and, for purposes of clarity, all provisions of this Agreement shall remain in effect with respect to any Licensed Product or country that is not a Terminated Product or a Terminated Country, respectively). Except as expressly provided in this Article 12, all rights and obligations of the Parties under this Agreement shall terminate upon expiration or any termination of this Agreement.
12.7Termination Not Sole Remedy. Termination is not the sole remedy under this Agreement and, whether or not termination is effected and notwithstanding anything contained in this Agreement to the contrary, all other remedies shall remain available except as agreed to otherwise herein.
12.8Legend Phase 1 Clinical Trial Following Select Novartis Termination Notice. Notwithstanding anything to the contrary in this Agreement, in the event that Novartis provides notice of termination of this Agreement pursuant to either Sections 12.2(a) (solely in the case of termination of this Agreement in its entirety) or 12.2(b) (each, a “Select Novartis Termination Notice”), Legend shall have the right (but not the obligation) at any time on or following its receipt of such notice to [***].
Article 13
REPRESENTATIONS AND WARRANTIES; COVENANTS
REPRESENTATIONS AND WARRANTIES; COVENANTS
13.1Mutual Representations and Warranties. Each Party represents and warrants to the other Party as of [***] that:
(a)such Party is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized;
(b)such Party: (i) has the requisite power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (ii) has taken all requisite action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder;
(c)this Agreement has been duly executed on behalf of such Party and is a legal, valid and binding obligation on such Party, enforceable against such Party in accordance with its terms;
(d)all necessary consents, approvals and authorizations of all Governmental Authorities and other Persons required to be obtained by such Party in connection with the execution and delivery of this Agreement, the transactions contemplated by this Agreement, or the performance by such Party of its obligations under this Agreement have been obtained, except (i) in each case, to the extent required to conduct Clinical Trials or to seek or obtain Regulatory Approvals or other applicable Regulatory Materials and (ii) as set forth in Article 15;
52
(e)the execution and delivery of this Agreement and the performance of such Party’s obligations hereunder: (i) do not conflict with or violate any requirement of Applicable Laws, regulations or orders of Governmental Authorities, (ii) do not conflict with, or constitute a breach or default under, any contractual obligation of such Party, and (iii) do not conflict with or result in a breach of any provision of the organizational documents of such Party; and
(f)(i) [***], any employee, agent or subcontractor of such Party involved or to be involved in the Development of the Licensed Products has been debarred under Subsection (a) or (b) of Section 306 of the Act (each, a “Debarred Person”); (ii) no Debarred Person [***] to have been debarred under Subsection (a) or (b) of Section 306 of the Act will be employed by such Party in the performance of any activities hereunder; and (iii) [***], no Debarred Person on any of the FDA clinical investigator enforcement lists (including the (1) Disqualified/Totally Restricted List, (2) Restricted List and (3) Adequate Assurances List) will participate in the performance of any activities hereunder.
13.2Additional Representations and Warranties by Novartis. Novartis represents and warrants to Legend as of [***].
13.3Additional Representations and Warranties by Legend. Legend represents and warrants to Novartis as of [***] that:
(a)Legend has the full right, power and authority (i) to grant the licenses to Novartis under the Licensed Technology as purported to be granted pursuant to this Agreement and (ii) to perform its obligations under this Agreement;
(b)Legend has not granted any license or other interest to any Third Party under the Licensed Technology that [***];
(c)there are no agreements between Legend or any of its Affiliates and a Third Party entered into [***] under which Legend or any of its Affiliates obtained rights to Patent Rights and Know-How owned by a Third Party from such Third Party that are included in the Licensed Technology and licensed to Novartis pursuant to Section 2.1(a) ([***]);
(d)neither Legend nor any of its Affiliates is party to any license agreement with a Third Party in effect on [***] pursuant to which Legend or its Affiliates is [***];
(e)(i) [***] is the sole and exclusive owner of the Licensed Patents [***]; (ii) [***] is the sole and exclusive owner of the [***]; and (iii) [***];
(f)(i) Exhibit A sets forth a true and complete list of all Licensed Patents Controlled by Legend or any of its Affiliates that constitute Licensed Technology as of [***]; (ii) except for expired provisional patent applications and PCT patent applications that have entered the national phase, [***]; (iii) Legend or its Affiliate, as applicable, has [***] and (iv) to [***];
(g)there are no judgments, orders, decrees, or settlements against or owed by Legend or any of its Affiliates, and there are no actual, pending, or, to Legend’s knowledge, alleged or threatened in writing, adverse actions, demands, arbitrations, suits, proceedings, or other claims against Legend or any of its Affiliates [***];
(h)there is no pending, nor to Legend’s knowledge, threatened, action by a Third Party against Legend or any of its Affiliates that challenges [***];
53
(i)Legend’s right, title and interest to the Licensed Technology is free of any lien, security interest or other encumbrance which [***];
(j)the inventorship of the Licensed Patents is [***];
(k)Legend has obtained, or caused its Affiliates, as applicable, to obtain, [***] from the inventors (or their employers) of any Licensed Technology at the time of invention of all inventorship rights to such Licensed Technology, and all such [***];
(l)Legend has [***] agreements with all persons employed by Legend or any of its Affiliates who will conduct activities under this Agreement which are sufficient to enable Legend to [***];
(m)Legend has made any and all payments owing by Legend or any of its Affiliates to any inventor of any Licensed Technology owned by Legend or such Affiliate that is required in connection with the creation or exploitation of or transfer of rights to such Licensed Technology;
(n)(i) [***] and (ii) [***];
(o)[***];
(p)no Licensed Technology is subject to any obligation of Legend or its Affiliate under any funding agreement with any Governmental Authority;
(q)(i) Legend has prepared, maintained and retained all Regulatory Materials for [***]; (ii) Legend has conducted, and [***] cause its consultants and subcontractors to conduct, all studies, tests and pre-clinical trials of the [***]; (iii) no Adverse Event involving human subjects reported to Legend has occurred in connection with any study, test or pre-clinical trial of [***]; and (iv) Legend has made available to Novartis [***];
(r)(i) Legend has been and all activities conducted by Legend or its Affiliates related to [***] have been conducted in compliance with all Applicable Laws and (ii) Legend (itself or through its Affiliates, or its or their contractors) has all approvals from Governmental Authorities necessary for its activities related to [***];
(s)(i) all interactions pertaining to [***] with hospitals, doctors, health care providers and key opinion leaders have been conducted in compliance with Applicable Laws, and (ii) the terms and conditions of any contractual or other business relationships for [***], including the provision of compensation or other consideration, between Legend or its Affiliates and such entities, groups and individuals are in compliance with Applicable Laws; and
(t)(i) all [***] collected, processed or disclosed by [***] from clinical trial subjects for [***] have been and are being collected, processed or disclosed in compliance with Applicable Laws, and (ii) Legend or its Affiliates has secured all required patient consents for the collection, processing and disclosure of such [***].
13.4Additional Covenants of Legend.
(a)Legend shall not, and shall cause its Affiliates not to: (i) grant any license or other interest to any Third Party under the Licensed Technology; (ii) sell, assign, convey, or otherwise transfer any of its right, title or interest in or to any Licensed Technology to any Third
54
Party; or (iii) incur or permit to incur any lien, security interest or other encumbrance, other than licenses entered into in the ordinary course of business, on the Licensed Technology; in each case ((i), (ii) and (iii)), [***];
(b)[***];
(c)Legend shall, and shall cause its Affiliates to: (i) [***]; (ii) [***]); and (iii) [***]. In the event that Legend or any of its Affiliates receives notice of an alleged breach by Legend or any of its Affiliates (excluding any such breach caused by the actions or inactions attributable to Novartis, its Affiliates or Sublicensees) under any [***] Upstream License, where termination of such Upstream License or any diminishment of the scope or exclusivity of the sublicenses granted to Novartis under the applicable Licensed Technology is being sought by the counterparty, then Legend shall [***]. Legend shall not, and shall cause its Affiliates not to, [***];
(d)Legend shall [***] ([***]) notify Novartis of any Claim brought against any of the Legend Parties to the extent pertaining to [***]; and
(e)Legend shall, and shall cause its Affiliates to: (i) train its employees with respect to compliance with the [***] Code; and (ii) set performance objectives, execute implementation plans and take necessary corrective actions for deficiencies [***].
13.5Standards and Policies
(a)Legend acknowledges and agrees that Legend and its Affiliates performing Legend’s obligations under this Agreement (the “Legend Parties”) shall perform Legend’s obligations under this Agreement in compliance [***] Code of Conduct (including, for clarity, any published updates thereto) that can be viewed at [***] and in Exhibit O (“[***] Code”). [***].
(b)In exercising its rights and performing its obligations under this Agreement, the Legend Parties will (and will ensure that its employees, directors, officers, and agents will) (i) [***]; (ii) [***]; (iii) [***]; (iv) [***]; and (v) [***].
(c)Subject to Novartis requesting to perform an AB Training as described below, the Legend Parties will be responsible for training all of its employees, directors, officers and agents engaged in performing the activities set forth in this Agreement on anti-bribery (“AB Training”) [***] in a manner substantially similar to [***] anti-bribery training [***]. Such training shall include [***]. The Legend Parties will ensure that, in accordance with their respective generally applicable policies (including as to timing), the AB Training is [***]. [***].
(d)In exercising its rights and performing its obligations under this Agreement, the Legend Parties will (and will ensure that its employees, directors, officers, and agents will) conduct their business [***].
(e)In exercising its rights and performing its obligations under this Agreement, the Legend Parties will (and will ensure that its employees, directors, officers, and agents will) have process and systems designed to (i) [***]; (ii) [***]; (iii) [***]; and (iv) [***].
(f)Any employee, director, officer, or agent of the Legend Parties may report actual or potential violations of this Section 13.5 and other applicable human rights and environmental laws and regulations in their country or Novartis’ countries of operation through
55
Novartis’ Speak Up Office available at https://www.novartis.com/esg/ethics-risk-and-compliance/ethical-behavior/speakup.
(g)The Legend Parties will, [***], for each [***], deliver (or have an authorized Affiliate acting for and on its behalf deliver) to Novartis a duly completed annual compliance confirmation in the form attached as Exhibit P or any materially equivalent updated form notified to Legend Parties from time to time by Novartis (each a “Annual Compliance Confirmation”). Novartis may, at its option, instruct its personnel to collect each Annual Compliance Confirmation on its behalf, and the Legend Parties will cooperate (and procure that any authorized Affiliate acting on its behalf in respect of the Annual Compliance Confirmation cooperates) with any such personnel for such purpose. Where the Legend Parties have multiple non-expired contractual agreements with Novartis or its Affiliates which include the requirement to provide an Annual Compliance Confirmation, the Legend Parties may provide an Annual Compliance Confirmation covering more than one existing agreement. Unless otherwise directed by Novartis, the Annual Compliance Confirmation shall be delivered within [***] of the relevant Reporting Period. For the purposes of this Section 13.5 only, reference to “Reporting Period” is a reference in each case to [***]. For the purposes of Section 12.2(c), Legend will only be considered to be in material breach of its obligations with respect to the submission of the Annual Compliance Confirmation if [***]. For clarity, this Section 13.5 applies to the Legend Parties only, [***]; provided that the Annual Compliance Confirmation of the Legend Parties [***].
(h)Each Party, in the course of performing under this Agreement, (i) [***], and (ii) [***]. Further, upon a Party becoming aware of an unauthorized access, destruction, use, modification or disclosure of Patient Data generated in a Clinical Trial for a Licensed Product and within the other Party’s Confidential Information, that in such first Party’s reasonable discretion would have a materially adverse impact on [***] (“Security Incident”), such Party shall notify the other Party thereof [***] and shall provide [***] on such Security Incident [***] by such Party.
13.6No Other Warranties. EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE 13, (A) NO REPRESENTATION, CONDITION OR WARRANTY WHATSOEVER IS MADE OR GIVEN BY OR ON BEHALF OF NOVARTIS OR LEGEND; AND (B) ALL OTHER CONDITIONS AND WARRANTIES WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE ARE HEREBY EXPRESSLY EXCLUDED, INCLUDING ANY CONDITIONS AND WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. [***].
Article 14
INDEMNIFICATION; LIABILITY; INSURANCE
INDEMNIFICATION; LIABILITY; INSURANCE
14.1Indemnification by Legend. Legend shall indemnify, defend and hold harmless Novartis and its Affiliates and Sublicensees, and each of their respective directors, officers, employees, consultants and agents (collectively, “Novartis Indemnitees”), from and against all Losses arising out of any Claim brought against any of them to the extent arising or resulting from:
(a)the breach of any representation, warranty or covenant by Legend under this Agreement;
(b)the negligence or intentional misconduct of any Legend Indemnitees; or
56
(c)(i) [***];
except, (x) in each case, to the extent caused by the negligence or intentional misconduct of any Novartis Indemnitees, or a breach by Novartis of any of its representations, warranties or covenants set forth in this Agreement, or (y) [***].
14.2Indemnification by Novartis. Novartis shall indemnify, defend and hold harmless Legend and its Affiliates, any Upstream Licensors and each of their respective directors, officers, employees, consultants and agents (collectively, “Legend Indemnitees”), from and against all Losses arising out of any Claim brought against any of them to the extent arising or resulting from:
(a)the breach of any representation, warranty or covenant by Novartis under this Agreement;
(b)[***] intentional misconduct of any Novartis Indemnitees; or
(c)the Exploitation of Licensed Products by or on behalf of Novartis or its Affiliates or Sublicensees or any other Novartis Indemnitee;
except, in each case, to the extent caused by the negligence or intentional misconduct of any Legend Indemnitees or a breach by Legend of any of its representations, warranties or covenants set forth in this Agreement.
14.3Indemnification Procedure.
(a)If either Party is seeking indemnification under Section 14.1 or Section 14.2 (the “Indemnified Party”), it shall [***] inform the other Party (the “Indemnifying Party”) of the claim giving rise to the obligation to indemnify pursuant to such Section (“Indemnification Claim Notice”) [***] after receiving notice of the Claim; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder, except to the extent that the Indemnifying Party demonstrates that its ability to defend or resolve such Claim is adversely affected thereby. The Indemnification Claim Notice shall contain a description of the Claim and the nature and amount of the Claim and any Losses related thereto (to the extent that the nature and amount of such Loss is known at such time). Upon the request of the Indemnifying Party, the Indemnified Party shall furnish [***] to the Indemnifying Party copies of all correspondence, communications and official documents (including court documents) received or sent in respect of any such Losses and Claims.
(b)Subject to the provisions of Sections 14.3(c) and 14.3(d), the Indemnifying Party shall have the right, exercisable by notice to the Indemnified Party within [***] after receipt of the Indemnification Claim Notice to assume the direction and control of the defense and handling of any such Claim, [***], in which case the provisions of Section 14.3(d) below shall govern. The assumption of the defense of a Claim by the Indemnifying Party shall not be construed as acknowledgement that the Indemnifying Party is liable to indemnify any indemnitee in respect of the Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against any Indemnified Party’s claim for indemnification. [***]. If the Indemnifying Party does not give written notice to the Indemnified Party, within [***] after receipt of the Indemnification Claim Notice, of the Indemnifying Party’s election to assume the defense and handling of such Claim, the provisions of Section 14.3(d) shall govern.
57
(c)Upon assumption of the defense of a Claim by the Indemnifying Party: (i) the Indemnifying Party shall have the right to and shall assume [***] control and responsibility for dealing with the Claim; (ii) the Indemnifying Party may, [***], appoint as counsel in connection with conducting the defense and handling of such Claim any law firm or counsel reasonably selected by the Indemnifying Party; (iii) the Indemnifying Party shall keep the Indemnified Party informed of the status of such Claim; and (iv) the Indemnifying Party shall have the right to settle the Claim on any terms the Indemnifying Party chooses; provided, however, that it shall not, without the prior written consent of the Indemnified Party, agree to a settlement of any Claim which [***]. The Indemnified Party shall, [***], cooperate with the Indemnifying Party and shall be entitled to participate in, but not control, the defense of such Claim with its own counsel [***]. In particular, the Indemnified Party shall furnish such records, information and testimony, provide witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours by the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Claim, and making the Indemnified Party, the indemnitees and its and their employees and agents available on a mutually convenient basis to provide additional information and explanation of any records or information provided.
(d)If the Indemnifying Party does not give written notice to the Indemnified Party as set forth in Section 14.3(b) or fails to conduct the defense and handling of any Claim in good faith after having assumed such, the Indemnified Party may, [***], select counsel reasonably acceptable to the Indemnifying Party in connection with conducting the defense and handling of such Claim and defend or handle such Claim in such manner as it may deem appropriate. In such event, the Indemnified Party shall keep the Indemnifying Party [***] apprised of the status of such Claim and shall not settle such Claim [***]. If the Indemnified Party defends or handles such Claim, the Indemnifying Party shall cooperate with the Indemnified Party, at the Indemnified Party’s request [***], and shall be entitled to participate in the defense and handling of such Claim with its own counsel and [***].
14.4Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER IN CONTRACT, TORT, NEGLIGENCE BREACH OF STATUTORY DUTY OR OTHERWISE FOR [***]. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 14.4 IS INTENDED TO OR SHALL LIMIT OR RESTRICT (A) [***], (B) [***], OR (C) [***].
14.5Insurance. Each Party shall procure and maintain [***], with financially stable and reputable insurers, adequate insurance protection that is usual and customary for its respective business operations and such Party reasonably believes is reasonably necessary to cover its actual and potential insurable liabilities under this Agreement. Any deductible associated with a Party’s third-party insurance policy is [***]. Legend acknowledges that Novartis may fulfill this obligation by [***], where permitted by law. It is understood that such insurance shall not be construed to create a limit of either Party’s liability, including with respect to its indemnification obligations under this Article 14.
Article 15
ANTITRUST
ANTITRUST
15.1Effectiveness of the Agreement. Except for the Parties’ rights and obligations under this [***], which will be effective as of the Execution Date, this Agreement will not become effective until the applicable waiting period (and any extensions thereof), including any timing agreement entered into with the United States Federal Trade Commission (“FTC”) or the
58
Antitrust Division of the United States Department of Justice (“DOJ”) under the HSR Act shall have expired or terminated (the “Effective Date”). As of the Effective Date, all other provisions of this Agreement will become effective automatically without the need for further action by the Parties. Notwithstanding any other provisions of this Agreement to the contrary, if the Effective Date has not occurred on or before the Outside Date, then [***]. The “Outside Date” means the date that is [***]; provided that, except in the case that the Parties mutually agree otherwise, such [***] shall [***] be extended up to [***] if the Effective Date shall not have occurred within such [***], as applicable.
15.2HSR Filing.
(a)Legend and Novartis will, as [***] as practicable ([***]), prepare and file with the FTC and DOJ, the Notification and Report Form for Certain Mergers and Acquisitions (as that term is defined in the HSR Act) required for the transactions contemplated hereby, together with all required documentary attachments thereto (the “HSR Filings”). Notwithstanding the foregoing, the Parties may, upon mutual agreement, delay the filing of any of the HSR Filings if they reasonably believe that such delay would result in obtaining any clearance required under the HSR Act for the consummation of this Agreement and the transactions contemplated hereby more expeditiously. Each of Legend and Novartis will cooperate in the antitrust clearance process, including by furnishing to each other’s counsel such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of any filing or submission that is necessary under the HSR Act and to furnish [***] with the FTC and DOJ any information reasonably requested by them in connection with such filings. Each Party will [***] associated with any HSR Filings or in connection with its obligations pursuant to this Section 15.2.
(b)Legend and Novartis will each [***] obtain the expiration or termination of the HSR waiting period as it relates to this Agreement and the transactions contemplated hereby and will keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC or DOJ and will comply [***] with any such inquiry or request. [***] will not include, and will not require, [***], (i) [***], (ii) [***], or (iii) [***].
(c)The Parties will [***] and [***] facilitate and expedite the identification and resolution of any issues arising under the HSR Act at the earliest practicable dates. Such [***] to (i) keep each other informed of communications, inquiries and requests from and to personnel of the FTC or DOJ, including by providing copies thereof to the other Party (subject to reasonable redactions for privilege or confidentiality concerns), and (ii) confer with each other regarding appropriate contacts with and response to such personnel of the FTC or DOJ and the content of any such contacts or presentations. Each of Legend and Novartis will consult with the other Party, to the extent practicable, in advance of participating in any substantive meeting or discussion with the FTC or DOJ with respect to any such filings, applications, investigation, or other inquiry and, to the extent permitted by the DOJ or FTC, give the other Party the opportunity to attend and participate in such meeting or discussion. Legend and Novartis will each give the other Party the opportunity to review in advance, and will [***] the other Party’s reasonable comments in connection with, the content of any presentations, white papers or other written materials to be submitted to the FTC or DOJ. Notwithstanding any of the preceding, the final determination as to the appropriate course of action shall be made by [***]. For clarity, the Parties’ rights and obligations hereunder apply only in so far as they relate to this Agreement and to the transactions contemplated under this Agreement.
59
Article 16
GENERAL PROVISIONS
GENERAL PROVISIONS
16.1Force Majeure. In the event that either Party is prevented from performing its obligations under this Agreement as a result of any contingency beyond its reasonable control (“Force Majeure”), including any actions of governmental authorities or agencies, war, hostilities between nations, civil commotions, riots, national industry strikes, lockouts, sabotage, shortages in supplies, energy shortages, pandemics, fire, floods and acts of nature such as typhoons, hurricanes, earthquakes, or tsunamis, the Party so affected shall not be responsible to the other Party for any delay or failure of performance of its obligations hereunder, for so long as Force Majeure prevents such performance. In the event of Force Majeure, the Party immediately affected thereby shall give [***] written notice to the other Party specifying the Force Majeure event complained of, and shall [***] resume performance of its obligations as soon as possible.
16.2Assignment. Neither Party may assign this Agreement or any of its rights or obligations hereunder without the other Party’s prior written consent, except that (a) Novartis and Legend each may: (i) [***] or (ii) [***]; and (b) Legend may, subject to [***]. Except in the case of a [***], any permitted assignee will assume all obligations of its assignor under this Agreement (or related to the assigned portion in case of a partial assignment). Any attempted assignment in contravention of the foregoing will be null and void. Subject to the terms of this Agreement, this Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.
16.3Severability. If one or more of the provisions of this Agreement are or become invalid, void or unenforceable as a matter of law, then this Agreement shall be construed as if such provision were not contained herein and the remainder of this Agreement shall be in full force and effect, and the Parties will [***] substitute for the invalid, void or unenforceable provision a valid and enforceable provision which conforms as nearly as possible with the original intent of the Parties.
16.4Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when: (a) delivered by hand (with written confirmation of receipt); or (b) when received by the addressee, if sent by an internationally recognized overnight delivery service (receipt requested), in each case, to the appropriate addresses set forth below (or to such other addresses as a Party may designate by like notice):
If to Legend:
[***]
and
[***]
with a copy to:
[***]
If to Novartis:
[***]
60
16.5Dispute Resolution.
(a)In the event of a Dispute (as defined in Section 16.5(b) below), either Party may refer the Dispute to the Alliance Managers for discussion and resolution. If the Alliance Managers are unable to resolve the Dispute within [***] of the Dispute being referred to them, either Party may require that the Parties forward the matter to the Executive Officers, who shall attempt in good faith to resolve such Dispute. If the Executive Officers cannot resolve such Dispute within [***] of the matter being referred to them, either Party shall be free to initiate the arbitration proceedings outlined in Section 16.5(b) below for such Dispute.
(b)Subject to Section 16.5(a), any dispute, controversy or claim to the extent arising out of or pertaining to this Agreement or any term or condition thereof, including with respect to the formation, applicability, breach, termination, validity or enforceability thereof, or the performance by either Party of its obligations hereunder, whether before or after termination of this Agreement (excluding a [***], “Dispute”), shall be resolved [***] by [***] arbitration conducted as set forth in this Section 16.5. Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Party. The arbitration will be conducted by [***] in accordance with the Rules of Arbitration (“ICC Rules”) of the International Chamber of Commerce (“ICC”). The claimant shall nominate an arbitrator in its request for arbitration. The respondent shall nominate an arbitrator within [***] of the receipt of the request for arbitration. [***] The seat of the arbitration shall be New York City, New York, and the language of the arbitration shall be English. The [***] shall render their decision within [***] of the close of the proceedings. [***]. Neither Party may nominate any individual for selection as such an arbitrator unless such individual: (i) [***]; (ii) [***]; and (iii) [***].
(c)Nothing in this Section 16.5 shall preclude either Party from seeking interim or provisional relief in [***], including a temporary restraining order, preliminary injunction or other interim equitable relief concerning a Dispute, if necessary to protect the interests of such Party [***].
(d)The existence of the arbitration, any non-public information provided in the arbitration, and any submissions, orders or awards made in the arbitration of a Dispute or a Select Patent Dispute shall not be disclosed to any non-party except the tribunal, the ICC, the Parties, their counsel, experts, witnesses, accountants and auditors, insurers and reinsurers, and any other person necessary to the conduct of the arbitration except to the extent that disclosure may be required to fulfil a legal duty, protect or pursue a legal right, or enforce or challenge an award in bona fide legal proceedings, or as required by Applicable Law (including any disclosure permitted under Section 11.4).
16.6Governing Law; Venue; Waiver of Jury Trial. This Agreement shall be governed by and construed in accordance with the laws of the [***] without reference to any rules of conflict of laws; provided, that the United Nations Convention on Contracts for International Sale of Goods shall not apply. Subject to and except as set forth in Section 16.5, with respect to any Dispute, each Party: (a) hereby irrevocably submits to the exclusive jurisdiction and venue of, (i) the courts of the [***], or (ii) [***] (b) agrees that process may be served upon it in the manner specified in Section 16.4, and (c) hereby irrevocably waives and covenants not to assert or plead any objection which it might otherwise have to such jurisdiction or venue, or to such manner of service of process. [***].
16.7Compliance with Law. Each Party shall perform its obligations under this Agreement in accordance with all Applicable Laws. No Party shall, or shall be required to,
61
undertake any activity under or in connection with this Agreement which violates, or which it believes, in good faith, may violate, any Applicable Laws.
16.8Export Control. This Agreement is made subject to any restrictions concerning the export of products or technical information from the United States of America or other countries which may be imposed upon or related to Legend or Novartis from time to time, and both Parties agree to comply with all such export control laws.
16.9Entire Agreement; Amendments. This Agreement, together with the Exhibits hereto, contains the entire agreement and understanding of the Parties with respect to the subject matter hereof. Any other express or implied agreements and understandings, negotiations, writings and commitments, either oral or written, with respect to the subject matter hereof are superseded by the terms of this Agreement. In the event of any conflict between a substantive provision of this Agreement, on one hand, and any [***], on the other hand, the substantive provisions of this Agreement shall prevail. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representative(s) of both Parties hereto. The Parties agree that the Confidentiality Agreement between the Parties dated as of January 18, 2023 (the “Confidentiality Agreement”) is [***].
16.10Independent Contractors. It is expressly agreed that Legend and Novartis shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or legal entity of any type. Neither Legend nor Novartis shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party. Neither Party shall report this Agreement or the relationship between the Parties as a partnership for tax purposes unless required by law.
16.11Waiver. No provision of this Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party. The waiver by either Party of any right hereunder, or of any failure of the other Party to perform, or of any breach by the other Party, shall not be deemed a waiver of any other right hereunder or of any other breach by or failure of such other Party whether of a similar nature or otherwise.
16.12Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.
16.13Further Actions. Novartis and Legend hereby covenant and agree, without the necessity of any further consideration, to execute, acknowledge and deliver any and all such other documents and take any such other action as may be reasonably necessary to carry out (but without expanding) the express provisions of this Agreement.
16.14No Third Party Beneficiary Rights. The provisions of this Agreement are for the sole benefit of the Parties and their successors and permitted assigns, and they shall not be construed as conferring any rights to any Third Party (including any third party beneficiary rights), [***].
16.15Extension to Affiliates. Novartis and Legend shall have the right to extend the rights, immunities and obligations granted in this Agreement to one or more of its Affiliates. All applicable terms and provisions of this Agreement shall apply to any such Affiliate to which this Agreement has been extended to the same extent as such terms and provisions apply to Novartis
62
or Legend (as applicable). Novartis and Legend each shall remain primarily liable for any acts or omissions of its Affiliates.
16.16Exclusion of Acquirer Subject Matter. Notwithstanding anything to the contrary in this Agreement, on and following a Change of Control of Legend, any and all Know-How, Patent Rights, or other intellectual property rights or proprietary subject matter that are: (a) as of the effective date of such Change of Control, owned, controlled or licensed by any Affiliates of Legend that were Affiliates of the acquiring entity and not Affiliates of Legend immediately prior to the effective date of such Change of Control (including, for clarity, such acquirer in such Change of Control and such acquirer’s Affiliates existing immediately prior to the effective date of such Change of Control (“Acquiring Entities”)); or (b) following the effective time of such Change of Control, first owned, controlled, acquired, developed or generated by the Acquiring Entities; in each case ((a) and (b) (collectively, “Acquirer Technology”)), shall not be included within the Licensed Technology[***]. As used in this Section 16.16, “Restricted Confidential Information” means (1) [***] and (2) [***].
16.17Expenses. Except as otherwise expressly provided in this Agreement, each Party shall pay the fees and expenses of its respective lawyers and other experts and all other expenses and costs incurred by such Party incurred in connection with the negotiation, preparation, execution, delivery and performance of this Agreement.
16.18English Language. This Agreement is written and executed in the English language. Any translation into any other language shall not be an official version of this Agreement and, in the event of any conflict in interpretation between the English version and such translation, the English version shall prevail.
16.19Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via electronic mail, including Adobe™ Portable Document Format (PDF) or any electronic signature complying with the U.S. Federal ESIGN Act of 2000, and any counterpart so delivered will be deemed to be original signatures, will be valid and binding upon the Parties, and, upon delivery, will constitute due execution of this Agreement.
<SIGNATURE PAGE FOLLOWS>
63
Legend Biotech Corporation (“Legend Cayman”) [***].
LEGEND BIOTECH CORPORATION
By: /s/ Ying Huang
Name: Ying Huang
Title: Chief Executive Officer
Title: Chief Executive Officer
IN WITNESS WHEREOF, the Parties intending to be bound have caused this License Agreement to be executed by their duly authorized representatives as of the Execution Date.
NOVARTIS PHARMA AG By: /s/ David Benathan Name: David Benathan Title: Authorized Person By: /s/ Ian James Hancock Name: Ian James Hancock Title: Authorized Person | LEGEND BIOTECH IRELAND LIMITED By: /s/ Sheila Cronin Name: Sheila Cronin Title: Director | ||||
EXHIBIT A
LICENSED PATENTS
[***]
EXHIBIT B
HANDOVER PACKAGE
[***]
ANNEX 1
LIST OF DAFFODIL VDR FOLDERS
[***]
EXHIBIT C
SAMPLE INVOICE
[***]
EXHIBIT D
LEGEND DEVELOPMENT PLAN AND BUDGET
[***]
EXHIBIT E
FORM OF DEVELOPMENT AND COMMERCIALIZATION UPDATE FOR LICENSED PRODUCT
[***]
EXHIBIT F
MANUFACTURING KNOW-HOW AND MATERIAL TRANSFER PLAN
[***]
EXHIBIT G
SUPPLY TERMS
[***]
ANNEX A
EXISTING MATERIALS
[***]
ANNEX B
NEW MATERIALS
[***]
ANNEX C
FTE HOUR OVERVIEW
[***]
EXHIBIT H
FORM OF CONSENT LETTER
[***]
EXHIBIT I
EXPEDITED ARBITRATION
[***]
EXHIBIT J
KNOWN LEGEND SUBCONTRACTORS
[***]
EXHIBIT K
CONTROLLER-TO-CONTROLLER ADDENDUM
[***]
EXHIBIT L
EXAMPLE ROYALTY REDUCTION CALCULATIONS
[***]
EXHIBIT M
LEGEND BANK ACCOUNT INFORMATION
[***]
EXHIBIT N
FORM OF PRESS RELEASE
[***]
EXHIBIT O
[***] CODE
[***]EXHIBIT P
ANNUAL COMPLIANCE CONFIRMATION FORM
[***]
Exhibit 4.25
Legend Biotech Corporation
Incentive Compensation Recoupment Policy
1.Introduction
The Board of Directors (the “Board”) of Legend Biotech Corporation, an exempted company incorporated under the laws of the Cayman Islands with limited liability (the “Company”), has determined that it is in the best interests of the Company and its shareholders to adopt this Incentive Compensation Recoupment Policy (this “Policy”) providing for the Company’s recoupment of Recoverable Incentive Compensation that is received by Covered Officers under certain circumstances. Certain capitalized terms used in this Policy have the meanings given to such terms in Section 3 below.
This Policy is designed to comply with, and shall be interpreted to be consistent with, Section 10D of the Exchange Act, Rule 10D-1 promulgated thereunder (“Rule 10D-1”) and Nasdaq Listing Rule 5608 (the “Listing Standards”).
2.Effective Date
This Policy shall apply to all Incentive Compensation that is received by a Covered Officer on or after October 2, 2023 (the “Effective Date”). Incentive Compensation is deemed “received” in the Company’s financial year in which the Financial Reporting Measure specified in the Incentive Compensation award is attained, even if the payment or grant of such Incentive Compensation occurs after the end of that period.
3.Definitions
“Accounting Restatement” means an accounting restatement that the Company is required to prepare due to the material noncompliance of the Company with any financial reporting requirement under U.S. securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Accounting Restatement Date” means the earlier to occur of (a) the date that the Board, a committee of the Board authorized to take such action, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (b) the date that a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
“Administrator” means the Compensation Committee or, in the absence of such committee, the Board.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
“Compensation Committee” means the Compensation Committee of the Board.
“Covered Officer” means each current and former Executive Officer.
“Exchange” means the Nasdaq Stock Market.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
“Executive Officer” means any of the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the
291138662 v2 | ||
Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries are deemed executive officers of the Company if they perform such policy-making functions for the Company. Policy-making function is not intended to include policy-making functions that are not significant. Identification of an executive officer for purposes of this Policy would include at a minimum executive officers identified pursuant to Item 401(b) of Regulation S-K promulgated under the Exchange Act.
“Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures derived wholly or in part from such measures, including Company share price and total shareholder return (“TSR”). A measure need not be presented in the Company’s financial statements or included in a filing with the SEC in order to be a Financial Reporting Measure.
“Incentive Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
“Lookback Period” means the three completed financial years immediately preceding the Accounting Restatement Date, as well as any transition period (resulting from a change in the Company’s financial year) within or immediately following those three completed financial years (except that a transition period of at least nine months shall count as a completed financial year). Notwithstanding the foregoing, the Lookback Period shall not include financial years completed prior to the Effective Date.
“Recoverable Incentive Compensation” means Incentive Compensation received by a Covered Officer during the Lookback Period that exceeds the amount of Incentive Compensation that would have been received had such amount been determined based on the Accounting Restatement, computed without regard to any taxes paid (i.e., on a gross basis without regarding to tax or social security withholdings and other deductions). For any compensation plans or programs that take into account Incentive Compensation, the amount of Recoverable Incentive Compensation for purposes of this Policy shall include, without limitation, the amount contributed to any notional account based on Recoverable Incentive Compensation and any earnings to date on that notional amount. For any Incentive Compensation that is based on share price or TSR, where the Recoverable Incentive Compensation is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the Administrator will determine the amount of Recoverable Incentive Compensation based on a reasonable estimate of the effect of the Accounting Restatement on the share price or TSR upon which the Incentive Compensation was received. The Company shall maintain documentation of the determination of that reasonable estimate and provide such documentation to the Exchange in accordance with the Listing Standards.
“SEC” means the U.S. Securities and Exchange Commission.
4.Recoupment
(a)Applicability of Policy. This Policy applies to Incentive Compensation received by a Covered Officer (i) after beginning services as an Executive Officer, (ii) who served as an Executive Officer at any time during the performance period for such Incentive Compensation, (iii) while the Company had a class of shares and/or securities listed on a national securities exchange or a national securities association, and (iv) during the Lookback Period.
(b)Recoupment Generally. Pursuant to the provisions of this Policy, if there is an Accounting Restatement, the Company must reasonably promptly recoup the full amount of the Recoverable Incentive Compensation, unless the conditions of one or more subsections of Section 4(c) of this Policy are met and the Compensation Committee, or, if such committee does not consist solely of independent directors of the Company, a majority of the independent directors serving on the Board, has or have made a determination that recoupment would be impracticable. Recoupment is required regardless of whether the Covered Officer engaged in any misconduct and regardless of fault, and the Company’s obligation to recoup Recoverable Incentive Compensation is not dependent on whether or when any restated financial statements are filed.
2
291138662 v2 | ||
(c)Impracticability of Recovery. Recoupment may be determined to be impracticable if, and only if:
(i)the direct expense paid to a third party to assist in enforcing this Policy would exceed the amount of the applicable Recoverable Incentive Compensation; provided that, before concluding that it would be impracticable to recover any amount of Recoverable Incentive Compensation based on expense of enforcement, the Company shall make a reasonable attempt to recover such Recoverable Incentive Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the Exchange in accordance with the Listing Standards;
(ii)recoupment of the applicable Recoverable Incentive Compensation would violate home country law where that law was adopted prior to November 28, 2022; provided that, before concluding that it would be impracticable to recover any amount of Recoverable Incentive Compensation based on violation of home country law, the Company shall obtain an opinion of home country counsel, acceptable to the Exchange, that recoupment would result in such a violation, and shall provide such opinion to the Exchange in accordance with the Listing Standards; or
(iii)recoupment of the applicable Recoverable Incentive Compensation would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Code Section 401(a)(13) or Code Section 411(a) and regulations thereunder.
(d)Sources of Recoupment. To the extent permitted by applicable law, the Administrator shall, in its sole discretion, determine the timing and method for recouping Recoverable Incentive Compensation hereunder, provided that such recoupment is undertaken reasonably promptly. The Administrator may, in its discretion, seek recoupment from a Covered Officer from any of the following sources or a combination thereof, whether the applicable compensation was approved, awarded, granted, payable or paid to the Covered Officer prior to, on or after the Effective Date: (i) direct repayment of Recoverable Incentive Compensation previously paid to the Covered Officer; (ii) cancelling prior cash or equity-based awards (whether vested or unvested and whether paid or unpaid); (iii) cancelling or offsetting against any planned future cash or equity-based awards; (iv) forfeiture of deferred compensation, subject to compliance with Code Section 409A (if applicable) or any equivalent local laws applicable to the Covered Officer; and (v) any other method authorized by applicable law or contract. Subject to compliance with any applicable law, the Administrator may effectuate recoupment under this Policy from any amount otherwise payable to the Covered Officer, including amounts payable to such individual under any otherwise applicable Company plan or program, e.g., base salary, bonuses or commissions and compensation previously deferred by the Covered Officer. The Administrator need not utilize the same method of recovery for all Covered Officers or with respect to all types of Recoverable Incentive Compensation.
(e)No Indemnification of Covered Officers. Notwithstanding any indemnification agreement, applicable insurance policy or any other agreement or provision of the Company’s memorandum and articles of association or bylaws to the contrary, no Covered Officer shall be entitled to indemnification or advancement of expenses in connection with any enforcement of this Policy by the Company, including paying or reimbursing such Covered Officer for insurance premiums to cover potential obligations to the Company under this Policy.
(f)Indemnification of Administrator. Any members of the Administrator, and any other members of the Board who assist in the administration of this Policy, shall not be personally liable for any action, determination or interpretation made with respect to this Policy and shall be indemnified by the Company to the fullest extent under applicable law and Company policy with respect to any such action, determination or interpretation. The foregoing sentence shall not limit any other rights to indemnification of the members of the Board under applicable law or Company policy.
(g)No “Good Reason” for Covered Officers. Any action by the Company to recoup or any recoupment of Recoverable Incentive Compensation under this Policy from a Covered Officer shall not be deemed (i) “good reason” for resignation or to serve as a basis for a claim of constructive
3
291138662 v2 | ||
termination under any benefits or compensation arrangement applicable to such Covered Officer, or (ii) to constitute a breach of a contract or other arrangement to which such Covered Officer is party.
5.Administration
Except as specifically set forth herein, this Policy shall be administered by the Administrator. The Administrator shall have full and final authority to make any and all determinations required under this Policy. Any determination by the Administrator with respect to this Policy shall be final, conclusive and binding on all interested parties and need not be uniform with respect to each individual covered by this Policy. In carrying out the administration of this Policy, the Administrator is authorized and directed to consult with the full Board or such other committees of the Board as may be necessary or appropriate as to matters within the scope of such other committee’s responsibility and authority. Subject to applicable law, the Administrator may authorize and empower any officer or employee of the Company to take any and all actions that the Administrator, in its sole discretion, deems necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
6.Severability
If any provision of this Policy or the application of any such provision to a Covered Officer shall be adjudicated to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Policy, and the invalid, illegal or unenforceable provisions shall be deemed amended to the minimum extent necessary to render any such provision or application enforceable.
7.No Impairment of Other Remedies
Nothing contained in this Policy, and no recoupment or recovery as contemplated herein, shall limit any claims, damages or other legal remedies the Company or any of its affiliates may have against a Covered Officer arising out of or resulting from any actions or omissions by the Covered Officer. This Policy does not preclude the Company or any subsidiary thereof from taking any other action to enforce a Covered Officer’s obligations to the Company, including, without limitation, termination of employment and/or institution of civil proceedings. This Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 (“SOX 304”) that are applicable to the Company’s Chief Executive Officer and Chief Financial Officer and to any other compensation recoupment policy and/or similar provisions in any employment, equity plan, equity award, or other individual agreement, to which the Company or any subsidiary thereof is a party or which the Company or any subsidiary thereof has adopted or may adopt and maintain from time to time; provided, however, that compensation recouped pursuant to this policy shall not be duplicative of compensation recouped pursuant to SOX 304 or any such compensation recoupment policy and/or similar provisions in any such employment, equity plan, equity award, or other individual agreement except as may be required by law.
8.Amendment; Termination
The Administrator may amend, terminate or replace this Policy or any portion of this Policy at any time and from time to time in its sole discretion. The Administrator shall amend this Policy as it deems necessary to comply with applicable law or any Listing Standard.
9.Successors
This Policy shall be binding and enforceable against all Covered Officers and, to the extent required by Rule 10D-1 and/or the applicable Listing Standards, their beneficiaries, heirs, executors, administrators or other legal representatives.
10. Required Filings
The Company shall make any disclosures and filings with respect to this Policy that are required by law, including as required by the SEC.
4
291138662 v2 | ||
* * * * *
5
291138662 v2 | ||
Legend Biotech Corporation
Incentive Compensation Recoupment Policy
US Form of Executive Acknowledgment
I, the undersigned, agree and acknowledge that I am bound by, and subject to, the Legend Biotech Corporation Incentive Compensation Recoupment Policy, as may be amended, restated, supplemented or otherwise modified from time to time (the “Policy”). In the event of any inconsistency between the Policy and the terms of any employment agreement, offer letter or other individual agreement with Legend Biotech Corporation (the “Company”) or any subsidiary thereof to which I am a party, or the terms of any compensation plan, program or agreement, whether or not written, under which any compensation has been granted, awarded, earned or paid to me, the terms of the Policy shall govern.
In the event that the Administrator (as defined in the Policy) determines that any compensation granted, awarded, earned or paid to me must be forfeited or reimbursed to the Company or a subsidiary thereof pursuant to the Policy, I will promptly take any action necessary to effectuate such forfeiture and/or reimbursement. I further agree and acknowledge that I am not entitled to indemnification, and hereby waive any right to advancement of expenses, in connection with any enforcement of the Policy by the Company.
I acknowledge that the Policy or any portion thereof may be amended or replaced by the Administrator from time to time as it deems necessary or desirable for compliance with the applicable law or any Listing Standard. I agree to execute further documents or instruments necessary or desirable in the sole determination of the Administrator to carry out the purposes or intent of the Policy or any amendments thereto.
Agreed and Acknowledged:
Name:
Title:
Date:
6
291138662 v2 | ||
CERTAIN INFORMATION IN THIS EXHIBIT IDENTIFIED BY [***] IS CONFIDENTIAL AND HAS BEEN EXCLUDED BECAUSE IT (I) IS NOT MATERIAL AND (II) THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS THAT INFORMATION AS PRIVATE OR CONFIDENTIAL.
EXHIBIT 4.26
AMENDMENT #2 TO MASTER TECHNOLOGY TRANSFER, MANUFACTURING AND CLINICAL SUPPLY SERVICVES AGREEMENT FOR BCMA CAR-T PRODUCT
This amendment #2 (hereinafter “Amendment”) is effective as of the date of last signature below and entered into by and among Janssen Research & Development, LLC with registered offices at 920 US Route 202, Raritan, NJ 08869 (hereinafter referred to as “Company”), Legend Biotech USA Inc. with registered offices at 2101 Cottontail Lane, Somerset, NJ 08873 (hereinafter referred to individually as “Legend” and collectively with Company as “Collaboration Partners”) and Novartis Pharmaceuticals Corporation with registered offices at One Health Plaza, East Hanover, NJ 07936 (hereinafter referred to as “Provider”). Company, Legend and Provider may be hereinafter referred to collectively as the “Parties” and individually as a “Party”. This Amendment amends the Master Technology Transfer, Manufacturing and Clinical Supply Services Agreement for BCMA CAR-T Product with an Effective Date of April 12, 2023 by and among Company, Legend and Provider, as previously amended (the “Agreement”). All terms not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.
WHEREAS, Company, Legend and Provider find it in their respective interests to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual promises and covenants herein contained, the Parties hereto agree as follows:
1.Section 6.18.1 of the Agreement is hereby deleted in entirety and replaced with the following text:
“Company or Company’s authorized representative (including authorized Legend personnel) and any Regulatory Authority that regulates the Collaboration Partners may (i) during the Term and for [***] following any termination or expiration of this Agreement and, if later, the applicable Work Order, inspect and audit the Records of Provider and (ii) during the Term and, if later, until completion of any outstanding Work Orders, inspect and audit the Facility in accordance with this Agreement and the Quality Agreement; in each case, with respect to the Deliverables or Services (including the Provider Operating Documents) for the purpose of evaluating compliance with this Agreement, each Work Order, the Quality Agreement, and any Applicable Law. Routine audits by the Company shall be scheduled no more frequently than [***], on reasonable notice to Provider, while “for cause” audits may occur as needed. Company shall reasonably cooperate with the Provider’s audit procedures. Audits shall not include access or review of any information relating to any other customer of Provider.”
2.Except as specifically amended hereby, all terms of the Agreement remain in full force and effect. In the event of any conflict between the Agreement and this Amendment, the provisions of this Amendment shall prevail.
[Signature page follows]
Confidential Page 1 of #NUM_PAGES#
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized representatives, on the date set forth below, each Party acknowledging receipt of one copy.
The Parties explicitly agree to execute this Amendment by way of an electronic signature and agree this shall constitute a valid and enforceable agreement between the Parties. The present Amendment is made in pdf-version which is signed electronically by each Party.
| Janssen Research & Development, LLC | Novartis Pharmaceuticals Corporation | |||||||
By: [***] Name: [***] Title: [***] Date: March 15, 2024____________ | By: [***] Name: [***] Title: [***] Date: March 8, 2024_____________ | |||||||
| Legend Biotech USA Inc. | ||||||||
By: /s/ Ying Huang_____________ Name: Ying Huang Title: CEO Date: March 8, 2024_____________ | ||||||||
Confidential Page 2 of #NUM_PAGES#
Exhibit 11.1
Conduct
OUR CODE
Our commitment to doing the right thing
OUR CODE | 2 | ||
Table of Contents
Version Date – January 2024 | ||
OUR CODE | 3 | ||
A Message from Our CEO
Legend Biotech employs more than one thousand people around the world, and each of you is united by the company’s singular mission: to fiercely pursue—and deliver—transformative therapies. I thank you for being committed to that mission. Every day you make choices that catalyze the growth of this company; choices that make it possible for us to improve the lives of patients and their families. The work we do together by amplifying our capabilities and accelerating innovative research makes Legend Biotech a global biotechnology company with tremendously promising pipeline agents and rapidly growing manufacturing and commercial infrastructures. It has been hardly a decade since our founding, and we are punching well above our weight.
We have been successful because we have been ambitious. We have aspired to change how treatments are developed in oncology and beyond. But to meet such high expectations, we need to hold ourselves to even higher standards.
We must pair our ambition with a deep and proven commitment to ethics and compliance, and always conduct ourselves in a responsible and principled way. Compliance and integrity are embedded in our culture. It is critical that we all know, understand, and unwaveringly follow the policies that are fundamental to the proper practice of our business. There are no shortcuts in conducting ourselves ethically and responsibly.
This Code of Business Conduct & Ethics (“Our Code”) will help you understand what Legend Biotech expects of you and what our customers and stakeholders expect from us. It is not an exhaustive list of every policy you may need to know in your particular role, but it represents a good roadmap. If you have questions, it will direct you to additional resources.
Please read this document carefully. I think you will come away with a heightened appreciation for the value of ethical conduct and full compliance. Doing the right thing for the right reason is the only way to earn and keep the trust of our partners, the public, and the patients we serve.
Thank you again for your efforts. Together, we will continue to not only grow, but to act with ethics, compliance and integrity.
Regards,
Ying Huang, PhD, Chief Executive Officer
Version Date – January 2024 | ||
OUR CODE | 4 | ||
Our Code
At Legend, we strive to make a difference in healthcare, to improve the lives of patients, and to build sustainable value for our stockholders. Achieving these goals is largely dependent on our commitment to conducting business ethically.In all our interactions with our stakeholders, we are committed to doing the right thing.
Our Code contains general guidelines for conducting the business of Legend Biotech Corporation and its subsidiaries and affiliates (collectively, “Legend” or the “Company”) consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules thereunder. To the extent Our Code requires a higher standard than required by commercial practice or applicable laws, rules or regulations, we adhere to these higher standards.
Our Code is designed to deter wrongdoing and to promote:
•honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
•full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company;
•compliance with applicable laws, rules and regulations;
•prompt internal reporting of violations of Our Code; and
•accountability for adherence to Our Code.
Our Code applies to all directors, officers and employees of the Company, whether they work for the Company on a full-time, part-time, or temporary basis (each, an “employee” and collectively, the “employees” and sometimes referred to herein as “you”). Certain provisions of Our Code apply specifically to our chief executive officer, chief financial officer, senior financial officer, controller, senior vice presidents, vice presidents and any other persons who perform
Version Date – January 2024 | ||
OUR CODE | 5 | ||
similar functions for the Company (each, a “senior officer,” and collectively, the “senior officers”).
The Board of Directors of the Company (the “Board”) has appointed a compliance officer for the Company (the “Compliance Officer”). If you have any questions regarding Our Code or would like to report any violation of Our Code, please email the Compliance Officer at compliance@legendbiotech.com.
Our Code establishes Legend's expectations that all employees act in accordance with applicable laws, regulations and Company policies, as well as demonstrate honesty, good judgment, integrity, and the highest ethical standards of business conduct. We will be held accountable for upholding our commitments to Legend, including Our Code, and the related policies and procedures.
We do not tolerate violations of Our Code and are committed to handling non-compliance cases appropriately. Employees must be aware that violations can have severe consequences for the Company as well as for themselves.
We also expect everyone with whom we conduct business to honor the principles outlined in Our Code.
As you conduct business on behalf of Legend, you must follow the laws and regulations applicable to our activities and our policies. You need to read and comply with each policy and understand how it applies to your work and role. Your manager will be able to guide you on job-specific information that you need to know. If any doubt exists about whether a course of action is lawful or in compliance with our policies, you must seek advice immediately from the Compliance or Legal Department.
We understand that Our Code may not cover every question you have or dilemma you face, and, in those instances, we encourage you to use your judgment to do what is right. If you have any doubts about a potential course of action, ask yourself the following questions:
•Is it legal?
•Is it ethical and consistent with our values?
•Is it consistent with Our Code?
•Will it reflect positively on our Company’s reputation?
•Would I feel comfortable if it is reported in the news or to someone I respect?
If the answer to any of these questions is “no,” do not do it. If you still have questions or are unclear about laws, regulations, or policies that apply to your job, or if you are unsure about the legality or integrity of a particular course of action, seek guidance before you act. You can reach out for support and advice by contacting the Compliance or Legal Department.
Version Date – January 2024 | ||
OUR CODE | 6 | ||
Corporate Compliance Program
Legend’s Compliance Program is designed to promote a culture integrating integrity and legal and ethical conduct throughout the organization. The Compliance Program reflects the commitment we make to conducting business honestly, ethically, and in compliance with the laws and regulations where we operate.Legend’s Compliance Program has been designed to incorporate the principles described in the OIG Compliance Program for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals (PhRMA Code). The Compliance Program consists of the following fundamental elements:
•The designation of a Compliance Officer and Compliance Committee
•Written Policies and Procedures
•Effective Training and Education, which provides ongoing guidance to maintain compliance
•Effective Lines of Communication
•Internal Monitoring and Auditing, which helps identify and support areas of potential compliance vulnerability
•Disciplinary Guidelines
•Corrective Action Procedures
Reporting Concerns
Legend values responsibility and integrity in all our business dealings and strives for the highest standards of corporate conduct. We expect you to act ethically and responsibly at all times in accordance with our values and standards.
In support of these values and standards, we have established several options for reporting suspected or actual violations of laws, regulations, and Company policies in good faith without retaliation, including options for anonymous reporting. It is your responsibility to report known or suspected violations of: applicable laws or regulations; Our Code; or any other Legend policies or procedures.
Version Date – January 2024 | ||
OUR CODE | 7 | ||
All questions and reports of any such known or suspected violations will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employee’s confidentiality in line with applicable law and the Company’s need to investigate the employee’s concern.
Speaking with your manager is often a good place to start. If, for any reason, you are not comfortable speaking with or making a report to your manager, you have other options. You may report your concerns confidentially, or you may speak with other members of management, the Compliance Department, the Legal Department, or Human Resources.
Below is a list of Compliance resources:
The Compliance and Ethics Hotline
The use of the Hotline is voluntary and confidential to the greatest extent possible. You are encouraged to confidentially provide your identity, but you may choose to remain anonymous when calling the Compliance and Ethics Hotline to the extent permitted by local law. The information provided is reported to Legend’s Compliance Department, which will take appropriate action.
The Compliance and Ethics Hotline is available by phone or online 24 hours a day, 7 days a week, 365 days a year, and is operated by specially trained third-party representatives.
| Compliance and Ethics Hotline Contact Information: | ||||||||
| Phone | Belgium | 0-800-100-10 | ||||||
| China | 400-001-4391 | |||||||
| Ireland | 1-800-550-000 | |||||||
| Ireland (UFIN) | 00-800-222-55288 | |||||||
| United Kingdom | 0-800-89-0011 | |||||||
| United States | 844-205-1669 | |||||||
| Mobile | All Regions (except China) | legendbiotechmobile.ethicspoint.com | ||||||
| Website | All Regions (except China) | legendbiotech.ethicspoint.com | ||||||
| China | Contact your local representatives of the Human Resources, Compliance, or Legal Departments | |||||||
| Mailbox | All Regions (except China) | compliance@legendbiotech.com | ||||||
| China | compliance.cn@legendbiotech.cn | |||||||
No Retaliation
We strictly prohibit retaliation in all forms and are committed to encouraging a culture where employees can freely ask questions and raise concerns. You must report, in good faith, any inappropriate behavior or misconduct without the fear of retaliation.
You will not suffer any adverse consequences for:
•Refusing to do something that violates Our Code, Company policies, or the law
•Raising a concern in good faith about potential misconduct
•Cooperating with an investigation
Version Date – January 2024 | ||
OUR CODE | 8 | ||
An employee who engages in retaliatory behavior will be subject to disciplinary action, up to and including termination of employment, to the extent permitted by applicable law.
Compliance with Laws and Regulations
You have an obligation to comply with the laws of the cities, provinces, regions and countries in which the Company operates. This includes, without limitation, laws covering corruption and bribery, including kickbacks; the disclosure of transfers of value to healthcare providers; money laundering; patent, copyrights, trademarks and trade secrets; information privacy; insider trading; offering or receiving gratuities; employment harassment; environmental protection; occupational health and safety; false or misleading financial information; misuse of corporate assets; and foreign currency exchange activities. You are expected to understand and comply with all laws, rules and regulations that apply to your position at the Company. If any doubt exists about whether a course of action is lawful, you must seek advice immediately from the Compliance or Legal Department.
Corruption, Bribery and TransparencyBribes and kickbacks are criminal acts, strictly prohibited by law. You must not offer, give, solicit, or receive any form of bribe or kickback anywhere in the world. This applies to our dealings with both government officials and private parties.
Never promise or provide anything of value for the purpose of encouraging any member of the healthcare community to purchase, prescribe, or use our products. Ensure that compensation to a healthcare professional (“HCP”) for their services reflects the fair market value of the services performed. In addition, all direct or indirect transfers of value including payment to members of the healthcare community must be consistent with applicable laws and regulations and must be recorded and reported to ensure compliance with all laws and regulations on transparency reporting.
Further, the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates to obtain or retain business. In many countries, HCPs (such as physicians and hospital personnel) are frequently considered by local law to be civil servants and government employees. In addition to constituting a violation of Company policy, a violation of FCPA may be a civil or criminal
Version Date – January 2024 | ||
OUR CODE | 9 | ||
offense. You may not give or authorize directly or indirectly any illegal payments to government officials of any country. Furthermore, we do not permit the making of “facilitation payments,” and such payments are against Company policy. The Company will not tolerate attempts to improperly influence government personnel or private individuals to secure favorable governmental or regulatory treatment or improperly advance our commercial interests.
Anti-Money Laundering
Legend takes money laundering – and any other form of corruption - very seriously. We maintain a robust compliance program designed to minimize the potential for corruption and financial crimes, but we also rely on you to promptly report any concerns or suspicious activities relating to money laundering. You are prohibited from supporting or facilitating money laundering; doing so, even unintentionally, could result in civil and criminal penalties against you and Legend. Therefore, you must:
•Be aware of and follow policies,
•Be always vigilant and critically analyze customers, transactions, and payments, and
•Promptly raise concerns and report any unusual or potentially suspicious activity relating to money laundering.
Gifts and Entertainment
The giving and receiving of appropriate gifts may be considered a common business practice. Appropriate business gifts and entertainment are welcome courtesies designed to build relationships and understanding among business partners. However, gifts and entertainment should never compromise, or appear to compromise, an individual’s ability to make objective and fair business decisions. Used improperly, gifts may constitute bribes or kickbacks, which are criminal acts that are strictly prohibited by law. You must not offer, give, solicit, or receive any form of bribe or kickback. It is your responsibility to use good judgment in this area. As a general, rule, you may give or receive gifts or entertainment to or from business partners only if the gift or entertainment is in compliance with applicable law, insignificant in amount and not given in consideration or expectation of any action by the recipient. You may not provide gifts, meals or entertainment to HCPs, healthcare organizations or government officials unless expressly permitted by applicable law and approved, in advance, by the Compliance Department in accordance with our policies and procedures. All gifts, meals and entertainment expenses made on behalf of the Company must be properly accounted for on expense reports.
We encourage you to report and submit gifts received to the Company. While it is not mandatory to report small gifts under US$100, gifts of over US$100 in value must be reported immediately to the Compliance Officer.
Healthcare Community Engagement
At Legend, we comply with the rules and regulations that govern how we interact with HCPs, healthcare organizations, patients, and others in the healthcare community.
When engaging with the healthcare community, information related to Legend products must be compliant with law and must not improperly influence members of the healthcare
Version Date – January 2024 | ||
OUR CODE | 10 | ||
community when they decide to use our products, either proactively or reactively. A reactive exchange is in response to an unsolicited inquiry for information, which could include questions about off-label information, and the scientific exchange would be directed toward addressing the inquiry. Proactive scientific exchange could include publications, medical education, Company sponsored clinical study discussions, and discussions about products prior to their approval.
All information and materials used in the promotion of a Legend product must be pre-approved for such use by the Company. You may not create your own promotional materials or change, alter, or modify materials that have been approved by the Company. All information presented in the promotion of our products must be truthful, accurate, supported by scientific data, and fair-balanced.
You must not promote a product prior to its approval by relevant regulatory authorities. Once the product is approved, you must not promote the use of the product in a manner that is inconsistent with the product’s government-approved labeling and prescribing information.
Conflicts of Interest
Identifying Conflicts of Interest
You have an obligation to act in the best interests of the Company. You must avoid situations where your loyalties and best interests may appear to be in conflict with the Company’s.
A conflict of interest exists when an employee’s personal financial or other interests may have the potential to influence or appear to alter their ability to perform their job honestly, objectively, and effectively. In such cases, a reasonable person may question whether the employee was influenced by personal interests rather than the interests of the Company.
An employee should actively avoid any private interest that may impact such employee’s ability to act in the interests of the Company or that may make it difficult to perform the employee’s work objectively and effectively. In general, conflicts of interest include, but are not limited to, the following:
1)Competing Business. No employee may be employed by a business that competes with the Company or deprives or seeks to deprive it of any business.
2)Corporate Opportunity. No employee should use corporate property, information, or their position with the Company to secure a business opportunity that would otherwise be available to the Company or would otherwise not be available to the employee. If an employee discovers a business opportunity that is in the Company’s line of business or through the use of the Company’s property, information or position, the employee must first present the business opportunity to the Company before pursuing the opportunity in their individual capacity.
3)Financial Interests.
•No employee may have any substantial financial interest (ownership or otherwise), either directly or indirectly through a spouse or other family member, in any other business or entity if such interest may influence any decision that the employee might make in the performance of their Company responsibilities or requires the employee to devote time to the financial interest during the employee’s working hours for the Company.
•An employee may not own more than 5% ownership interest in any company that is in competition or does business with the Company.
•Notwithstanding the other provisions of Our Code,
Version Date – January 2024 | ||
OUR CODE | 11 | ||
oa director or any family member of such director (collectively, “Director Affiliates”) or a senior officer or any family member of such senior officer (collectively, “Officer Affiliates”) may hold or continue to hold their investment or other financial interest in a business or entity (an “Interested Business”) that:
(1)was made or obtained either (x) before the Company invested in or otherwise became interested in such business or entity; or (y) before the director or senior officer joined the Company (for the avoidance of doubt, regardless of whether the Company had or had not already invested in or otherwise become interested in such business or entity at the time the director or senior officer joined the Company); or
(2)may in the future be made or obtained by the director or senior officer, provided that at the time such investment or other financial interest is made or obtained, the Company has not yet invested in or otherwise become interested in such business or entity;
provided that such director or senior officer shall disclose such investment or other financial interest to the Board;
oan interested director or senior officer shall refrain from participating in any discussion among senior officers of the Company relating to Company decisions related to the Company’s business with an Interested Business and shall not be involved in any proposed transaction between the Company and an Interested Business; and
obefore any Director Affiliate or Officer Affiliate invests, or otherwise acquires any equity or other financial interest, in a business or entity that (i) is in competition with the Company; or (ii) enters into any transaction with the Company, the related director or senior officer shall obtain prior approval from the Audit Committee of the Board.
4)Gifts and Entertainment. No employee shall accept or offer substantial gifts or excessive entertainment or favors to or from the Company’s current or potential vendors or suppliers.
5)Loans or Other Financial Transactions. No employee may obtain loans or guarantees of personal obligations from or enter into any other personal financial transaction with the Company or any company that is a material customer, business partner or competitor of the Company. This guideline does not prohibit arms-length transactions with recognized banks or other financial institutions.
6)Service on Boards and Committees. No employee shall serve on a board of directors or trustees or on a committee of any entity (whether profit or not-for-profit) whose interests could reasonably be expected to conflict with those of the Company. Employees must obtain prior approval from the Board before accepting any such board or committee position. The Company may revisit its approval of any such position at any time to determine whether an employee’s service in such position is still appropriate.
The above is not a complete list of possible conflicts of interest. Ask yourself the following questions to help you decide if you might have a conflict of interest:
•Is the action to be taken legal?
•Is it in the best interests of the Company?
Version Date – January 2024 | ||
OUR CODE | 12 | ||
•Is it honest and fair to the Company?
Whenever you have any doubt about whether your situation is a conflict of interest, discuss it with your manager, Human Resources, the Legal Department and/or the Compliance Officer, and be sure to report it to the Compliance Officer. Taking inappropriate action based on your “best guess” is not worth the risk to you and the Company.
Disclosure of Conflicts of Interest
The Company requires that employees fully disclose any situations that give rise to a conflict of interest or could reasonably be expected to do so. If an employee suspects that they have a conflict of interest, or a situation that others could reasonably perceive as a conflict of interest, the employee must report it immediately to the Compliance Officer. Conflicts of interest affecting senior officers may only be waived by the Board or the Audit Committee of the Board and will be promptly disclosed to the public to the extent required by law and applicable rules of the applicable stock exchange. Conflicts of interest affecting employees who are not senior officers may only be waived by the Company following review by such employee’s supervisor and the Compliance Officer.
Family Members and Work
The actions of family members outside the workplace may also give rise to conflicts of interest because they may influence an employee’s objectivity in making decisions on behalf of the Company. If a member of an employee’s family or a business they are associated with is interested in doing business with the Company, the criteria as to whether to enter into or continue the business relationship and the terms and conditions of the relationship must be based solely on the best interests of the Company and, at a minimum, must be no less favorable to the Company compared with those that would apply to an unrelated party seeking to do business with the Company under similar circumstances.
Employees should report any situation involving family members that could reasonably be expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For purposes of Our Code, “family members” or “members of employee’s family” include an employee’s spouse, domestic partner, parents, children and siblings, grandparents, grandchild, in-laws, stepparent, stepchild, guardian, ward, or member of one’s household, whether by blood, marriage or adoption.
Environmental, Health, and Safety
The Company strives to provide employees with a safe and healthy work environment. We are each responsible for maintaining a safe and healthy workplace for other employees by following environmental, safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Violence or threats of violence are not permitted.
You are expected to perform your duties to the Company in a safe manner, not under the influence of alcohol, drugs, or other controlled substances. The use of alcohol, drugs or other controlled substances that interfere with the performance of your duties is prohibited.
Version Date – January 2024 | ||
OUR CODE | 13 | ||
Discrimination and Harassment
Legend is committed to fair and equal treatment of all employees and all people who seek employment at Legend. We believe in a diverse and inclusive workplace as varied backgrounds and ideas drive innovation and employee engagement.
We do not tolerate any form of discrimination or harassment in the workplace. The following behaviors are strictly prohibited:
•Discrimination, harassment, slander, or threats against employees based on race, color, gender or gender identity, age, ethnicity, religion, national origin, disability, marital status, or sexual orientation, or any other form of discrimination that is legally prohibited.
•Sexual harassment and inappropriate speech, comments, jokes, or acts.
We are all expected to:
•Never engage in any unlawful discrimination or any form of workplace harassment.
•Never take part in conduct that is hostile or threatening nor encourage such behaviors.
•Speak up if we become aware of any workplace discrimination or harassment.
•Support Legend’s efforts to promote diversity and inclusion.
•Support Legend’s efforts to combat discrimination and harassment in the workplace.
These principles apply to all employment relationships, such as hiring, assignments, promotion, compensation, discipline, and termination.
For further information, you should consult the Compliance Officer.
Adverse Event Reporting
You must promptly report adverse events of which they become aware, regardless of how, where or when you learn the information.
An adverse event is defined as any untoward medical occurrence in a patient administered a Legend product and which does not necessarily have a causal relationship with the product. An adverse event can therefore be any unfavorable and unintended sign, symptom or disease associated with the use of a medicinal product, combination product, or medical device whether or not considered related to the product.
If you are in doubt or have any questions, contact your local Legend Safety Department at the following mailbox: drugsafety@legendbiotech.com.
Confidentiality and Privacy
Intellectual Property and Confidentiality
Legend expects business partners to respect the confidentiality of Legend’s data, information and trade secrets and take appropriate measures to maintain confidentiality and to protect against improper use, disclosure and misappropriation.
You must abide by the Company’s rules and policies in protecting the Company’s intellectual property and confidential information, including the following:
Version Date – January 2024 | ||
OUR CODE | 14 | ||
•
All right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks, or trade secrets (whether or not patentable or registrable under patent, copyright, or similar laws), which are solely or jointly conceived or developed or reduced to practice by an employee while in the employ of the Company (including during off-duty hours), or with the use of Company’s equipment, supplies, facilities, resources, or confidential information, are the property of the Company.
All right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks, or trade secrets (whether or not patentable or registrable under patent, copyright, or similar laws), which are solely or jointly conceived or developed or reduced to practice by an employee while in the employ of the Company (including during off-duty hours), or with the use of Company’s equipment, supplies, facilities, resources, or confidential information, are the property of the Company.•You must maintain the confidentiality of information entrusted to you by the Company or entities with which the Company has business relations, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information of or about the Company or that you obtain in the course of working for the Company. That includes, among other things, any information that relates to: actual or anticipated business or research or development; technical data, trade secrets, or know-how; product plans or other information regarding the Company’s products or services and the markets in which the Company operates or intends to operate; actual and prospective customers and suppliers; software, developments, inventions, ideas, processes, formulas, technologies, designs, drawings, engineering, specifications, routes of synthesis, patent analyses, test results, reports, studies, analyses, and hardware configuration information; marketing, distribution and sales; finances, financial results and projections; projects, plans, strategies and opportunities; and all other information which if disclosed would adversely affect the Company or would aid or benefit its competitors.
•The Company maintains a strict confidentiality policy. During your term of employment with the Company, you are required to comply with any and all rules and policies concerning confidentiality and to fulfill your duties and responsibilities concerning confidentiality applicable to them.
•In addition to fulfilling the responsibilities associated with your position in the Company, you may not, without obtaining prior approval from the Company, disclose, announce or publish trade secrets or other confidential business information of the Company, nor shall you use such confidential information outside the course of their duties to the Company.
•Even outside the work environment, you must maintain vigilance and refrain from disclosing important information regarding the Company or its business, business associates or employees.
•Your duty of confidentiality with respect to the confidential information of the Company survives the termination of your employment by the Company for any reason until such
Version Date – January 2024 | ||
OUR CODE | 15 | ||
time as the Company discloses such information publicly or the information otherwise becomes available in the public sphere through no fault of yours.
•Upon termination of employment, or at such time as the Company requests, you must return to the Company all of its property without exception, including all forms of media containing confidential information, and you may not retain duplicate materials.
Data Privacy
We value data privacy and are committed to protecting the personal data1 that we process about our employees, patients, healthcare professionals (HCPs), and other stakeholders. We take steps to comply with applicable laws and Company policies related to data privacy. All Company personnel must follow the Company’s policies and procedures related to data privacy, including those governing the processing, access and cross-border transfers of personal data.
When you process personal data as part of your work at the Company, you must at a minimum:
•Only use the personal data in a lawful manner for a legitimate purpose and in a manner consistent with any consent received, in particular when processing any sensitive personal data;
•Ensure that the Company informs people as to how their personal data is used and receives appropriate consent to use it;
•Only collect and process the minimum amount of data necessary to achieve the intended purposes;
•Disclose or share personal data only with authorized people or entities;
•Store personal data securely and report any security incidents immediately through the appropriate internal channels; and
•Keep personal data only as long as necessary to achieve the intended purposes and delete or render it anonymous when it is no longer needed, subject to the Company’s policies and applicable laws.
Protection and Use of Company Assets
You must protect the Company’s assets and ensure their efficient use for legitimate business purposes only. Theft, carelessness and waste have a direct impact on the Company’s profitability. Any use of the funds or assets of the Company for any unlawful or improper purpose (whether or not for personal gain) is strictly prohibited.
To ensure the protection and proper use of the Company’s assets, you must:
•exercise reasonable care to prevent theft, damage or misuse of the Company’s assets;
•promptly report any actual or suspected theft, damage or misuse of the Company’s assets;
•safeguard all electronic programs, data, communications and written materials from unauthorized access; and
1 “Personal data” is defined in the Company’s applicable policies and procedures.
Version Date – January 2024 | ||
OUR CODE | 16 | ||
•use the Company’s assets only for legitimate business purposes.
Political Contributions
Except as approved in advance by the Company’s Chief Executive Officer and General Counsel, the Company prohibits political contributions (directly or through trade associations) by any employee on behalf of the Company. Prohibited political contributions include:
•any contributions of the Company’s funds or other assets for political purposes;
•encouraging individual employees to make any such contribution; and
•reimbursing an employee for any political contribution.
Insider Trading
If you have material non-public information about Legend or any other company, then do not buy or sell any shares or other securities of that company. Also do not disclose any material non-public information to anyone outside of Legend. Certain key employees will also have additional restrictions on their ability to buy and sell Legend securities.
Charitable Contribution and Grants
We are committed to making positive differences by supporting initiatives to improve the health and quality of life of people in the communities we serve. As part of Legend’s commitment to advancing healthcare and improving patient outcomes, the Company may support a variety of charitable, educational, and research activities. Legend may also provide funding to third-party entities or organization that may be in the form of specified services, entitlements, recognition, or other opportunities where such funding is for bona fide services and otherwise complies with all applicable laws and regulations and Legend’s policies.
We may also collaborate with and give contributions or financial support to organizations in support of healthcare, medical education, research, or other social impact initiatives that benefit patients, people and communities or the environment, where such contributions and support complies with all applicable laws and regulations and Legend’s policies.
We never offer or give contributions to unduly influence the recipients or to undermine their independence.
Managing Information
Social Media
If you use social media, whether for business or personal use, always use good judgement. All employees are expected to conduct themselves in a way that is in line with organizational values and Company policies, as well as with laws and regulations.
When using social media, be mindful not to disclose confidential information whether it relates to Legend or our business partners.
When using a personal social media account, you must be clear that you are not speaking on behalf of Legend.
For all business-related use of social media, an approval is required except to the extent permitted by Legend’s Social Media Policy or other policies.
Only authorized employees can speak on behalf of the Company. Make sure you know and follow Company policy on the appropriate use of social media.
Version Date – January 2024 | ||
OUR CODE | 17 | ||
Data Integrity and Record Keeping
We seek to ensure that any data, information, or records that we create, or for which we are responsible, are true and accurate. Accurate and reliable records are crucial to our business and form the basis of our earnings statements, financial reports, other disclosures to the public, and reporting to regulatory and governmental agencies. Legend must comply with applicable laws, accounting, and reporting guidelines. Legend must also ensure that the information it supplies to its investors, auditors, regulatory agencies, government bodies and other stakeholders provides an accurate and fair view of its financial situation.
You are responsible for ensuring the integrity of our business by retaining all data and records in a manner that is accurate, reliable, complete, and consistent with Company policies. This applies to financial information, including invoices, booking information, payroll, employee expenses, timecards, any transfer of value to someone outside Legend, and other accounting and financial data. It also applies to information needed to demonstrate that Legend products have been developed, manufactured, and tested under conditions that are designed to assure their reliability, integrity, quality, safety and fitness for use, and in accordance with all applicable laws, regulations and regulatory authority guidance.
All Company records must be complete, accurate and reliable in all material respects. There is never an acceptable reason to create false or misleading records, or false or misleading entries in records. Undisclosed or unrecorded funds, payments or receipts are strictly prohibited. You are responsible for understanding and complying with the Company’s recordkeeping policies. You are required to report to Company management or the Compliance Officer if you become aware of any potential issue that may affect the data integrity of any Company records, including those attributable to errors, omissions, or wrongful acts.
Accuracy of Financial Reports and Other Public Communications
Public Company Reporting
The Company is legally required to report its financial results and other material information about our business to the public and the U.S. Securities and Exchange Commission (“SEC”). Accordingly, it is the Company’s policy to timely disclose accurate and complete information regarding its business, financial condition and results of operations. You must strictly comply with all applicable standards, laws, regulations and policies for accounting and financial reporting of transactions, estimates and forecasts. Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage the Company and its shareholders, and could result in legal liability.
You should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:
•Financial results that seem inconsistent with the performance of the underlying business;
•Transactions that do not seem to have an obvious business purpose; and
•Requests to circumvent ordinary review and approval procedures.
The Company’s senior financial officers and other employees working in the finance department have a special responsibility to ensure that all of the Company’s financial disclosures are full, fair, accurate, timely and understandable. Any practice or situation that
Version Date – January 2024 | ||
OUR CODE | 18 | ||
might undermine this objective should be reported to the Chair of the Company’s Audit Committee and the Compliance Officer.
You are prohibited from directly or indirectly taking any action to coerce, manipulate, mislead or fraudulently influence the Company’s independent auditors for the purpose of rendering the financial statements of the Company materially misleading. Prohibited actions include but are not limited to:
•issuing or reissuing a report on the Company’s financial statements that is not warranted in the circumstances (including due to material violations of International Financial Reporting Standards, Generally Accepted Accounting Principles, generally accepted auditing standards or other professional or regulatory standards);
•not performing audit, review or other procedures required by generally accepted auditing standards or other professional standards;
•not withdrawing an issued report when withdrawal is warranted under the circumstances; or
•not communicating matters required to be communicated to the Company’s Disclosure Committee or Audit Committee.
Corporate Communications
Legend is committed to providing a reliable, transparent, and orderly flow of information to stakeholders. All of Legend’s communications with the media and the investment community are intended to ensure that investors and the public have accurate and timely information in compliance with the applicable laws and regulations that govern our disclosures.
Reporters, media representatives, investors, or members of the financial community may try to solicit information directly from you. Only authorized Legend representatives may speak on behalf of the Company in response to inquiries from the media, investors, or other outside sources. If you receive an inquiry about Legend from the media, an investor, or any other outside party, direct requests for information to:
•Corporate Communications: corporatecommunications@legendbiotech.com
•Investor Relations at investor@legendbiotech.com.
Fair Dealing
You should endeavor to deal fairly with the Company’s customers, business partners, competitors and employees. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice.
Disciplinary Action
Legend takes seriously all potential violations of Our Code, other Company policies, and applicable laws and regulations, and will investigate to determine if any have been violated. Employees who are found to have engaged or encouraged others in such misconduct may be subject to disciplinary action, up to and including termination of employment, to the extent permitted by applicable law.
Version Date – January 2024 | ||
OUR CODE | 19 | ||
Disciplinary measures may also be taken against an employee for failing to report material information concerning a known compliance matter.
Reporting Violations
You have a duty to report any known or suspected violation of Our Code to the Compliance Officer, including any violation of laws, rules, regulations, or policies that apply to the Company. Reporting a known or suspected violation of Our Code by others will not be considered an act of disloyalty, but an action to safeguard the reputation and integrity of the Company and its employees.
If you know of or suspect a violation of Our Code, it is your responsibility to immediately report the violation to the Compliance Officer, who will work with the employee to investigate their concern. All questions and reports of known or suspected violations of Our Code will be treated with sensitivity and discretion. The Compliance Officer and the Company will protect the employee’s confidentiality to the extent possible, consistent with the law and the Company’s need to investigate a reported matter.
The Company strictly prohibits retaliation against an employee who, in good faith, seeks help or reports known or suspected violations of Our Code or the law. An employee inflicting reprisal or retaliation against another employee for reporting a known or suspected violation will be subject to disciplinary action, up to and including termination of employment, to the extent permitted by applicable law.
Waivers of Our Code
Waivers of Our Code may only be granted on a case-by-case basis and only in extraordinary circumstances. Waivers of Our Code may be made only by the Board, or the appropriate committee of the Board, and may be promptly disclosed to the public if so, required by applicable law or the rules of the applicable stock exchange.
Conclusion
Our Code contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics. If you have any questions about these guidelines, you should contact the Compliance Officer. We expect all employees to adhere to these standards. Each employee is separately responsible for their actions. Conduct that violates the law or Our Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher management positions. If you engage in conduct prohibited by the law or Our Code, such employee will be deemed to have acted outside the scope of their employment. Such conduct will subject the employee to disciplinary action, up to including termination of employment, to the extent permitted by applicable law.
* * * * * * * * * * * * *
Version Date – January 2024 | ||
OUR CODE | 20 | ||
Version Date – January 2024 | ||
Exhibit 12.1
Certification by the Principal Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ying Huang, certify that:
1.I have reviewed this annual report on Form 20-F (this “report”) of Legend Biotech Corp.(the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: March 19, 2024 | |||||
| /s/ Ying Huang | |||||
| Name: | Ying Huang | ||||
| Title: | Chief Executive Officer (Principal Executive Officer) | ||||
Exhibit 12.2
Certification by the Principal Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a)
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Lori Macomber, certify that:
1.I have reviewed this annual report on Form 20-F (this “report”) of Legend Biotech Corp.(the “Company”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5.The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: March 19, 2024 | |||||
| /s/ Lori Macomber | |||||
| Name: | Lori Macomber | ||||
| Title: | Chief Executive Officer | ||||
| (Principal Financial Officer) | |||||
EXHIBIT 13.1
Certification by the Principal Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Legend Biotech Corp. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ying Huang, Chief Executive Officer of the Company of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 19, 2024 | |||||
| /s/Ying Huang | |||||
| Name: Ying Huang | |||||
| Title: Chief Executive Officer (Principal Executive Officer) | |||||
EXHIBIT 13.2
Certification by the Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Legend Biotech Corp. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lori Macomber, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 19, 2024 | ||||||||
| /s/ Lori Macomber | ||||||||
| Name: Lori Macomber | ||||||||
Title: Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
EXHIBIT 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Post-Effective Amendment No. 1 to the Registration Statement (Form S-8 No. 333-239478) pertaining to the Share Option Scheme and the 2020 Restricted Shares Plan of Legend Biotech Corporation,
(2) Registration Statement (Form F-3 No.333-257609) of Legend Biotech Corporation, and
(3) Registration Statement (Form F-3 No.333-257625) of Legend Biotech Corporation;
(4) Registration Statement (Form F-3 No.333-272222) of Legend Biotech Corporation;
of our reports dated March 19, 2024, with respect to the consolidated financial statements of Legend Biotech Corporation and the effectiveness of internal control over financial reporting of Legend Biotech Corporation included in this Annual Report (Form 20-F) of Legend Biotech Corporation for the year ended December 31, 2023.
/s/Ernst & Young LLP
Iselin, New Jersey
March 19, 2024
Exhibit 15.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Post-Effective Amendment No. 1 to the Registration Statement (Form S-8 No. 333-239478) pertaining to the Share Option Scheme and the 2020 Restricted Shares Plan of Legend Biotech Corporation,
(2) Registration Statement (Form F-3 No.333-257609) of Legend Biotech Corporation,
(3) Registration Statement (Form F-3 No.333-257625) of Legend Biotech Corporation, and
(4) Registration Statement (Form F-3 No.333-272222) of Legend Biotech Corporation;
of our report dated March 31, 2022 (except for the effects on the consolidated financial statements of the correction of an error, as to which the date is February 17, 2023) with respect to the consolidated financial statements of Legend Biotech Corporation included in this Annual Report on Form 20-F for the year ended December 31, 2023.
/s/ Ernst & Young Hua Ming LLP | ||
| Shanghai, the People’s Republic of China | ||
| March 19, 2024 | ||