We recently compiled a list of the 10 Most Promising Biotech Stocks According to Hedge Funds. In this article, we are going to take a look at where Legend Biotech Corporation (NASDAQ:LEGN) stands against the other promising biotech stocks.
Biotechnology stocks are known for their high risk, making them some of the most volatile in the market. Their prices can swing dramatically, driven by the results of FDA clinical trials and the real-world performance of their treatments. In 2020, the biotech sector surged to prominence with the rollout of COVID-19 vaccines. By late 2023 and early 2024, investor interest revived as Big Pharma began spending on acquisitions. However, the momentum slowed, and biotech stocks remained stagnant for months. In the second quarter, biopharma deal activity sharply declined, with only a few M&A deals and IPOs breaking the otherwise quiet period. This slowdown came after a lively first quarter, where pharma finally started deploying its massive cash reserves for acquisitions.
On the other hand, despite industry anticipation for a federal interest rate cut, the response has been surprisingly muted. Earlier this September, the Federal Reserve reduced rates by half a percentage point, a larger cut than expected. While a positive move, Jared Holz, an analyst at Mizuho Securities, says a surge in fundraising, M&A deals, or IPOs isn’t likely. Many biotech companies have taken drastic measures to survive in turbulent markets, cutting programs and implementing significant layoffs to conserve cash. While the rate cut might encourage a revival of some scientific projects, Holz believes it’s difficult to measure the impact. Still, the analyst pointed out that there’s been “a bit more momentum” for small-cap equities since the rate cut, which is a positive sign for the biotech sector:
“When I look at biotech, I just view it as a nichey, highly academic kind of component of small-cap equities. If small-cap stocks continue to trade well, biotech will probably do fine. And if not, then maybe there’s a point in which there’s a little bit of stagnation in terms of the index.”
Holz also noted the heightened focus on the recent rate drop, explaining that the idea of interest rates being a predictor of biotech success is a relatively new concept. Before 2020, interest rates had little influence on biotech stocks. However, the pandemic shifted the landscape, with investors flocking to the industry and substantial funding pouring into therapeutics-focused companies.
According to Precedence Research, the global biotech market will grow at a compound annual growth rate of 11.5% through 2034, reaching a value of $4.61 trillion. This growth is expected to be fueled by favorable government policies, rising investment, demand for synthetic biology, and an increase in chronic disorders like cancer, heart disease, and hypertension. Government initiatives to modernize regulations and enhance reimbursement policies are also fueling market expansion. According to IQVIA, global medication spending is projected to reach $2.30 trillion by 2028, growing at a compound annual growth rate (CAGR) of 5% to 8%. Oncology and obesity treatments are expected to be key drivers of this growth, while immunology spending may slow as biosimilars enter the market. Biotech is predicted to account for 39% of total spending, surpassing $892 billion by 2028, with rapid growth seen in cell and gene therapies.
Our Methodology
For our list of the 10 most promising biotech stocks, we scoured through stocks that are involved in the biotechnology sector by sifting through ETFs’ holdings and media reports. We narrowed down notable names that have an average analyst upside of more than 30%. From that list, we selected the top companies with the highest number of hedge fund investors, according to Insider Monkey’s database of 912 hedge funds as of the end of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A laboratory with workers in masks and lab coats focused on analyzing cell therapies.
Legend Biotech Corporation (NASDAQ:LEGN)
Average Upside: 72.54%
Number of Hedge Fund Holders: 24
Legend Biotech Corporation (NASDAQ:LEGN) is a mid-sized biotechnology company focused on developing treatments for cancers such as lung and pancreatic cancers. Its key product, Carvykti, targets multiple myeloma and is central to the company’s growth strategy.
BMO Capital remains optimistic about Legend Biotech’s prospects, reiterating an Outperform rating with a $90 price target. BMO forecasts strong quarter-over-quarter growth for Carvykti, estimating a 50-60% increase, reflecting its strong market potential. These projections assume an 11% net-to-gross discount and that 85-90% of total sales will come from the U.S., consistent with past trends.
Legend Biotech Corporation (NASDAQ:LEGN) recently announced plans to build a new 31,000-square-foot research and development (R&D) facility in Philadelphia, PA. This center, part of the company’s global expansion strategy, will enhance its cell therapy portfolio and support its growing R&D team, which already includes over 350 employees worldwide. The facility is expected to be operational by Q3 2025.
According to Insider Monkey, 24 of the 912 hedge funds surveyed in Q2 2024 held stakes in Legend Biotech Corporation (NASDAQ:LEGN). The largest stake, valued at $332.4 million, was owned by Peter Kolchinsky’s RA Capital Management.
TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding Legend Biotech Corporation (NASDAQ:LEGN) in its first quarter 2024 investor letter:
“We began buying shares in Legend Biotech Corporation (NASDAQ:LEGN), a biotechnology developer of cell therapies to treat blood cancers such as multiple myeloma and leukemia. The European Union approved the use of Legend’s Carvykti treatment of multiple myeloma and later the FDA followed suit. Some investors may have been concerned about possible delays as Legend ramps up production, and its price declined. Though with a long-standing agreement with Johnson & Johnson and a new partnership with Novartis, we see a long runway of growth ahead, so we initiated a position.”
Overall LEGN ranks 9th on our list of the most promising biotech stocks according to analysts. While we acknowledge the potential of LEGN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you’re seeking an AI stock with even more promise than LEGN and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.