Cancer Startup's Bold IPO Target Carries 'Management Premium'

(Bloomberg) -- Arie Belldegrun and David Chang are back on Wall Street.

The two biotech veterans, who last year sold Kite Pharma Inc. to Gilead Sciences Inc. for almost $12 billion, are seeking to take their new project on next-generation cellular cancer therapies public. The company, Allogene Therapeutics Inc., plans to raise as much as $288 million in the IPO, according to a filing on Tuesday.

At the midpoint of the targeted share-price range, the biotech would command a fully-diluted market value of $2.1 billion and an enterprise value of $1.4 billion, according to IPO investment manager Renaissance Capital. Analysts surveyed by Bloomberg had seen the company amassing at least a $1 billion valuation after having raised more than $400 million to advance so-called off-the-shelf CAR-T therapies that use cells from healthy donors and don’t need to be personalized for each cancer patient.

“Management will get a premium here,” said David Nierengarten of Wedbush Securities, which is not involved in Allogene’s IPO. “It’s on the high, if not the highest end of raises for the year.”

Cellectis SA, which initially owned Allogene’s assets and whose ADRs have a market capitalization of $1.2 billion, is looked at as a proxy for what Allogene is worth, analysts say. Allogene assumed the drugs’ rights from Pfizer Inc., which shared an immunotherapy partnership with Cellectis and Servier.

Drugmaker IPOs

Its IPO would add to the 41 new U.S. stock listings by biotech companies this year that have raised almost $4.3 billion, the highest dollar amount since a wave of market debuts by upstart drugmakers in 2000 was stirred by excitement over gene therapies, according to data compiled by Bloomberg.

The South San Francisco, California-based biotech’s lead drug candidate, UCART19, is being tested in an early-stage study in leukemia, and management sees initiating more advanced trials as soon as next year. The rest of its pipeline consists of 16 other compounds that have yet to be tested in humans.

Belldegrun and Chang at Kite “were successful both on an internal management of a product development cycle, and externally, selling the company,” warranting the premium, Nierengarten said. “That’s a rare quality in management teams in biotech.”

Allogene is starting with blood cancers, but it will also go after solid tumors and other targets that may show promising results in CAR-T trials, CEO David Chang told Bloomberg in an interview in June.

Reducing Costs

By using cells from healthy donors, rather than the patient’s own, off-the-shelf therapies could be made in large batches and be readily available for treatment. The promise is these treatments will reduce the costs, and therefore, treat more patients. Gilead’s Yescarta and Novartis’ Kymriah, so far the only two CAR-T therapies approved in the U.S, are priced at $373,000 and $475,000, respectively.

The cost of goods “is going to go down significantly,” CEO Chang said in June. That “will help the therapy to be made available to a much larger patient population both from reimbursement perspective as well as having the drug ready.”

While some investors may hope to make money on Allogene’s clinical progress, others are bracing for volatility. The company has already spooked investors in Gilead or Celgene Corp, which is expecting an approval for its own CAR-T in 2019. Both stocks have trailed their biotech peers this year.

“The field is divided as to how people think allo versus auto will play out,” said Bloomberg Intelligence biotech analyst Asthika Goonewardene, referring to allogeneic, or off-the-shelf approaches, and autologous, with use patients’ own cells. “There seems to be a bit of consensus” that the market will be shared.

--With assistance from Drew Singer.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Brad Olesen

©2018 Bloomberg L.P.