Cutting-edge pharma Legend Biotech (LEGN -1.66%) burst onto the scene at the 2017 American Society of Clinical Oncology (ASCO) meeting with fantastic early clinical trial results for its multiple myeloma treatment. Now, with even better data in hand after ASCO 2021, the company and its mega-cap partner, Johnson & Johnson (JNJ -1.15%), are headed straight to the FDA. With a best-in-class treatment with multibillion-dollar potential on its hands, why is Legend so cheap?
Promising data
The clinical-stage biotech is working on chimeric antigen receptor T-cell (CAR-T) therapies, in which the patient's own immune cells are extracted and tweaked to recognize certain cancer signatures. Those modified cells are then grown in large quantities and reinfused into the patient. If this sounds familiar to you, that might be because there are already a few approved CAR-T treatments out there for other blood cancers, such as Gilead Sciences' (GILD -2.70%) Yescarta, as well as bluebird bio (BLUE -1.13%) and Bristol Myers Squibb's (BMY -8.51%) Abecma.
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At ASCO21, Legend Biotech's one-time treatment for multiple myeloma, ciltacabtagene autoleucel, otherwise known as cilta-cel, produced an 80% stringent complete response (the clearance of detectable cancer as defined by the absence of two key markers for myeloma in the blood and bone marrow) at 18 months post-treatment. That was even better than the 67% response reported in December 2020 among patients one year after treatment. The 18-month progression-free survival rate was 66% with overall survival at 18 months at 81%. These results were in a difficult-to-treat population of patients who had already received a median of six prior lines of therapy.
Legend Biotech's data compares quite favorably to the trial data of recently approved CAR-T Abecma, which uses a similar mechanism of action and is also approved for multiple myeloma. When Abecma was studied in a heavily pre-treated population, it showed an overall response rate of 72% and a stringent complete response rate of just 28% at 12 months.
Better side effect profile
Cytokine release syndrome (CRS) is an extreme activation of the immune system, often triggered by CAR-T or monoclonal antibodies, and can cause symptoms from nausea and fevers to profound confusion. These can be life-threatening in rare cases. Approximately 10% of both Abecma and cilta-cel patients experienced cases of CRS that were severe enough to require medical intervention or hospitalization.
However, there was a difference between them in the types of responses. While patients treated with Abecma had a median time to CRS onset of one day, cilta-cel patients who experienced this side effect did so about a week after treatment. This means that cilta-cel patients may potentially be able to go home after treatment and return only if they experience symptoms, rather than staying in the hospital immediately after CAR-T treatment. Not only that, but the median duration of CRS was longer for Abecma recipients too -- about a week versus only four days with cilta-cel.
So what's the market?
Approximately 32,000 people receive new diagnoses of multiple myeloma annually in the U.S., and the disease causes around 13,000 deaths in this country each year. Management believes these 13,000 patients are the minimal addressable market in the U.S. pending the FDA approval. Using Abecma's $419,500 price tag as a baseline and assuming a similar list price for cilta-cel, the potential addressable market for cilta-cel in the U.S. alone could be over $5 billion. In Europe, just under 51,000 people are diagnosed with multiple myeloma annually, and over 32,000 die from the disease.
Based on the companies' regulatory submission schedule, Legend Biotech and Johnson & Johnson are hoping for the FDA to approve cilta-cel in November, and for the European Medicines Agency to do so some time in 2022. The companies also have additional trials under way that could lead to cilta-cel winning approval as an earlier line therapy. In sum, cilta-cel could become the clear market leader among multiple myeloma treatments with an addressable market of well over $10 billion within a few years.
Legend Biotech's market cap of $5.5 billion is more than twice that of its competitor, bluebird bio, which is valued at $2.2 billion. However, to better measure how investors ought to value a company with a best-in-class cancer drug, one might look to Gilead's 2017 purchase of Kite Pharma.
Gilead bought Kite for $11.9 billion, and at the time, peak annual sales estimates for Yescarta, Kite's lead treatment, were pegged at $2.5 billion. Even with its 50-50 cilta-cel partnership with Johnson & Johnson in the U.S. and Europe, Legend has a head start and a much larger addressable market than Kite Pharma did when it was acquired.
Multi-billion upside
Given that the company is on the brink of FDA approval, with a $5 billion addressable market in the U.S. alone, I am not sure why Wall Street is valuing Legend at less than half that of Kite's buyout price. The medical community has had a few years to validate CAR-T, so I suspect sales of cilta-cel will ramp quickly once it's approved (assuming that happens). In fact, Legend's treatment may be favored by both oncologists and insurance companies because of its superior efficacy and favorable side effect profile in a difficult-to-treat patient population.
I think the market is significantly underestimating Legend's results, especially when it has the world's largest pharmaceutical company as a partner. Cilta-cel has the potential to become a best-in-class treatment with a sizable addressable market -- yet this does not seem to be factored into the stock price. This makes Legend seem like a bargain to me. Investors looking for healthcare stocks with high growth potential may want to add Legend Biotech to their watch lists.
