IPO Preview: Legend Biotech Seeks U.S. IPO

IPOStreet

Legend Biotech Corp. (LEGN) has filed to raise $100 million in an IPO of its ADSs representing ordinary shares, according to an F-1 registration statement.

Legend Biotech is spinning out from parent firm GenScript Biotech to pursue treatments in CAR T cell therapies for multiple myeloma.

LEGN has produced promising Phase 2 trial results for its lead candidate.

Somerset, New Jersey-based Legend was founded within GenScript Biotech to advance a pipeline of drug treatment candidates for hematologic malignancies and solid tumor conditions.

Management is headed by Chief Executive Officer Ms. Yuan Xu, Ph.D., who has been with the firm since March 2018 and was previously Senior Vice President at Merck (MRK) and Vice President of Biologics at Gilead.

Below is a brief overview video of CAR T-cell therapies in multiple myeloma:

Source: VJHemOnc

The firm's lead candidate, LCAR-B38M/JNJ-4528, is being developed in conjunction with Janssen Biotech (JNJ) and has produced promising responses in Phase 1 and Phase 1b/2 trials in the treatment of both multiple myeloma and relapsed and refractory multiple myeloma.

Below is the current status of the company’s drug development pipeline:

legendpipe
Source: Company F-1 Filing

Investors in the firm have invested at least $123 million and include GenScript Biotech and AquaPoint.

According to a 2016 market research report by Grand View Research, the market for multiple myeloma reached $7.5 billion in 2015 and is expected to reach $37.5 billion by 2024.

This represents a forecast quintupling of the number of cases during the nine year period.

Key elements driving this expected growth are a growing elderly population worldwide with reduced immune system capacities as well as a higher incidence of MM in developed economies providing strong demand for new and more effective treatments.

Major competitive vendors that provide or are developing treatments include:

  • Celgene (CELG)
  • Janssen Biotech (JNJ)
  • Bristol-Myers Squibb (BMY)
  • Novartis (NVS)
  • Kite Pharma (KITE)
  • Carsgen
  • Innovent
  • Poseida Therapeutics
  • Precision Biosciences
  • Amgen
  • Regeneron
  • GSK
  • Pfizer (PFE)

Legend’s recent financial results are atypical in that they feature significant collaboration revenue which helps to defray the costs of its pipeline program development.

Below are the company’s financial results for the past two calendar years (Audited IFRS):

legendpl
Source: Company registration statement

As of December 31, 2019, the company had $83.4 million in cash and $410.6 million in total liabilities. (Unaudited, interim)

The level of liabilities is quite high for a biopharma firm at IPO.

Legend intends to raise $100 million in gross proceeds from an IPO of its ADSs representing ordinary shares, although the final amount may be different.

Management says it will use the net proceeds from the IPO as follows:

to fund the clinical development of LCAR-B38M/JNJ-4528;

to fund the construction of our manufacturing facilities;

to fund the commercial launch, if approved, of LCAR-B38M/JNJ-4528; and

the remaining amounts to fund the development of our pipeline programs, as well as for working capital and other general corporate purposes.

Management’s presentation of the company roadshow is not yet available.

Listed bookrunners of the IPO are Morgan Stanley, J.P. Morgan, and Jefferies.

Commentary

Legend is seeking U.S. public capital market funding to continue advancing its ambitious development pipeline.

The firm’s lead candidate, which is being developed in conjunction with Janssen Biotech as collaboration partner, has produced promising efficacy results in early Phase 2 trials for various arms.

The market opportunity for treatments for multiple myeloma is expected to explode in the coming years, drawing widespread development activity, so Legend has no shortage of competition within the larger space.

On the legal side, as a subsidiary of a Chinese firm, LEGN operates within a VIE structure or Variable Interest Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm’s operational results but would not own the underlying assets.

This is a legal gray area that brings the risk of management changing the terms of the contractual agreement or the Chinese government altering the legality of such arrangements. Prospective investors in the IPO would need to factor in this important structural uncertainty.

Chinese companies seeking to go public on U.S. markets will be under increased regulatory scrutiny.

Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 30.4% since their IPO. This is a top-tier performance for all major underwriters during the period.

I’ll provide a final opinion when we learn more about management’s assumptions on IPO pricing and valuation.

Expected IPO Pricing Date: To be announced.

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