"This is its best destination for now.""OneLegend BiotechThe early investors saw the Street Insider report on July 12 about Legend Biotech.After the news that the company would be acquired, such a remark was made.According to him, Genscript has been using its only profitable segment—Genscript Biotech—to support the R&D of CAR-T cell therapy by its subsidiary, Legend Biotech. "But it's extremely expensive."”
On the day the acquisition news broke, Legend Biotech surged over 12%. According to industry speculation, the acquisition price of this deal is expected to reach $10 billion, potentially becoming the largest Biotech acquisition in China to date.Genscript initially had no intention of selling off its high-quality asset, Legend Biotech. In 2017, after Johnson & Johnson showed interest in Legend Biotech's leading product, Cilta-cel, Genscript did not simply hand over the overseas rights but instead signed a cooperation agreement to share costs and profits. This collaboration model demonstrated Genscript’s initiative. Afterwards, Genscript continued to support Legend Biotech wholeheartedly, consistently providing it with resources.But the division caused by geopolitical factors has directly impacted a group of Chinese CXO companies that rely on overseas orders. Genscript is no exception. Despite holding an outstanding subsidiary like Legend Biotech and possessing the blockbuster product Cilta-cel, Genscript's market value is still less than that of Legend Biotech.The sharp drop in stock price and the decline in order volume are a series of realities that have forced GenScript to bow its head. Selling Legend Biotech may be the optimal choice for shareholders. Before Legend Biotech was acquired, the aforementioned investor also revealed that GenScript had been seeking financing in the market for quite some time.Johnson & Johnson will definitely not sit idly by. An industry insider believes that the seller has not yet disclosed, but there is a ninety percent chance it is Johnson & Johnson. "Because Legend Biotech's main product, Cilta-cel, is deeply tied to Johnson & Johnson, and this product has great future potential, with predicted annual revenue of 5 billion US dollars. How could Johnson & Johnson possibly agree to share this pie with other major pharmaceutical companies?""Johnson & Johnson and Legend Biotech are now in the same boat. Before the capacity and performance of Cilta-cel increase, Johnson & Johnson also needs more security," the investor revealed.The Future Printing Press: Cilta-celOn May 30, in a letter to the U.S. Federal Bureau of Investigation, two members of the U.S. House of Representatives China Committee wrote, "Genscript provides services such as production of custom gene synthesis for U.S. government entities and businesses, raising concerns that U.S. companies' intellectual property may face potential risks, and Genscript's cooperation with U.S. government and enterprises could help enhance China’s biotechnology capabilities." The letter specifically named three subsidiaries of Genscript Biotech: Bestzyme, Legend Biotech, and GenScript ProBio.The draft of the U.S. Biosecure Act, which began at the start of this year, has sent negative signals that have left China's CXO industry, reliant on overseas orders, badly shaken. It was anticipated that Genscript would be named. Like other leading CXOs, overseas orders are a major source of revenue for Genscript Biotech. In 2023, Genscript earned 500 million U.S. dollars from the U.S. market, accounting for 60% of its total revenue.Although employees of GenScript's overseas subsidiaries recalled, "When we went to work in May, we were told that we would be investigated by the FBI and CIA, and our work was indeed affected. However, no issues were found, and things returned to normal."But this aftermath has forced Johnson & Johnson, behind Legend Biotech, to have more considerations.。Legend BiotechLegend Biotech has 47.96% of its shares controlled by Genscript Biotech, and a valuation inversion has occurred between Legend Biotech and Genscript.On April 16, Johnson & Johnson released its Q1 2024 earnings, showing that the CAR-T therapy Cilta-cel (Ciltacabtagene Autoleucel) generated $157 million in sales, approximately 1.1 billion yuan, marking a 118% increase compared to the same period last year.Cilta-cel is still rapidly gaining market share. On April 15, the U.S. FDA approved the drug for second-line treatment of patients with relapsed or refractory multiple myeloma. As the indications move to earlier lines of therapy, global sales of cilta-cel are expected to grow further. Johnson & Johnson forecasts that the drug’s sales in 2024 could exceed $1 billion.According to a research report by Soochow Securities, since cell therapy is still a relatively new treatment, the market growth rate will be slower compared to conventional cancer drugs. Cilta-cel is expected to reach its sales peak between 2028 and 2030, with its global peak sales estimated at approximately $5.4 billion.Nature It was previously predicted that Cilta-cel would become the world's best-selling cell therapy by 2027, with future peak sales exceeding $5 billion.The product potential of Cilta-cel is undeniable, and its growth speed may be even more explosive than Johnson & Johnson anticipated.Can Genscript Make It To That Day?But can Genscript hold on until Cilta-cel becomes a $5 billion molecule? Investors and employees believe that Genscript is under significant financial pressure.Genscript's business can be divided into four segments: Genscript Life Sciences, Genscript ProBio, Legend Biotech, and Bestzyme, corresponding to CRO, CDMO, CAR-T, and synthetic biology businesses, respectively.Among the four major sectors, apart from the CRO business being a stable revenue-generating sector, the other three businesses are still in the investment phase.In 2023, GenScript's revenue reached 840 million U.S. dollars. Among this, the Life Science Services and Products business under the CRO segment generated revenue of 405 million U.S. dollars, accounting for 48.18%, making it GenScript’s primary source of income and contributing a profit of 78.3 million U.S. dollars. Bestzyme Biotech, which capitalized on the synthetic biology trend, achieved break-even in 2022. However, Legend Biotech and Probio Biotech are still in a state of continuous losses. In 2023, GenScript's overall loss amounted to 95.477 million yuan — this figure represents the lowest loss for GenScript in the past five years.Legend Biotech's losses narrowed to approximately $145 million in 2023, compared to over $400 million in the previous two years. According to GenScript’s public plans, Legend Biotech is expected to reach break-even by 2026.According to financial reports, Legend Biotech has a cash reserve of approximately $1.3 billion, while GenScript's cash flow stands at $2 billion. According to investors, in order to ensure the operation of Legend Biotech, apart from receiving financial support from its parent company, GenScript is also selling shares and raising funds. On May 21, 2023, Legend Biotech issued a private placement of 692,800 shares (approximately $22.2 million) to Hillhouse Investment. After the completion of this private placement, GenScript Biotech’s stake in Legend Biotech was diluted from 48.38% to 48.29%. In November 2023, Legend Biotech licensed its DLL3-targeted CAR-T therapy to Novartis for $1.01 billion in clinical, regulatory, and commercial milestone payments, along with tiered royalties.But the R&D cost of CAR-T is far more expensive than imagined. It is estimated that at least 1 billion US dollars have been spent on Cilta-cel since its project initiation. Cilta-cel is now at a critical stage of commercialization and promotion. The three major clinical trials, CARTITUDE-4, CARTITUDE-5, and CARTITUDE-6, are in the enrollment phase, and the acceleration of capital consumption is inevitable. Unlike other pure overseas licensing BD deals, when GenScript partnered with Johnson & Johnson for the international market, both parties agreed to share the enormous costs of clinical trials and sales expenses. According to the agreement, within Greater China, Legend Biotech and Johnson & Johnson will share costs and profits in a 7:3 ratio. For other regions globally, the agreed ratio is 5:5.Figure | Legend Biotech Pipeline Layout, Source: Legend Biotech Official WebsiteAndLegend BiotechAlso in the cash-burning phase is GenScript's CDMO business — Probio. It is still in the process of capacity expansion. In December 2021, Probio announced the commissioning of China’s largest commercial GMP plasmid production facility in Zhenjiang. In January 2022, it began construction on a commercial GMP plasmid and virus facility in Zhenjiang. Afterwards, Probio set its sights overseas, becoming one of the few CDMOs to establish a factory in the United States. The plasmid GMP facility in New Jersey has already received investments exceeding hundreds of millions of yuan and will be completed this year. On June 27, Probio announced the official launch of another facility in New Jersey, the Hopewell Plasmid DNA and Viral Vector Production Plant.Before 2023, with the explosive growth of the innovative drug industry, a group of representative CROs emerged and expanded rapidly. However, by the first half of 2023, the entire industry began to hit the pause button. (For details, please see"CRO's Midpoint Pause: Left or Right?") Among them, GenScript is also not immune, especially under the influence of geopolitics, as order contraction seems to have become a foregone conclusion. The once most stable CRO sector now raises the question of whether it can still provide support to Legend Biotech and蓬勃生物 (Flourishing Biotech).“The founder initially didn't want to sell, after all, it was their own child."Gradually changed their attitude." The aforementioned investor said. This is also the current realistic dilemma faced by most Biotech founders in China. At an industry conference on investment and mergers and acquisitions held last Saturday, investors unanimously felt that many innovative drug founders who last year only wanted to license overseas rights for a single product when discussing BD deals have now, in order to survive, shifted their stance to accepting all conditions, with the best scenario being acquisition by multinational pharmaceutical companies.Unlike other companies, Legend Biotech is indeed a scarce and valuable asset, worthy of a good future. On the day the news of its acquisition broke, its stock price surged by 12%. Employees of Genscript were also pleased to hear this news. At the very least, after selling Legend Biotech at a high price, Genscript will no longer be in a tight financial situation.An early investor said that when he first invested in Legend Biotech, he never expected it would go so far and become a global company.In 2014, scientist Fan Xiaohu and GenScript co-founded Legend Biotech to fill the gap in China's CAR-T cell therapy technology. After its establishment, it faced skepticism and was once targeted by short-selling institutions. However, in 2017, it reached a turning point. With early clinical data for Cilta-cel presented at ASCO, Johnson & Johnson took notice. Despite competition from multiple multinational pharmaceutical companies, Johnson & Johnson expedited its decision-making process and quickly formed an equal partnership with Legend Biotech based on "shared development and shared revenue," setting a model example for China’s BD going global.
The month after Cilta-cel passed the FDA's marketing review in the United States, Fan Xiaohu immediately resigned. The parent company, GenScript, sued him in court for "breach of commercial secrets." Afterwards, Fan Xiaohu founded a new company, Wan Dao Cell, while the sales peak of Cilta-cel is expected to reach $5 billion, which will be exclusively enjoyed by GenScript.Legend BiotechNearly 50% of the equity. Now, a decade after its founding, Legend Biotech, with a market value of billions, may also change hands, embarking on a new journey.Disclaimer: This article aims to convey the latest information in life sciences and the healthcare industry. It does not represent the platform's position, nor does it constitute any investment advice or recommendations. Please refer to official/company announcements for accuracy. This article is not a recommendation for treatment plans. If you need guidance on treatment options, please visit a正规医院 for medical consultation.
Source of the article: Deep Blue View
