Legend Biotech: Solid Traction With Carvykti Rollout (NASDAQ:LEGN)

Legends are best left as legends and attempts to make them real are rarely successful“― Michael Moorcock.

Today, we put Legend Biotech Corporation (NASDAQ:LEGN) in the spotlight for the first time. The company launched its primary product in 2022 and it has already gained considerable sales traction. Legend also recently entered into a new licensing deal with another drug giant. Despite this, the stock has fallen in recent months. What’s ahead for Legend in 2024? An analysis follows below.

Company Overview:

This now commercial-stage biopharmaceutical company is headquartered just outside of New York City in Somerset, NJ. Legend Biotech is focused on the development and commercialization of novel cell therapies for oncology and other indications.

The company has one product on the market, LCAR- B38M, which is also known by its brand name Carvykti. This is a chimeric antigen receptor that has been approved for the treatment of multiple myeloma or MM. This CAR-T therapy was developed with partner Johnson & Johnson (JNJ). The product was approved in the first quarter of 2022 and the companies have a 50/50 cost-sharing and profit-split arrangement around this BCMA-targeted, genetically modified autologous T-cell immunotherapy.

Legend Biotech also has many earlier staged candidates in development. The stock currently trades just over $56.00 a share and sports an approximate market capitalization of $10.3 billion.

Third Quarter Results:

Legend Biotech posted its Q3 numbers on November 20th. The company delivered a GAAP loss of 17 cents a share, fourteen cents a share above expectations. Revenues rose 251% on a year-over-year basis to $96 million, which was just over $3 million below the consensus. Revenues consisted of $75.9 million in collaboration revenue from the sale of CARVYKTI in arrangement with the JNJ deal. $20.1 million came from license revenue.

CARVYKTI generated approximately $152 million in net trade sales during the quarter, a 30% sequential improvement from the second quarter of this year. CARVYKTI’s recent rollout in Germany helped international sales grow faster than the 23% Q/Q revenue growth in the United States from the same period a year ago.

Recent Developments:

On November 13th, Legend Biotech inked a new license deal with drug giant Novartis (NVS). This will give the latter the global rights to develop Legend’s pipeline candidate LB2102. Legend will conduct a Phase 1 study evaluating LB2102 for the treatment of extensive stage small cell lung cancer and large cell neuroendocrine carcinoma. Legend will be reimbursed for the cost of this trial.

Novartis will conduct all other development for the candidates within the agreement. Novartis provided Legend with $100 million as an upfront payment for this licensing deal. Legend is also eligible for just over $1 billion in potential milestone payments. Legend can also earn tiered royalties on net sales of any commercialized products.

In late November, the FDA announced it was starting to look into reports of T-cell malignancies in patients who have been treated with CAR-T cell immunotherapies including Carvykti. The government agency also noted:

“Although the overall benefits of these products continue to outweigh their potential risks for their approved uses, the FDA is investigating the identified risk of T-cell malignancy with serious outcomes, including hospitalization and death, and is evaluating the need for regulatory action.”

Last week, the FDA followed up on that effort by announcing a box warning for a half dozen CAR-T therapies including Carvykti to note the risk of T-cell malignancies. As can be seen below, the company has numerous development efforts ongoing.

Analyst Commentary & Balance Sheet:

The analyst community is largely positive around Legend Biotech’s prospects. Since third quarter results posted, nine analyst firms including RBC Capital, Barclays and Morgan Stanley have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered range from $85 to $100 a share. Both Scotiabank ($65 price target) and William Blair maintained their Hold ratings on the stock.

Just over 12% of the outstanding float of the shares is currently held short. The company ended the third quarter with approximately $1.4 billion worth of cash and marketable securities on its balance sheet. Add to that the recent $100 million upfront payment from Novartis as part of their recent license deal with Legend. Management guided cash on hand is sufficient to fund all planned operations through 2025.

The company had a net loss of $62.2 million in the third quarter. Legend racked up $373.4 in net losses in the first nine months of 2023, compared to just over $310 million over the same nine months in 2022.

Verdict:

The company lost $2.80 a share on $117 million of revenue in FY2022. The current analyst firm consensus has Legend Biotech posting losses of $2.54 a share in FY2023 on $313 million. They project losses will fall to $1.70 a share in FY2024 on just over 80% sales growth.

The recent black box warning should be viewed as a minor negative. The launch of Carvykti has been executed well and the company’s balance sheet is well-fortified. However, the stock is selling at over 20 times FY2024E revenues and will not be profitable until FY2026 at the earliest. In addition, co-ownership of Carvykti with JNJ most likely takes any potential buyout offer out of the equation.

Legend Biotech is a solid company and Carvykti looks to be a blockbuster in the making. The drug is also likely to be approved for another indication in early April. However, I would like Legend to be closer to profitability before I took a stake in the stock.

There are poisons that blind you, and poisons that open your eyes.”― August Strindberg.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.