Legend Biotech (LEGN) has filed to raise $350 million in an IPO of its ADSs representing ordinary shares, per an amended registration statement.

The company is advancing a pipeline of treatments for diseases of the blood and for solid tumors.

LEGN has produced impressive results with its lead candidate in development with Janssen and has the potential for extremely large (above $1 billion) milestone payouts.

While there is some possibility for uncertainty with respect to its China-based operations, for life science investors with a patient hold time frame, my opinion on the IPO is a BUY at up to $19.00 per share.

BUY

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 led 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

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 parent firm 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, which is quite a strong growth estimate.

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
  • Janssen Biotech
  • Bristol-Myers Squibb
  • Novartis
  • Kite Pharma
  • Carsgen
  • Innovent
  • Poseida Therapeutics
  • Precision Biosciences
  • Amgen
  • Regeneron
  • GSK
  • Pfizer

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 and 1/4 calendar years (Audited IFRS):

legnpl

Source: Company registration statement

As of March 31, 2020, the company had $168.8 million in cash and $380.8 million in total liabilities. (Unaudited, interim, pro forma)

This level of liabilities - $380.8 million - is quite high for a typical biopharma firm at IPO.

LEGN intends to sell 18.4 million ADSs representing common stock at a midpoint price of $19.00 per share for gross proceeds of approximately $350 million, not including the sale of customary underwriter options.

Existing shareholder and parent Genscript Biotech has indicated an interest to purchase shares of up to $12.0 million in a concurrent private placement at the IPO price. This is a positive signal as to the proposed valuation at IPO.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $2.3 billion.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 14.24%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds to fund the clinical development of LCAR-B38M/JNJ-4528, fund the construction of related manufacturing facilities, and to fund the commercial launch, if approved, of LCAR-B38M/JNJ-4528 as well as for working capital and other general corporate purposes.

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

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

Commentary

LEGN is seeking a large IPO by typical biopharma standards to fund its ambitious pipeline of programs and plans for manufacturing ramp up.

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.

LEGN is due significant milestone payments via its development agreement with Janssen - up to $1.2 billion for reaching various manufacturing and development milestones in the future, so there is significant upside in case of program success.

The market opportunities for the firm’s programs are large and expected to grow substantially in the years ahead, so LEGN’s programs are focused on large market areas.

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 35.8% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, at a $2.3 billion enterprise value, the IPO is far outside a typical valuation for biopharma IPOs, which has ranged from $250 million to $500 million.

Notably, the firm is exposed to the ‘negative list’ in China, a way for the Chinese government to deny foreign investment in certain areas of genetic and therapeutic treatment.

Since LEGN is considered to be a foreign invested entity (Cayman registered) with operations in China, the firm has some exposure to this uncertainty as to its Chinese operations.

For life science investors who are comfortable with LEGN's China operations ambiguity and who have a 18 to 24-month hold time frame, my opinion on the IPO is a BUY at up to $19.00 per share.

BUY

Expected IPO Pricing Date: June 4, 2020.

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)