Despite a successful approval and launch, I had several concerns about China-based emerging behemoth Legend Biotech (NASDAQ:LEGN). There are mainly three in number, and I will quickly peg them here as risks to investing in LEGN.
Risks
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5th line approval of Carvykti – Carvykti is an autologous CAR-T therapy approved for the treatment of adult patients with relapsed or refractory multiple myeloma after four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody. That’s a mouthful, and that’s also a big hurdle for the molecule to achieve the multi-billion dollars in sales analysts are predicting it could potentially achieve. Like I noted before, Carvykti needs approval in earlier lines of therapy to get to such numbers.
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Auditing issues – Legend is basically a Chinese company so its reporting standards are different from US companies. Its previous auditor was the Chinese arm of Ernst & Young, which apparently was restricted from Public Company Accounting Oversight Board (PCAOB) inspection in the US. The PCAOB is the US government oversight committee set up after the Sarbanes-Oxley reforms to regulate the auditing practices of US companies.
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Supply chain issues – Legend’s first quarter after approval sales were good, but could have been better if not for the inadequate supply of lentiviral vectors from its partner Janssen. Legend plans to do its own manufacturing in China, however, it’s interesting to note that Legend’s founder Fangliang “Frank” Zhang was arrested by the Chinese government in 2020 for alleged concerns with the “handling of human genetic sources such as blood and cells…” This may or may not have much impact today if Legend were to shift its entire manufacturing to its Nanjing, China, facility, or even to a facility of its parent company Genscript.
Risk mitigation
Carvykti was approved in 5th line MM on the basis of the CARTITUDE-1 trial. The company has been running the Cartitude-4 trial for 1-3 lines of therapy in RRMM, and Cartitude–5 for frontline disease. In January, the company announced that Cartitude-4 met its PFS primary endpoint in the phase 3 trial, where it was compared with standard MM treatment regimens like PVd and DPd. The company said they would provide further details of primary and key secondary endpoints in a “future conference.”
In April, “leaked” data showed that carvykti was able to reduce the risk of relapse by 74% in multiple myeloma patients, compared to BMS’ CAR-T drug Abecma’s 51% figure. These results were from abstracts that were accidentally leaked by the European Hematology Association. Data showed that “patients who received cilta-cel had significantly improved overall response rate, rate of complete response and overall minimal residual disease negativity rate compared to those receiving standard of care.”
Here’s more data from the abstract:
Efficacy
Primary endpoint met: cilta-cel reduced risk of progression/death by 74% (Hazard ratio [HR]=0.26; P-value [P] <0.0001)
– Cilta-cel group showed significant improvement in overall response rate, complete response (CR’) or better rate, and overall minimal residual disease (MRD’) negativity rate compared to SOC group (Table)
– Positive trend in overall survival (HR, 0.78; 95% CI, 0.5–1.2)
Safety – Adverse events:
– Cilta-cel group: 97% had grade 3/4 adverse events, including infections (27%) and cytopenias (94%)
– SOC group: 94% had grade 3/4 adverse events, including infections (25%) and cytopenias (86%)
– Deaths: 39 patients in cilta-cel group, 46 patients in SOC group (14 and 30 due to PD, respectively)
– Cytokine release syndrome (CRS) in patients receiving cilta-cel: 76% (1% grade 3; no grade 4/5)
– Immune effector cell associated neurotoxicity syndrome (ICANS) in patients receiving cilta-cel: 5% (all grade 1/2)
– One case of movement and neurocognitive treatment-emergent adverse event reported (grade 1)
Thus the AE profile was not much different from placebo, and the efficacy data was excellent.
The second risk I mentioned was auditing, and Legend quickly moved over to the US arm of Ernst & Young to regain compliance. However, 2 months after my October article, the SEC served it a notice of non-compliance due to a delay in filing financial statements through a form 6-K. The company stated:
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Legend added that it has not yet filed the Form 6-K. This delay has resulted from the company’s planned restatement of its financial statements as of and for the years ended Dec. 31, 2021, Dec. 31, 2020 and Dec. 31, 2019 and interim financial information for the three months ended March 31, 2022, as previously reported by the company on Oct. 20, 2022.
A month later, however, the company regained compliance after filing the appropriate 6-K. It is this sort of restatement of old financial statements that the PCOAB is designed to regulate.
I have no proper information about the third issue – supply of lentiviral vectors. Manufacturing these is a difficult operation, where you have to deal with unsafe/biohazardous viral particles. It is also complex and time-sensitive, because the neutered vectors have to be custom-designed to carry specific genetic material. If Janssen cannot supply enough of it, Janssen, I am guessing, will manage it like Novartis does for Kymriah.
Financials
LEGN has a market cap of $12.3bn and a cash balance of $854mn. Recently, the company raised $350 million in gross proceeds from a registered direct offering, $212 million in gross proceeds from private placements, and another $200 million from the exercise of warrants issued in May 2021. These amounts are not included in the $854mn. In the previous quarter, the company had revenues of $36.3 million compared to $50.0 million for the three months ended March 31, 2022, however the latter figure includes milestone payments upon approval.
Collaboration cost of revenue for the three months ended March 31, 2023, was $35.6 million. Research and development expenses were $84.9 million, G&A expenses were $22.2 million, and selling and distribution expenses were $18mn. Other expenses, including unrealized foreign currency losses, were $10.7mn. Adding everything together and accounting for the additional funds, we see that they have a cash runway of over 10 quarters.
Bottom line
To my mind, the primary risk was data, and LEGN has addressed it well, with superb data. The stock is trading a bit on the higher side, given their current revenue. Per William Blair analyst Sami Corwin, LEGN is trading at fair value now. However, I am impressed by their ability to raise cash, and that they are positioning themselves to become the leader in the CAR-T space for MM. They have already filed for label expansion in the EU based on Cartitude-4. I am considering buying a small pilot position, then waiting for price drops to accumulate.
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