GenScript losses shrink on strong growth for cancer cell therapy 

The pharma company’s losses narrowed 58% last year, as its life sciences and cell therapy businesses experienced strong growth

Key Takeaways:

• GenScript’s cell therapy revenue grew by 143.7% last year as a CAR-T cell therapy developed by its Legend Biotech subsidiary gained traction
• Legend’s Carvykti is expected to hit annual production capacity of 10,000 doses by the end of 2025

By Li Shih Ta

In the rapidly evolving world of cancer treatments, CAR-T cell therapy stands out for its effectiveness tackling hematologic tumors. Booming demand for such therapies powered Legend Biotech Corp. (LEGN.US), and in turn its parent, GenScript Biotech Corp. (1548.HK), to a banner year in 2023 on accelerating sales for Legend’s Carvykti CAR-T cell therapy.

GenScript’s revenue grew 34.2% last year to $840 million, lifting its five-year compound annual growth rate to 30%. Its loss of $95.5 million was down by more than half from a $230 million loss in 2022, according to its latest annual results released last week. Its stock rose more than 7.9% after the announcement, as investors cheered the revenue growth and narrowing losses.

GenScript specializes in gene synthesis and new drug development, with focus on four areas: life science services and products (CRO); biologics development under its GenScript ProBio (CDMO) subsidiary; industrially synthesized biologics development under its Bestzyme Biotech unit; and cell therapy under Legend Biotech. 

The life sciences business has traditionally been GenScript’s main profit engine, bringing in $420 million in revenue and $78.3 million in operating profit last year, up 14.5% and 19.4% from 2022, respectively. By comparison, the cell therapy business has been a money-loser, including its $390 million loss last year. While that latest loss narrowed from 2022 levels, the business remains the most capital-intensive for GenScript due to heavy R&D spending.

Of GenScript’s $430 million in R&D spending last year, which was up about 11% from 2022, the cell therapy business accounted for $380 million, or nearly 90% of the total.

Cell therapy rising star

Despite its heavy costs, GenScript’s cell therapy division has also been one of its most promising businesses, reflected by rapid growth for Carvykti in the U.S. and Europe. The company’s cell therapy revenue more than doubled to $290 million last year from $120 million in 2022. Its adjusted gross profit rose at an even faster rate of 172% to about $140 million, thanks to accelerating Carvykti sales.

Carvykti was developed and is now being manufactured and sold by Legend Biotech and Janssen Biotech, a subsidiary of U.S. pharmaceutical giant Johnson & Johnson (JNJ.US), in a partnership dating back to 2017, mainly for the treatment of multiple myeloma. Compared to standard therapy, Carvykti reduced the risk of cancer recurrence by 74%.

Sales of the treatment have grown rapidly since its approval by the U.S. Food and Drug Administration (FDA) in February 2022. The treatment recorded $150 million in sales in last year’s third quarter alone, surpassing rival product Abecma, developed by Bristol Myers Squibb (BMY.US), whose annual sales total about $500 million, according to Legend Biotech’s full-year results report. More than 2,500 patients worldwide have been treated with Carvykti to date.

Following Carvykti’s rapid rise, Legend Biotech signed a licensing deal with Novartis (NVS.US) last November, giving the latter rights to several DLL3-targeting CAR-T cell therapies in exchange for an upfront payment of $100 million and up to $1 billion in milestone payments and additional royalties.

At the same time, Legend Biotech continues to invest in R&D to expand the number of indications that Carvykti can treat, with seven clinical studies now in progress. If those efforts succeed, Carvykti sales could exceed $5 billion, according to market estimates.

Indication expansion 

Last month, Carvykti was approved by the Committee for Medicinal Products for Human Use (CHMP) under the European Medicines Agency (EMA), which expanded its uses to include treating adult patients with relapsed and refractory multiple myeloma who had received at least one type of prior treatment. The FDA will also convene a meeting of its Oncology Drugs Advisory Committee (ODAC) to review the latest research data on the treatment, and Legend’s CEO Huang Ying said on an earnings call that he was confident about the result.

GenScript’s diversified businesses attracted Hillhouse Capital as early as May 2021, and since then the local private equity powerhouse has invested more than HK$8 billion ($1 billion) in GenScript Biotech, GenScript ProBio and Legend Biotech. In December last year, GenScript Corp., the controlling shareholder of GenScript Biotech, sold about 0.4% of its shares to Hillhouse’s GNS II Holdings Ltd., showing Hillhouse remains bullish on GenScript’s development.

But like many of China’s drug makers, GenScript could also get caught in the crosshairs of rising U.S.-China tensions. The U.S. Congress is currently considering a biosecurity act that would prohibit the federal government from working with certain Chinese companies. But GenScript does not think the act will have a significant impact on its business. GenScript rotating CEO Sherry Shao said on a conference call that the company has a long-term capacity expansion strategy that can be executed anywhere in the world, and that it will stick to its original plan and closely monitor the latest developments regarding the biosecurity act.

Despite its money-losing status, GenScript has a strong price-to-sales (P/S) ratio of about 5 times, higher than the 4 for WuXi AppTec (2359.HK; 603259.SS) and the 2.5 times for Bristol-Myers Squibb. Nasdaq-listed Legend Biotech has a current market value of $12.5 billion. But even though GenScript holds 48% of Legend, its own valuation is just about HK$33 billion, meaning investors believe GenScript is worth less than its Legend Biotech holdings.

Legend Biotech plans to expand its Carvykti production capacity in North America and Europe, meaning the treatment could soon earn far more than the roughly $500 million it now generates in annual sales. Legend Biotech expects to reach an annual production capacity of 10,000 doses of Carvykti by the end of 2025, and that its Novartis partnership may be able to start producing their treatment for clinical trial use in the first half of 2024.

Daiwa believes that GenScript’s gross margin improved in the second half of last year as its losses moderated more than expected, and it gave the stock an “overweight” rating. Bocom International raised its target price for the company to HK$27.60, forecasting positive profits for all of its four major businesses in 2026. CICC maintained its “outperforming” rating but lowered its target price by 25% to HK$23 due to a recent sector-wide correction in Hong Kong-traded pharmaceutical stocks.

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