The central theses:
- Laekna has two main products, including one that is expected to file for approval in China and the US later this year
- The company has filed its second IPO application in Hong Kong, although investor demand for such biopharmaceutical stocks remains mixed
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By Ellie Si
Innovative manufacturer of cancer drugs Laekna Inc. was hoping to ride a wave of strong investor sentiment towards innovative drugmakers when it filed its first IPO application in Hong Kong last June. However, this application did not receive a final green light, rendering it obsolete.
Now the company has filed a new prospectus with updated financial data. The only problem is that the tide of investor enthusiasm that one had hoped to ride to success has faded, although the tide could turn positive again.
Still, the current choppy market could make Laekna a difficult sell as the latest in a growing roster of underperforming biotechs seeking a Hong Kong listing. Each of them tries to explain to investors why they are special and Laekna is no exception. In addition to its two most advanced drugs, the company tells a unique story in its strong association with the Swiss drugmaker Novartis (NOVN.SWX).
The company’s latest prospectus shows that it was founded in 2016 as a developer of therapies for cancer and liver fibrosis. The current pipeline is led by two key products licensed from Novartis, whose ties to Laekna we will return to shortly. One of these drugs is expected to be submitted for New Drug Application (NDA) approval in both China and the United States in the fourth quarter of this year and could be used in conjunction with chemotherapy to treat cancer.
The company hasn’t improved much financially since the original filing. In the past two fiscal years, the company lost a total of 1.53 billion yuan ($222 million). And even after excluding the fair value changes of financial instruments, non-GAAP adjusted losses still amounted to 620 million yuan, mainly due to rising administrative and R&D expenses. Those costs keep piling up as the first products near the finish line, up 81% to 310 million yuan over the past year.
The company had about 320 million yuan in cash and cash equivalents at the end of last year, which roughly corresponds to its annual R&D expenses. That means its failure to cross the IPO finish line this time could seriously jeopardize its future — a topic potential investors will surely address as it makes its new listing attempt.
The good news for Lakena is that Hong Kong biopharma stocks have rebounded significantly since hitting a bottom late last year. That could be to Laekna’s advantage if it can catch the rising tide at the right time.
Novartis Connections
In addition to its two key products, Laekna has 13 other candidates in its pipeline. The most advanced of its two lead products is LAE002, an adenosine triphosphate (ATP) competitive AKT inhibitor for the treatment of ovarian, prostate and breast cancer. According to third-party vendors in the prospectus, the drug is among only two AKT inhibitors worldwide entering registered clinical trials, which is Laekna’s best hope of generating revenue soon.
The other key product is LAE001, an androgen synthesis inhibitor with potential applications in the treatment of prostate cancer. Third-party data in the prospectus states that LAE001 is the only dual inhibitor of CYP17A1/CYP11B2 used in prostate cancer clinical trials worldwide.
It is noteworthy that both products, as well as two other cancer treatments, LAE005 and LAE003, are all licensed to Laekna from Novartis. Such a flow is the opposite of more typical collaborations, where pharmaceutical giants license overseas drugs developed by small, dynamic Chinese companies without the resources to commercialize their products worldwide.
But Laekna reversed the script in his collaboration with Novartis, taking products that were already in the late stages of development and investing heavily in R&D to bring them to market.
LAE002 is a good example. Laekna acquired the drug from Novartis in 2018 after already completing 11 clinical trials with a multinational drug giant GlaxoSmithKline (GSK.L) to demonstrate its safety and effectiveness. The drug demonstrated anticancer potential in stages 1 and 2 of Novartis’ clinical trials targeting platinum-resistant ovarian cancer (PROC).
Taking on the development of a promising drug at such a late stage increases the success rate and can help a company like Laekna get a product to market faster. A downside is the lack of an opportunity to prove one’s own R&D capacity, especially for drugs in the early development phase.
While it’s clear that Laekna can benefit from this type of relationship, Novartis’ motivations are less obvious. A closer look at the prospectus reveals that many people at Laekna have ties to the Swiss giant. Chairman of the Board Chris Lu worked at Novartis for more than 10 years and rose to the position of Administrative Director with responsibility for drug research until his retirement. Xie Ling, the company’s executive director and senior vice president, and Justin Gu, executive director and chief science officer, also served at Novatis.
Pharmaceutical stocks are recovering
New drugmakers — particularly those with no revenue left — still face a steep climb in the current climate to get on investors’ radar screens. After Hong Kong made an exception to its existing rules to allow such companies to list in 2018, many of these drugmakers assumed they could easily raise money from investors drooling over China’s growth story.
But many of them have seen their stocks fall below IPO prices over the past two years due to a lack of investor confidence, and also due to too many companies with similar stories to tell. Things started to improve earlier in the year, with some Hong Kong pharma exchange-traded funds (ETFs) gaining almost 60% between October and January.
Other drugmakers that flocked to Hong Kong in search of funds during this period are names like Luzhu Biotech, Visen Pharmaceuticals And Kelun Biotech. Listed companies such as Jacobio Pharma (1167.HK), New horizon health (6606.HK) and Ascentage Pharma (6855.HK) have also taken advantage of this window, raising large new funds via share placements to replenish their coffers.
Laekna last raised $61 million in its D-series fundraiser last April, increasing its valuation to around 3.7 billion yuan. his peer Lebu Biopharma (2157.HK) is now valued almost double at HK$8.6 billion after it received approval for its first product and 15.6 million yuan in revenue in the third quarter of last year. Laekna may be hoping it can reach that level if it gets fast approval for LAE002 and can start earning its own revenue later in 2024.
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