GenScript Biotech Corp.’s stock tumbled nearly 27% on Thursday following a research report alleging safety violations by the Chinese company’s subsidiary that has partnered with Johnson & Johnson.
The report alleged that Nanjing Legend Biotechnology Co. bypassed standard safety procedures while testing an experimental gene therapy on Chinese patients. It accused the parent company, GenScript, of cherry picking results disclosed to investors. GenScript, which suspended trading in Hong Kong after its shares slipped to 11.86 Hong Kong dollars, and Legend deny any wrongdoing.
Little is known about Flaming Research, the compilers of the report. The group’s website describes it as a “a team of seasoned equity investors who are sickened by the inability of Hong Kong regulators” to crack down on corporate fraud and who “will be exposing fraudulent companies to protect the interest of minority shareholders.”
The website doesn’t list a corporate address or a telephone number. Flaming couldn’t be reached for comment.
Still, the accusations made in its 14-page report spooked investors.
In December, impressed with early results from patient tests in China, J&J’s drug unit paid $350 million for the global rights to co-develop and market Legend’s experimental therapy. The companies are testing it on patients in the U.S. A J&J spokesman said the company is looking into the report.
Legend’s progress is closely watched because it is the first Chinese company to get approval to test a gene therapy in the U.S. It is also one of the few companies testing a CAR-T candidate.
CAR-T therapy involves extracting patients’ disease-fighting white blood cells, genetically modifying them to more vigorously attack cancer, then re-injecting them into their bodies.
The first CAR-T therapy, Novartis AG’s Kymriah to treat aggressive forms of leukemia, was approved last year. The treatment costs hundreds of thousands of dollars for its potential to cure patients. Legend’s targets multiple myeloma.
Among the safety issues that Flaming alleges is an instance where a patient’s relative transported cells hundreds of miles from Xi’an, where they were collected at a hospital participating in Legend’s research, to Nanjing, where the company is based and conducts the cell modifications.
Legend Chief Executive Frank Fan said doctors extracted and sealed the sample, suggesting there was no risk of contamination, and that the relative volunteered to take it because at the time Legend lacked a reliable way to transport samples. Samples are tested for quality before being modified, he said.
China didn’t have rules for gene-therapy experiments until a few months ago.
Flaming also slammed the company for administering its therapy through regular syringes instead of the intravenous infusions Novartis uses. Dr. Fan said the doses were small enough to be administered through regular syringes and that doing so is safe.
Flaming further said that Legend’s early results may be fraudulent because, on follow-up visits, patients were evaluated with blood tests instead of a more accurate bone-marrow biopsy. Dr. Fan said biopsies were done, but not on every visit. The procedure, he said, “is painful and stressful and cannot, and does not, need to be done each time.”
Flaming accused GenScript of cherry picking what it disclosed to investors, and when, in an attempt to keep its stock price high. In one instance, it said the company delayed publicly announcing a trial death until after posting promising early results. GenScript said it would respond with a statement later Thursday.
Even after Thursday’s drop, its stock was three times what it was in June last year, when Legend unveiled its experimental therapy at a cancer conference in the U.S.
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