Over $10 Billion! China's Largest Biotech Merger May Be in the Making as Legend Biotech Receives Acquisition Offer

On July 13, according to Street Insider, Legend Biotech recently received a buyout offer and hired the investment bank Centerview Partners to assist its board in reviewing the acquisition proposal and other options. In the transaction where AstraZeneca acquired Gracell for $1.2 billion at the end of last year, Centerview Partners served as Gracell's exclusive financial advisor, facilitating a final deal premium of 62%.

Affected by this news, as of the U.S. stock market close on the same day, Legend Biotech's share price surged over 12%, with a market value reaching $9.911 billion. According to industry speculation, with a premium of 30%-50%, the acquisition price of this deal is expected to be between $13 billion and $15 billion.This may lead to the birth of the largest biotech M&A case in China so far.

Legend Biotech went public on NASDAQ in 2020, raising $424 million, and became the first CAR-T cell therapy company in China to enter the capital market.

Since its establishment in 2014, Legend Biotech has embarked on a "legendary" journey. According to a previous interview by Fortune with Dr. Ying Huang, CEO of Legend Biotech, this journey is closely tied to several key decisions.

First is the differentiated product development strategy. From the current layout of CAR-T cell therapy, the main targets are concentrated on CD19 and BCMA, with a high degree of homogeneity. According to VCBeat data, the number of clinical trials for CAR-T cell therapy conducted in China in 2020 reached 335, of which more than 40% were CAR-T clinical trials targeting CD19. Among the already marketed CAR-T products, only Cilta-cel (西达基奥仑赛) and Abecma target BCMA, while the remaining CAR-T products all target CD19.

However, compared with other CAR-T companies, Legend Biotech's pipeline layout is highly distinctive and diverse, not overly concentrated on a single target, nor limited to CAR-T therapy alone, but also covering different types of disease areas.

According to the official website of Legend Biotech, the company is actively developing treatments for solid tumors (gastric cancer, pancreatic cancer, liver cancer, small cell lung cancer, ovarian cancer), infectious diseases, allogeneic CAR-T, and CAR-NK products. Additionally, the company possesses a nanobody (VHH) technology platform, with applications in both hematological malignancies and solid tumors. Besides allogeneic CAR-T, Legend Biotech also has unique non-gene-edited LUCAR technology and an LGkine-modified CAR-NK technology platform within the field of allogeneic cell therapy.

 Legend Biotech Pipeline Source: Legend Biotech Official Website

Legend Biotech's star pipeline, Cilta-cel, was born under such a layout. Currently, Cilta-cel has registered multiple clinical trials globally, including three Phase III clinical trials, among which CARTITUDE-5 (NCT04923893) is a first-line therapy.

According to the phase II CARTITUDE-2 trial cohort A and cohort B data released by Legend Biotech at the 2024 Transplantation and Cellular Therapy Meetings, ciltacabtagene autoleucel (cilta-cel) demonstrated deep and durable responses in treating multiple myeloma (MM) patients, including those who were refractory to lenalidomide after receiving 1 to 3 prior lines of therapy and those with disease progression within 12 months after first-line treatment.

In 2017, Legend Biotech's debut at ASCO with the early clinical data of Cilta-cel opened new doors for the company. By the end of that year, Janssen paid GenScript $350 million as an upfront payment, along with subsequent milestone payments, to collaborate with Legend Biotech on the global development, clinical trials, manufacturing, and commercialization of cilta-cel. They agreed to share costs and profits at a 50:50 ratio in markets outside Greater China. The $350 million upfront payment from this collaboration set a record for the highest upfront payment in a licensing deal by a Chinese pharmaceutical company at the time.

Since its debut at the American Society of Clinical Oncology (ASCO) in 2017, where it released early clinical data, Legend Biotech has continuously announced the latest data on Cilta-cel at international academic conferences such as ASCO, ASH, and EHA for eight years. To date, its key indicators in treating multiple myeloma—such as the objective response rate (ORR), complete response rate (CR), minimal residual disease (MRD), and progression-free survival (PFS)—remain globally leading.

Impressive clinical data and outstanding overseas performance have further driven Legend Biotech to gain more favor from investment institutions. In the four years since its IPO in 2020, the market value of Legend Biotech has soared from 4.8 billion US dollars to nearly 10 billion.

Following the announcement of the acquisition, market speculation about the identity of the buyer has largely pointed towards Johnson & Johnson.

Since partnering with Johnson & Johnson in 2017, Legend Biotech and Johnson & Johnson have successfully driven the approval and market launch of Cilta-cel in the U.S. within less than four years. According to Johnson & Johnson's previous financial reports disclosing Cilta-cel's performance, the product’s sales for the four quarters of 2023 were $72 million, $117 million, $152 million, and $79 million respectively, with a total annual revenue of approximately $500 million in 2023, representing a year-on-year increase of about 273% compared to $134 million in 2022. In Q1 of 2024, Cilta-cel generated $156 million in revenue, marking an 118% increase from the same period last year. Based on BMO's projections, Cilta-cel is expected to achieve $5 billion in annual sales.

Following Johnson & Johnson, Legend Biotech has reached its second overseas project through a collaboration with Novartis. At the end of last year, Legend Biotech licensed its DLL3 CAR-T (including the autologous CAR-T cell therapy candidate LB2102) to Novartis for an upfront payment of $100 million and total milestones of $1 billion. In April this year, Legend Biotech also signed a major production and supply service agreement with Novartis for the BCMA CAR-T product Cilta-cel. To date, Cilta-cel has a total of six manufacturing facilities globally, including one contract manufacturing site operated by Novartis.

According to a report released by Morgan Stanley this week, financial data compiled by Visible Alpha and FactSet shows that leading pharmaceutical giants such as Johnson & Johnson, Merck, and Novo Nordisk have a total transaction capacity of approximately $383.1 billion, providing strong financial support for mergers and acquisitions within the biopharmaceutical industry. Additionally, due to the impact of key drugs from major multinational corporations (MNCs) facing patent cliffs, MNCs are exposed to revenue risks totaling $180 billion. Among them, Johnson & Johnson's revenue risk level stands at 33%.

MNC Revenue Risk Source: Morgan Stanley

Centerview Partners, the financial advisor for this transaction, is one of the "most active dealmakers" in the biopharmaceutical field. Its co-president, Eric Tokat, has handled nearly a hundred mergers and acquisitions and restructuring deals involving pharmaceutical companies, including Pfizer's $11.6 billion acquisition of Biohaven, Gilead’s $12 billion acquisition of Kite Pharma, and Gracell’s acquisition case. At this year's J.P. Morgan Healthcare Conference, Eric Tokat predicted that 2024 would be a strong year for mergers and acquisitions, stating that “the biotechnology industry is undergoing a shift towards strategic partnerships and M&A, with key areas of focus being ADCs, AI applications in pharmaceuticals, as well as cell and gene therapies (CGT).”

Currently, the buyer of this transaction remains unclear. However, at the end of May, in a letter to the FBI, John Moolenaar, Chairman of the U.S. House China Committee, and senior committee member Raja Krishnamoorthi expressed concerns that the collaboration between Genscript Biotech and American companies and the government could raise issues regarding intellectual property rights of U.S. firms and might contribute to enhancing China’s biotechnology capabilities. The letter also mentioned three subsidiaries of Genscript Biotech—Bestzyme, Legend Biotech, and Genscript Probio. Currently, Genscript Biotech (01548.HK) holds a 47.96% stake in Legend Biotech as its largest shareholder.

Reference Article:

1. Legend Biotech: A Global Leader in Cell Therapy. VCBeat

2. China's Overseas Expansion Main Force Series: Exclusive Interview with Legend Biotech - Market Value Ranks Among the Top 50 Global Pharmaceutical Companies, What Exactly Makes Legend Biotech Stand Out?. FORTUNE

3. "Top-Flow" M&A Investment Bank President Predicts: 2024 Is a Big Year for Pharmaceutical M&A. PharmaCube