Legend joins the billion-dollar club

Genscript certainly timed the flotation of its cell therapy business Legend Biotech to perfection. Shares were listed on Nasdaq a week after impressive data on its lead Car-T project, the J&J-partnered JNJ-4528, were unveiled at Asco, and the presentation surely fanned investor interest in the IPO.

Deliberately timed or not, Legend raised substantially more than initially intended and hit the market with a huge $3.2bn market cap. By Evaluate Vantage’s calculations, this makes it the third-biggest Nasdaq flotation, by this measure, of a research-stage drug developer. That the market for new issues is booming will also have helped, of course.

Legend’s success is also surprising given that new investors only hold around a third of the company, which is based in China and the US. Genscript Biotech, a Hong Kong-listed supplier of biotech products and services, retains a 66% stake in Legend and, presumably, a big say in the spin-off’s future.

This acted as little deterrent to the Legend IPO. After first setting out to raise up to $100m, this was soon hiked to $350m; huge demand then pushed the final offer price to $23, way above the $18-20 indicative range and bringing in a $424m haul. In the two days since floating, the stock has surged another 50%.

Perhaps the most remarkable aspect of the float is that Hong Kong-listed Genscript is capitalised at around $4.3bn, meaning that around two thirds of its valuation is now accounted for by the 66% stake it holds in Legend.

Vantage has identified just eight clinical-stage companies that have floated with valuations above $2bn; a look at where they stand now makes for encouraging reading for Legend’s new investors: all but one are now trading higher.

Still, a similar Vantage analysis last October, done before the Covid-19 opportunity lifted several of these names, tells a different story. At that stage Moderna and Vir were both also trading below their IPO price, with Bridgebio just about staying flat. Whether the pandemic promise is ever realised is far from certain, while the wider stock market revival over the past month has provided most stocks with a boost.

Legend, meanwhile, is highly reliant on JNJ-4528 confirming its promise in phase III. A pivotal trial called Cartitude-2 has been started, but is unlikely to read out before 2022. The Car-T therapy is one of many projects duelling in the highly competitive BCMA-targeting space; early signs of efficacy are at least encouraging (Asco 2020 – J&J sees multiple myeloma responses deepen, May 29, 2020).

Legend is far from a silent partner on this project: a 2017 global development deal saw the two groups agreeing to share costs and profits equally, except in China. The transaction cost J&J a huge $350m up front – Legend's LCAR-B38M had already generated promising clinical data but JNJ-4528, J&J's incarnation, had yet to enter the clinic – and the US pharma giant has paid out $110m in milestones since.

Legend has said it will use the IPO proceeds to fund the clinical development and launch of JNJ-4528, build manufacturing facilities and push forward other pipeline projects. But with many of these still very early it is fair to assume that the company’s valuation is largely based on the promise of its lead asset.

Notably, equity analysts covering J&J have yet to append sales forecasts to JNJ-4528, according to EvaluatePharma. Legend will soon boast its own sellside following, of course, and with a market cap now approaching $5bn it seems inevitable that some pretty large numbers will soon emerge.