Is Legend Biotech Stock a Solid Investment?

By Duncan Ferris

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With major backing and a promising lead product candidate, Legend Biotech stock looks like an exciting investment opportunity. But is this life sciences company right for you?

Legend Biotech (NASDAQ: LEGN) is a life sciences business with a focus on combatting multiple myeloma, a deadly blood cancer, with its cilta-cel treatment.

A lot of biotech companies and clinical stage opportunities are penny stocks, with a share price of below $10 or even below $1. Legend Biotech stock offers something a bit different, with a share price of nearly $50 at the time of writing and backing from a pharmaceutical big hitter. It also appears to be closing in on commercialization of its first product candidate.

But is Legend Biotech stock the right life sciences option for you?

What is Legend Biotech?

New Jersey-based Legend Biotech Corporation is a clinical-stage biopharmaceutical company. Through its subsidiaries, the business engages in the discovery and development of novel cell therapies for oncology and other indications in the United States, China and internationally.

Its lead product candidate and primary treatment technology is CAR-T Cells, which are genetically engineered T cells. 

These include its ciltacabtagene autoleucel (cilta-cel) treatment, branded as Carvykti, which in February won US Food and Drug Administration (FDA) approval for the treatment of adults with relapsed or refractory multiple myeloma (RRMM) who have received four or more prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 monoclonal antibody.

Similar approval was received from the European Commission (EC) in April.

The company also has a wide-ranging portfolio of earlier-stage product candidates, which include treatments for non-Hodgkin’s lymphoma, diffuse large B-cell lymphoma, acute lymphoblastic leukemia, solid tumors and infectious diseases.

Legend Biotech Corporation is a subsidiary of Genscript Biotech Corporation.

How Does Legend Biotech Make Money?

Legend Biotech’s revenue for the three months ended 31 March 2022 was $40.8m compared to $13.7m for the same period 12 months prior. The company said this increase was primarily due to revenue recognition from additional milestones achieved.

That’s because Legend Biotech has not generated any revenue from product sales to date. Instead, the business earns revenue from deals like its collaboration agreement with Janssen Biotech.

Janssen Biotech

Essentially, Legend has collaboration and license agreement with Janssen Biotech, Inc. for the development and commercialization of cilta-cel. The company’s collaboration agreement with Janssen was signed in December 2017 and initially saw it receive an upfront payment of $350m. Additionally, Legend has so far achieved $250m in milestone payments during the collaboration.

The collaboration agreement concerns efforts to co-develop and co-promote CAR-T cell therapy for multiple myeloma. This covers cilta-cel, which is now marketed in the United States under the brand name Carvykti and, as already mentioned, has recently garnered approvals from the FDA and EC.

When it comes to commercialization, the global agreement specifies even cost and profit-sharing agreement in all markets, excluding Greater China, where the split is 70 percent for Legend and 30 percent for Janssen.

LEGN Stock Financials

Legend Biotech has a price to book ratio of 18.80, compared to an average of 5.56 across the biotechnology and pharmaceuticals industry. Meanwhile, the company has a price to sales ratio of 66.80, well above the industry average of 5.29.

Legend Biotech's stock price has also performed well compared to much of the market since its IPO in 2020, where the company raised $487m. Legend Biotech stock has climbed by more than 30% from its initial price of $37 over this roughly two-year period. 

The year to date has seen the share price decline by just 0.15% at the time of writing, very little compared to some clinical and preclinical stage stocks which have tanked during the same period.

LEGN’s Q1 2022 Earnings

The company’s most recent earnings update, which covered the three months ended 31 March 2022, showed that revenue came in at $40.8m, up from $13.7m in the same period 12 months prior. As previously mentioned, this revenue is from milestones achieved as the company has not yet registered any product sales.  

Additionally, the company reported:

  • Combined R&D, administrative and selling expenses of $116.8m, up from $95.3m in the same period last year.

  • Net loss of $41.1m, or $0.13 per share, compared to a net loss of $80.9m, or $0.30 per share, for the three months ended March 31, 2021.

  • Approximately $796.0m of cash and cash equivalents, deposits and short-term investments. This is down from $887.1m at the end of the previous quarter.

  • Total liabilities of $602.0m, down from $647.2m at the end of 2021.

LEGN Investment Risks

With any company healthcare company that has yet to bring its products to market there are two major risks for prospective investors to consider. These include:

  • Regulatory risk – Legend’s key product candidates might meet unexpected delays or impasses in their route through clinical trials if they are not deemed to be effective or safe enough. These issues could prevent promising products from ever reaching commercialization.

  • Financial risk – Because of the long process of development and trials before its products can be sold, a company like Legend might run out of money or have to seek sources of funding which dilute the value of shares. Legend does have money coming in through its collaboration with Janssen, but remains a long way from profitability.

Additionally, there are risks which are more unique to Legend. Alarmingly, these appear to include the risk of law enforcement issues in China. November 2020 saw Chinese authorities arrest Fangliang “Frank” Zhang, the former CEO of Legend Biotech and the founder of its parent company Genscript, on suspicion of smuggling.

Zhang was placed under house arrest, but a lengthy investigation eventually ended without charges being brought against him. Further issues with law enforcement could be damaging to Genscript and Legend Biotech.

LEGN Growth Potential

Multiple myeloma is the third most common blood cancer on the planet, with 176,000 new cases being diagnosed in 2020. While treatments do exist, many patients end up relapsing with the illness.

Legend is well-prepped to address this issue, with two manufacturing sites already opened in New Jersey, a third in Nanjing, China and a further facility in Belgium expected to be operational in 2023. Additionally, the company has offices in the US, China, Belgium and Ireland.

This strong existing presences in the North American, European and Chinese markets indicate that the business is well-prepared for commercialization and growth across multiple different geographies.

It’s also worth noting that, while the company’s treatment for multiple myeloma is the most advanced, its pipeline of more than 10 other programs includes possible treatments for solid tumors and infectious diseases. These could provide further scope for growth.

Is LEGN Stock a Good Investment?

The company has strong backing in the form of Janssen, which is itself wholly-owned by healthcare and consumer goods giant Johnson & Johnson. The deal with Janssen is a particularly key positive for Legend, as it milestone related rewards offer the company more financial breathing room than other clinical stage businesses.

Having gained approvals from the FDA and EC, Legend’s Carvykti product is on the brink of commercialization. This means the months and earnings updates ahead are exciting for the company, as it is likely to see its first product sales.

Its agreement with Janssen and recent FDA and EC breakthroughs appear to limit the potential impact of the regulatory and financial risks faced by the business.

Additionally, according to MarketBeat the stock has an analyst consensus ‘Buy’ rating and a price target of $66.80, based on an amalgamation of five different analyst reports.

However, the investment still carries a certain degree of jeopardy, and you should consider your own risk appetite before deciding to put your money behind a company like Legend Biotech.

Want to learn more about Life Sciences investment opportunities? Read our analysis of Aurora Cannabis!

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Biotechnology
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Legend Biotech

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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