Recently, some media quoted foreign pharmaceutical industry media Endpoints reported that the Biosecurity Act may be extended to more Chinese companies, including Beijing-based Pharmaron and Nanjing-based GenScript Biotech ("GenScript"). After the news was issued, GenScript Biotech's stock price fell sharply. To this end, the reporter consulted GenScript as an investor. The other party said that GenScript is not currently mentioned in the official version of the "Biosecurity Act" in the Senate and House of Representatives, and there is no official source in the original foreign media report.
The reporter then conducted a detailed analysis of the original text of the article and found that the article was full of suspicions, and the two companies mentioned in the article were suspected of wrongful killing.
First of all, the article does not cite any official documents or sources. The official version of the Biosecurity Act in the Senate and House of Representatives is still being debated and may never become law. Even if enacted, it is uncertain whether the impact of the bill will extend to more companies.
Second, the author's original article only illustrates that the company discloses some possible risks from the perspective of corporate disclosure in the recent U.S. earnings season, which is similar to the risk warning of A-shares. However, the author searched for the vast majority of U.S. listed companies, and only Calidi in the article provided a risk warning in the financial disclosure, and the vast majority of companies did not make similar disclosures. Finally, the article also repeatedly emphasized that most U.S. pharmaceutical companies, after the disorderly expansion of sanctions, will lead to long-term difficulties and delays in their projects.
In an interview with 21st Century Business Herald, GenScript Chief Financial Officer Wei Shiniu clarified that although there are currently multiple bills proposed in the United States, "none of the bills directly involve us", and said that the company will continue to pay close attention to relevant developments. Wei Shiniu also stressed that the relevant reports are only personal speculation.
Therefore, the author has reason to believe that the market has misread the report on Endpoints, which induced instability in market sentiment and caused a round of wrongful killing of GenScript's stock price. With the approval of GenScript's subsidiary, Legend Biotech, for CARVYKTI® (cilta-cel) and the improvement in overall profitability following GenScript's earnings release, we believe GenScript is highlighting its significant investment value.
Below, please follow the author's perspective to take a comprehensive look at GenScript, who shaped the legend.
NEWSWIRE, April 5, 2024 /PRNewswire/ -- Legend Biotech, a GenScript subsidiary, announced in Somerset, New Jersey, that the U.S. Food and Drug Administration has approved CARVYKTI® (cilta-cel) for the treatment of patients with relapsed or refractory multiple myeloma who have received at least one prior line of therapy, including a proteasome inhibitor (PI) and an immunomodulatory agent (IMiD) and are resistant to lenalidomide. CARVYKTI® is the first and only B-cell maturation antigen (BCMA)-targeted therapy approved for second-line treatment in patients with multiple myeloma. Cilta-cel is also expected to receive new commercialization approvals in Europe and China this year.
As of the first quarter of 2024, cumulative sales of cilta-cel since its launch in the U.S. were $790 million, including more than $500 million in 2023. Under the agreement with Johnson & Johnson, Johnson & Johnson and Legend Biotech will share costs and benefits at a 3:7 ratio in Greater China and 5:5 in the rest of the world. ACCORDING TO THE DISCLOSURE OF JOHNSON & JOHNSON'S 2023 INVESTOR OPEN DAY, THE NUMBER OF PATIENTS WITH MULTIPLE MYELOMA IN THE FOURTH LINE AND BEYOND IS ABOUT 22,000, THE NUMBER OF PATIENTS IN THE SECOND AND THIRD LINES IS CLOSE TO 118,000, AND AFTER THE APPROVAL OF THE SECOND LINE, CARVYKTI® WILL BENEFIT MORE PATIENTS AROUND THE WORLD, AND JOHNSON & JOHNSON EXPECTS CARVYKTI® TO REACH SALES OF ABOUT $3.6 BILLION IN 2027, ABOUT 25% HIGHER THAN MARKET EXPECTATIONS. The journal "Nature" also published an article predicting that cilta-cel will become the world's best-selling cell therapy in 2027. GenScript is currently fully consolidated with its subsidiary, Legend Biotech, and it is expected that with the ramp-up of sales, the parent company, GenScript, will usher in a concentrated harvest period for innovative drugs in the next two years.
In 2023, GenScript showed a steady growth momentum by solidly promoting its global layout and strategic foresight, with revenue increasing by 34.2% year-on-year, and profitability steadily climbing. Looking back on GenScript's development history, it is not difficult to find that its strategic deployment in various business segments is precise and far-sighted, and has always been at the forefront of the industry, whether it is deeply cultivating the Chinese mainland market or winning on the global stage, GenScript has achieved remarkable results, and has set a quality benchmark for the biotechnology industry in the global segment.
So, what do you think of GenScript's report card?
Revenue increased by 34.2% year-on-year, and profitability gradually increased
In 2023, the company achieved operating income of US$840 million, a year-on-year increase of 34.2%, and R&D expenditure of US$433 million, a year-on-year increase of 10.95%. It is worth noting that the company did not sacrifice profitability due to continuous R&D investment, and the overall gross profit was about US$410 million, a year-on-year increase of 34.7%.
Specifically, on the revenue side, the company showed gratifying growth in several business segments, including external revenue of life sciences services and products business of US$405 million, a year-on-year increase of 15.6%, external revenue of biologics CDMO business of US$107 million, and external revenue of synthetic biology products of US$42.9 million, a year-on-year increase of 12.2%. In addition, thanks to the rapid sales of CARVYKTI® products in 2023, the company's external revenue in the field of cell therapy was US$285 million, a year-on-year increase of 144.2%, and the proportion of total revenue increased rapidly from 14% in 2021 to 34% in 2023, showing strong market potential and commercialization capabilities.
On the profit side, the company's life sciences business has achieved profit growth in the past 21 years, and the profit growth rate is better than the revenue growth rate. In 2023, the life sciences business maintained stable profitability, with adjusted operating profit increasing by approximately 19.4% to approximately $78.3 million. In 2023, the adjusted operating profit of ProBio and Best Bio will be about $29.7 million loss and $2 million profit, respectively. Legend Biotech's adjusted operating loss narrowed to $395 million.
In addition, the company has ample cash reserves. In 2023, the company has completed the financing of three subsidiaries, ProBio, Legend Biotech, and Bestjie, which will provide a solid guarantee for the capital expenditure of the three subsidiaries in the next few years. As of December 31, 2023, the Company had approximately US$2 billion in cash reserves, including approximately US$1.3 billion from Legend Biotech, which provides a solid foundation for the Company's R&D and asset investment.
Chart 1: Company revenue
Data source: company information, compiled by Gelonghui
All sectors have developed steadily and built a strong moat
1. Life Sciences Services & Products: A global industry leader with significantly improved profitability
From the perspective of market size, the market in the field of life sciences is very considerable, and both the antibody and protein engineering, as well as the gene and cell therapy industry are in a stage of rapid development. According to QYResearch, the global life science services market will grow from $11.9 billion in 2021 to $30 billion in 2028, with a compound growth rate of 14%.
The life sciences business is the cornerstone business of GenScript and has a long history of very solid and excellent performance. According to the company's announcement, despite the changes in some external markets, the company's life science services and products business will still show a resilient and robust growth trend in 2023, with profit growth higher than revenue growth, adjusted operating profit growth of about 19.4%, and profitability continues to improve.
The solid profitability is due to the company's global strategic layout and close cooperation with many top scientists in the industry, which enables the company to better grasp the needs of customers and improve customer stickiness. Recently, the company's Scientific Advisory Board (SAB) welcomed two important new members: Dr. Carl June, director of the Park Institute for Cancer Immunotherapy at the University of Pennsylvania, a legend in the field of immunotherapy, and Dr. David Liu, a leading scientist in the field of gene editing and a professor at Harvard, the Broad Institute and the Howard Hughes Medical Institute. We believe that the addition of these two distinguished scientists will provide the company with deeper industry insights and drive the development of innovative services and products, so as to further empower customers and realize broader business value." The addition of these two world-class scientists also demonstrates their recognition of GenScript's global development and international positioning.
Chart 2: The company accelerated its breakthrough in the life sciences sector
Data source: company information, compiled by Gelonghui
2. Biologics CDMO: Upgrading production capacity and enhancing international competitiveness
As a new R&D and production outsourcing model in the pharmaceutical field, CDMO is temporarily under pressure in the short term. In the long run, with the gradual recovery of overseas investment and financing, the growth rate is expected to recover to 11%/21% in 2024-25, and is expected to further recover to 30%-40% after 2025.
Relying on its technological advantages in the field of life sciences, GenScript's subsidiary, ProBio, has a one-stop biologics R&D and manufacturing platform, focusing on providing end-to-end CDMO services from target development to commercial manufacturing for cell and gene therapy (CGT) drugs, vaccines, and antibody protein drugs. It is worth noting that the company's first 2000L CMO order has become an important milestone in the CDMO business and will be an important step in the company's development into a global CDMO.
In terms of the management team, the company further strengthened the ability of the management team. In December 2023, GenScript ProBio appointed Dr. Li Chen as Chief Executive Officer. Dr. Chen has extensive experience in strategic planning and operations, as well as biologics business cultivation, and has held important leadership positions in many well-known international pharmaceutical giants such as West Pharmaceutical Services, Thermo Fisher Fisher, and Merck. Dr. Chen's high sensitivity to emerging technologies and market opportunities has driven the company's business transformation, opening up new growth paths for the company and enabling the company to maintain its leading position in a highly competitive industry.
In terms of capacity construction, the company actively increases production capacity to meet market demand and expand global production footprint. According to the company's plan, it is expected to have a commercial production capacity of 16,000L in the first phase in 2024. Among them, the GMP plasmid plant in the United States is expected to be put into operation in the third quarter of 2024, which will provide competitive GMP plasmid services in the local market.
Figure 3: Global production planning
Data source: company information, compiled by Gelonghui
3. Industrial synthetic biological products: far exceeding the growth rate of the industry, the potential is rapidly released, and the profitability margin is upward
Industrial enzymes, also known as "biocatalysts", are an important application of synthetic biology in the industrial field, mainly used in home care, food and beverage, biofuels, feed and agriculture, technology and medicine. According to Mordor Intelligence, the global industrial enzyme market will reach $11.02 billion in 2030, with a compound growth rate of 6.5% from 2020 to 2030.
Compared with the global competitive market for industrial enzymes, China's high-end market is difficult for ordinary players to enter due to its high entry threshold. As a representative of local industrial enzyme companies, Bestzyme, a subsidiary of GenScript, continues to expand its commercial share in the local market with its strong R&D and innovation capabilities, sufficient production capacity and mature commercial operation capabilities. With single-digit growth in the market, BestGene's core enzymes business, excluding foreign exchange effects, grew revenue by 22.6%. In June 2023, Bestjie successfully obtained 250 million yuan in Series A financing. According to the company's forecast, after obtaining financing and carrying out related capacity bottleneck transformation, Bestjie's production capacity is expected to increase by 30%-40%.
From the perspective of product progress, the companies in the synthetic biology pipeline continue to make progress and gradually move towards commercialization, showing strong commercial development potential. Among them, the natural sweetener product has completed industrial-grade trial production, plans to complete product safety verification, is preparing for GRAS application, and is expected to be launched in 2024. Pilot production of lactoferrin products has been completed in 2023. The company is currently conducting functional testing with partner universities and customers, aiming to obtain GRAS certification in 2024 and start industrial-grade pilot production, which is expected to be launched to the market in 2025.
Figure 4: Synthetic biology pipeline
Data source: company information, compiled by Gelonghui
4. Cell therapy: a new benchmark in the industry, accelerating commercialization
As a model of independent innovative drugs going overseas, Legend Biotech, a subsidiary of GenScript, performed well in 2023.
In February 2022, Legend Biotech's self-developed BCMA-targeted CAR-T cell therapy Cilta-cel (trade name: Carvykti®) was approved by the US FDA for the treatment of patients with relapsed and refractory multiple myeloma who have received at least four lines of therapy, becoming the world's second CAR-T therapy targeting BCMA targets, opening a new chapter in the global market competition for innovative drugs.
In terms of sales, Legend Biotech's commercialization capabilities are becoming a new benchmark in the CAR-T industry, and market penetration is accelerating. In 2023, the company's external revenue in the cell therapy field was $285 million, a year-over-year increase of 144.2%. Notably, Carvykti's® sales performance in the first seven quarters of its launch outperformed other CAR-T marketed products, treating more than 2,500 patients cumulatively.
From the perspective of clinical data, compared with the currently marketed multiple myeloma treatment drugs and other similar BCMA-targeting CAR-T products, the core product Cilta-cel has significant advantages and has best-in-class potential. In 2023, cilta-cel presented a patient-reported outcome (PRO) of the Phase III study of CARTITUDE-4 at the ASH Annual Meeting, demonstrating good progression-free survival and data suggesting that patients may experience higher health-related quality of life after a single infusion of CARVYKTI®.
In terms of capacity construction, the company's overseas production capacity has expanded rapidly, which is expected to help sales continue to increase. In 2023, the company began clinical production at its production site in Belgium, doubling its cell processing capacity from the beginning of 2023. In late December 2023, the company received approval to more than double its lentivirus production capacity from 20L to 50L. In addition, the company is working with CMOs to address short-term capacity shortages. According to the plan, the company's CMO partner Novartis will start production of new plants in the United States and Europe, and is expected to start production of clinical materials in the first half of 2024, and Legend also entered into a new manufacturing and supply service agreement with CMO partner Novartis on March 27, 2024 for BCMA CAR-T products, which expands the scope of cooperation from clinical-stage production to commercial supply, which is expected to continue to provide support for the ramp-up of product capacity.
Figure 5: Carvykti's® capacity expansion
Data source: company information, compiled by Gelonghui
It is worth noting that in addition to cilta-cel, Legend Biotech is also actively developing products for hematologic tumors, solid tumors, allogeneic CAR-T, CAR-NK and other products. As the trial progresses, other pipelines will enter the harvest period in the future, and their value will gradually be discovered by the market.
Chart 6: Legend Biotech's product pipeline
Data source: company information, compiled by Gelonghui
brief summary
Under the intertwined influence of globalization risk factors, how to hold on and continue to move forward in the turbulent waves has become a common problem in the industry. However, GenScript seems to have given its own unique answer with an excellent answer. One of the answers is "internationalization" cooperation, which is the more extensive global scientific research and industrial interaction in the life sciences business that has been deeply cultivated for more than 20 years, and the more in-depth commercialization cooperation between Legend Biologics, which has broken through the involution and explored the new frontier of cell therapy, and multinational pharmaceutical companies. With the company's steady growth trend, GenScript adheres to the "internationalization" vision and "innovation" to drive the four business segments, and believes that the company's value will continue to steadily improve and realize in the market.