The stock price fell nearly 30% in 3 months, and what is left of Legendary Creatures (LEGN.US) that “sold to death”?

On October 15, EST, the stock price of LEGN.US (LEGN.US) fell rapidly after rising 2 points in early trading, falling close to 7% within 20 minutes. Since then, the company's stock price has been falling all the way down, and finally closed down 9.6%. The next day, Legendary Biotech's stock price continued to fall, closing down 1.98%.

This round of decline came as a surprise to many investors, because on October 15, Johnson & Johnson released its Q3 quarterly earnings report. Although the current revenue of Johnson & Johnson only increased 5.2% year over year to US$22.471 billion, the sales volume of Carvykti (Sidaki Orense), which was commercialized in partnership with Legend Biotech, reached 286 million US dollars in the Q3 quarter, up 87.7% year on year. Sales for the first three quarters were US$629 million, up 84.3% year over year.

However, strong performance clearly failed to push Legendary Biotech's stock price higher; instead, the company's stock price continued to fall. The reason may be related to the acquisition case previously reported by Legendary Biotech. At the Johnson & Johnson Q3 earnings conference on the same day, its executives stated that “the company will not force itself too hard for major acquisitions.”

Combined with previous rumors that buyers and sellers may have differences in the purchase price expectations, many market opinions believe that “Johnson & Johnson may abandon the acquisition of Legendary Biotech,” which triggered the withdrawal of short-term capital betting on the acquisition. This explains why Legendary Biotech's stock price declined despite a sharp increase in Q3 performance.

The Zhitong Finance App observed that due to the “takeover crisis,” Legend Biotech's stock price fluctuated and declined after reaching a high point in the 60.87 US dollar range on July 26. The closing price fell to 44.02 US dollars on October 16, down 27.68% from a high point.

Has the “takeover crisis” stopped?

On July 12 of this year, an article from SeekingAlpha quoted StreetInsider as saying that legendary biotech, a well-known CAR-T cell therapy company, received a takeover offer and hired investment bank Centerview Partner to help the board of directors review the takeover offer and other options. The identity of the bidder is still unclear.

It is worth mentioning that Centerview Partners has extensive experience in mergers and acquisitions in the biopharmaceutical sector. One of its success stories is that at the end of 2023, AstraZeneca completed the acquisition of Genxi Biotech, an innovative Chinese pharmaceutical company, at a premium of 86% above the target company's market value. The transaction amount reached 1.2 billion US dollars.

So on the day the news of the merger and acquisition came out, Legendary Biotech surged more than 12%. According to industry speculation, the purchase price of this transaction will reach 10 billion US dollars, and it may be the largest biotech merger and acquisition in China at present. This is also one of the main reasons why legendary creatures emerged from a wave of rising prices in July.

Regarding this merger and acquisition, it is widely believed in the industry that Legend Biotech suddenly accepted a takeover offer at a time when its core product Carvykti was on the rise. The direct reason may be that the company and its parent company Kingsley got involved in a series of vortex in the US Biosafety Law this spring.

As for the so-called “unknown buyer,” the market speculated at the time that 90% possibility was Johnson & Johnson. Also, an industry analyst said, “Because the legendary main product Sidakiolens is deeply tied to Johnson & Johnson, this product has great potential in the future, and the estimated annual revenue is 5 billion US dollars. How could Johnson & Johnson agree to share the pie with other big pharmaceutical companies?”

Regarding the rumor of the acquisition, Legend Biotech CEO Huang Ying said at the earnings conference, “Legendary Biotech and Johnson & Johnson are trying to think outside the box about future supply, including internal nodes, new or expanded factories, and other alternative routes. It can be guaranteed that this is one of the top priorities for cooperation between the two parties. Currently, the board of directors of Legendary Biotech is maintaining communication with investors and various stakeholders to maximize shareholder value, which is not limited to a single path.” This response was also interpreted by the market as the merger and acquisition parties were Johnson & Johnson and Legendary Creatures.

However, just as the market began to lay out Johnson & Johnson and worried about the subsequent valuation of the legendary parent company Kingsley, the situation took another turn.

In late September, another market rumor spread in the domestic industry: Legendary Biotech's acquisition negotiations were at an impasse due to price issues. According to our understanding, the main reason for the anxiety of the negotiations is also the lack of agreement among the shareholders of Legendary Biotech. A source revealed, “The minority shareholders are generally satisfied, but the majority shareholders are not satisfied with the transaction price and feel that the buyer is suspicious of price pressure.” Meanwhile, the stock prices of Johnson & Johnson and Legend Biotech both experienced a wave of decline in mid-late September, which also confirmed from the side that short-term capital betting on mergers and acquisitions had wavered at the time.

On October 15, Legend Biotech's stock price plummeted just after news broke in the market that Johnson & Johnson “won't force itself too much for major acquisitions.” On the financial side, Legendary Biotech's short-selling transaction ratio reached 15.53% on the same day, up 8.22 percentage points from the previous trading day. There was a net outflow of 147.324 million US dollars on the same day, and signs of short-term escape were obvious.

Since the main trigger for the takeover was the US “Biosafety Act”, in the current situation where the influence of the black swan has subsided and the buyer parties are unwilling, the takeover crisis will stop temporarily in the future. And for legendary creatures that are thriving, it's also a complete loophole.

Relying on Carvykti to “pull up stock prices” has once again become the focus

Although considering the geopolitical impact, the acquisition between Johnson & Johnson and Legend will not be completely terminated, but at this stage, it is more important for the two companies to take advantage of Carvykti's strong performance and the important time window for listing in China and the US.

According to the Zhitong Finance App, when Carvykti was only approved by the FDA in April, sales in the Q3 quarter increased sharply by 87.7% to 286 million US dollars, making it Johnson & Johnson's most rapidly growing product; at the same time, in August of this year, the marketing application for Sidakiolensis injection submitted by Legendary Biotech was also approved by NMPA to treat recurrent or refractory multiple myeloma after treatment with a protease inhibitor and an immunomodulator. It is the 6th CAR-T approved domestically, and the first and only one approved in the world For multiple bone marrow B-cell maturation antigen (BCMA) targeted therapy for second-line treatment of cancer patients.

It is worth mentioning that Carvykti's sales last year were US$134 million, and in the first half of this year, sales of this product surpassed that of the whole of last year, and with the rapid growth of quarterly sales, this year's sales will exceed US$500 million. Now, according to quarterly report data released by Johnson & Johnson, the market believes that the probability that Carvykti's sales hit the $1 billion mark this year is increasing.

Therefore, after the “takeover storm”, it is certainly very important for Legendary Creature to quickly improve market confidence. As a result, after Johnson & Johnson disclosed the financial report, Legendary Biotech also released the latest three-year follow-up data for the Phase III study, CARTITUDE-4.

The findings suggest that in patients with recurrent or lenalidomide resistant multiple myeloma who have received at least one previous frontline treatment (including a proteasome inhibitor (PI) and an immunomodulator (iMid)), a single infusion of CARVYKTI® (sidachiolenxol, cilta-cel) can significantly prolong overall survival (OS). Compared with standard treatments such as pomalomide, bortezomib, and dexamethasone (PVD) or daretuumab, pomadomide, and dexamethasone (DpD), the risk of death was reduced by 45%, proving that patients can obtain clinically significant curative effects after the first relapse; at the same time, the safety performance of this drug and standard treatments is consistent with previous results.

According to the Zhitong Finance App, the CARTUDE-4 clinical study targeted more advanced 2-4 line treatment (after 1-3 line treatment), and the positive results obtained in clinical trials. In addition to the fact that BCMA CAR-T therapy currently has great potential in treating multiple myeloma and has been recognized and approved in many countries, this provides a broad market space for the promotion of legendary BCMA CAR-T products on a global scale, or will directly stir up the competitive landscape of segmented racetracks, and will also provide key clinical data support for market research to determine the subsequent market growth of CARVYKTI®.

Looking back at the two rounds of Legendary Biotech's market in the first half of 2022 and the first half of 2023, the key to driving up its stock price was mainly the disclosure of R&D results and commercialization results. Combined with the July market this year, Legendary Biotech's upward logic did not fundamentally change. The takeover crisis came to an end, and Legendary Biotech may once again return to the path of rising stock prices driven by R&D/commercialization milestones.