Shanghai Cellular Therapy Group Files for IPO: Cell Storage Costs Tens of Thousands, Aiming to Make Treatments Affordable for 60% of the Population?

Author: Su Hang

Produced by: Insight IPO

On May 8, spurred by the successful world's first autologous regenerative islet transplantation, A-share stem cell concept stocks experienced a large-scale surge in trading halts.

Stem CellsHealthcareThe cell-based healthcare industry in the Chinese market is expected to reach a scale of hundreds of billions. According to CIC Consulting, the market size of China's cell-based healthcare industry was 14.2 billion yuan in 2023 and is projected to reach 174.5 billion yuan by 2032, with a compound annual growth rate of 32.1% from 2023 to 2032.

Cell therapy can do more than just regenerate organs.

In 2012, a 7-year-old child in the United States who had been suffering from acute B-cell lymphoblastic leukemia for two years received a cutting-edge immunocyte therapy at the Children's Hospital of Philadelphia. The doctors isolated T cells with cancer-killing potential from the child’s body, genetically engineered them to introduce a receptor gene (CAR) capable of recognizing tumor-specific antigens, expanded them in vitro, and then reinfused them into the body. Weeks later, the cancer cells in the child's body were miraculously eliminated.

This is the experience of Emily Whitehead, the first person in the world to be cured by this therapy, and the treatment she received is the CAR-T therapy, known as the "miracle cancer drug."

In 2017, Novartis' Kymriah, the world's first CAR-T therapy product, received formal market approval from the U.S. Food and Drug Administration (FDA), ushering in a new era of cancer treatment worldwide.

As of now, a total of 10 CAR-T therapies have been approved globally, five of which were produced by Chinese pharmaceutical companies and approved for marketing in China. They are Fosun Kite's Axicabtagene Ciloleucel Injection, JW Therapeutics' (02126.HK) Relmacabtagene Autoleucel Injection, Innovent Biologics' (1801.HK) and IASO Biotherapeutics’ Equecabtagene Autoleucel Injection, Hycan Bioscience's Nacibartagene Autoleucel Injection, and the newly approved Zevocabtagene Autoleucel Injection from CARsgen Therapeutics (2171.HK).

This track has many pursuers.

Recently, Shanghai Cell Therapy Group Co., Ltd. (hereinafter referred to as "Shanghai Cell Therapy Group") submitted a prospectus to the Hong Kong Stock Exchange, planning for a main board IPO. CICC and CCB International are its joint sponsors.

The Goal is to Reduce the Price of CAR-T?

In 2013, Shanghai Cell Therapy Group was established, and began providing cell storage services, including immune cell and stem cell storage, in 2015.

In August 2016, the Baize Project was officially launched by academician of the Chinese Academy of Sciences, Wu Mengchao, known as the "Father of Hepatobiliary Surgery in China," and his student Qian Qijun. The project advocates for people to cryopreserve their immune cells at a young and healthy age for future disease prevention and treatment. It also proposed the goal of "within 10 years, making 60% of advanced tumors regress and making it affordable for 60% of ordinary citizens; within 30 years, enabling people to live healthily and happily until the age of 120."

Subsequently, the company launched the Jiliang Plan and the Chenghuang Plan. The Jiliang Plan focuses on building a foundational platform to enhance the technical capabilities for developing cell-based drugs; the Chenghuang Plan introduces consumer products like "cell recharging" aimed at rejuvenating skin, organs, and more.

Source of the image: Prospectus of Shanghai Cell Therapy Group

According to the prospectus, Shanghai Cell Therapy Group is the first and only company in China that covers the entire value chain of cell healthcare, with businesses spanning cell storage, cancer treatment, cell drugs, and cell recharging.

From 2021 to 2023 ("Reporting Period"), Shanghai Cell Therapy Group achieved operating revenues of 4.98 billion yuan, 6.19 billion yuan, and 7.60 billion yuan respectively, with net profits of -4.66 billion yuan, -5.42 billion yuan, and -4.88 billion yuan respectively.

During the reporting period, the incremental storage volumes of the Company's cell storage services were approximately 16,600 units, 24,700 units, and 32,600 units, respectively. By the end of 2023, the total storage volume had reached 100,400 units.

Revenue generated from concurrent cell storage and related services was RMB 396 million, RMB 357 million, and RMB 599 million, respectively, accounting for 79.5%, 57.7%, and 78.9% of total revenue, with gross profit margins of 81.1%, 74.8%, and 79.7%, respectively.

Source of the image: Prospectus of Shanghai Cell Therapy Group

In the field of tumor treatment, the company has established the Meng Chao Cancer Hospital affiliated with Shanghai University, which is characterized by cell research.

During the reporting period, the number of inpatient visits to the hospital was 3,191, 3,690, and 6,636 respectively. The utilization rate of open beds increased from 40.3% in 2021 to 49.6% in 2022, and further to 54.8% in 2023.

The revenue generated was 101 million yuan, 102 million yuan, and 1.43 billion yuan, respectively, but the gross profit margin during the same period was as low as -42.1%, -51.1%, and -32.7%, respectively.

In the research and development of cellular drugs, the company's current pipeline includes seven products, five of which are CAR-T therapies. However, none of these have been commercialized yet, generating only a small portion of revenue from providing CDMO and CRO services to corporate clients for cellular drug development.

BZDS1901, developed by the company, is the world's first CAR-T cell drug armored with anti-PD-1 nanobody focused on the treatment of solid tumors. Based on preclinical and clinical trial data, BZDS1901 has received IND approval from the National Medical Products Administration for Phase I and Phase II clinical trials to treat mesothelin-positive solid tumors and has also obtained orphan drug designation from the FDA for malignant mesothelioma.

Moreover, based on the independently intellectual property-owned JL transposon and JL miniplasmid, Shanghai Cell Therapy Group has developed the second-generation non-viral gene writing platform.

The company believes that once the platform is widely used for the preparation of CAR-T products, it has the potential to reduce the production time of CAR-T to within 2 days and the production cost to one-tenth. Given that the current market price for related products is mostly around a million yuan per injection, this will help the company achieve its vision of reducing the price of CAR-T therapy to about 100,000 yuan.

In July 2023, the company launched the Cheng Huang series brand of cellular energy products, including "Cheng Huang NMN18000", "Cheng Huang Taishui NPQ Capsules", "Cheng Huang Taishui PQQ Cellular Energy Drink", and the "Yao Guang Shun Qi Skincare Series", generating revenue of approximately 9.681 million yuan in 2023.

Source of the image: Prospectus of Shanghai Cell Therapy Group

Notably, in 2022 and 2023, Shanghai Cell Therapy Group provided COVID-19 testing-related services to local governments and universities under other service categories, generating revenues of 151 million yuan and approximately 300,000 yuan, respectively.

Did the Wu Mengchao Foundation make a profit of 1.39 billion from the resale?

In November 2013, Shanghai Cell Therapy Group was established by Baize Biotechnology (mainly controlled by Qian Qijun and his wife), Shanghai Wu Mengchao Medical Science and Technology Foundation ("Wu Mengchao Foundation"), and Lianxin Phase II, each contributing 30 million yuan.

Company Established for Less Than a Year Welcomes Series A Financing. In September 2014, Yaoji Technology (002605.SZ) subscribed to an additional issuance of 25,384,616 yuan in registered capital for 130 million yuan, accounting for 22.00% of the total post-investment equity.

In August 2016, the Wu Mengchao Foundation withdrew its investment in the form of a capital reduction, with a consideration of 169 million yuan. Shortly thereafter, Shanghai Luwu Jia, controlled by Qian Qijun, subscribed to the company's new registered capital increase of 30 million yuan at the same price.

Shanghai Cell Therapy Group has raised approximately 2.08 billion yuan in investment across a total of 8 rounds of financing, with its valuation reaching about 7.11 billion yuan after the final round.

Source of the image: Prospectus of Shanghai Cell Therapy Group

The companies participating in the investment include well-known enterprises or institutions such as Legend Capital, Xingsheng Zhongze (an investment platform under Industrial Bank), Pacific Life Insurance, Haier Jinying, and CCB International.

In addition to obtaining funds, the in-depth cooperation with insurance companies has also expanded the company's customer acquisition channels.

During the reporting period, the revenue from cell storage and related services provided by the company, which came from institutional partners such as insurance groups, was 94.411 million yuan, 148 million yuan, and 255 million yuan, respectively, accounting for 23.83%, 41.55%, and 42.57%, respectively.

However, the unit price of related services is not high. During the reporting period, the incremental storage volumes of cell storage services cooperated with institutional partners were 11,800, 20,900, and 28,900 respectively, accounting for 71.08%, 84.62%, and 88.65% of the total, respectively. The average revenue generated per unit was approximately RMB 8,000.93, RMB 7,102.11, and RMB 8,830.76, respectively.

The average revenue per agreement generated through collaboration with channel agents during the same period was approximately 63,187.02 yuan, 54,445.53 yuan, and 94,609.72 yuan, respectively.

Shanghai Cell Therapy Group stated in the prospectus that, in its cooperation with institutional partners, the company generally provides customized service packages and charges lower prices to end customers because institutional partners usually bring a large number of end customers and have relatively low related marketing expenses and production costs.

In addition to collaborating with insurance institutions, Shanghai Cell Therapy Group also promotes its products through multiple channels.

In November 2023, the "2023 Chenghuang Nobel Prize Week" was held, inviting six Nobel laureates, and signing cooperation agreements with four of them, inviting them to become "Chenghuang Plan Nobel Prize Promotion Ambassadors."

On the official website of the Cheng Huang Project, it claims the firm support of 40 Nobel laureates, but it does not display the list of these 40 laureates.

The prospectus shows that, as of the latest practicable date, the company had invited 27 Nobel laureates for academic exchanges, 18 of whom had used cell storage services.

Meanwhile, the company's sales and marketing expenses during the reporting period were RMB 213 million, RMB 173 million, and RMB 282 million, respectively. Marketing and promotion expenses for marketing and/or referral service fees payable to institutional partners and channel agents reached RMB 174 million, RMB 130 million, and RMB 226 million, respectively.

The sales expense ratios for the same period were 42.8%, 28.0%, and 37.1%, while the R&D expense ratios were 28.6%, 32.2%, and 31.4%. In 2021 and 2023, sales investment was higher than R&D investment.

CAR-T Therapy陷“Secondary Cancer” Controversy

As a star in the global anti-cancer market, CAR-T therapy has recently encountered some differing opinions.

On November 28, 2023, the U.S. FDA issued an announcement regarding the potential risk of secondary tumors associated with CAR-T cell therapy. The announcement stated that the FDA had received 19 reports of T-cell malignancies in patients who received autologous CAR-T cell immunotherapy targeting BCMA or CD19.

The announcement once released triggered a decline in the stock prices of relevant companies such as Novartis and Legend Biotech.

However, multiple companies have stated that due to immunosuppression caused by multiple myeloma, as well as chemotherapy and stem cell transplantation, patients are prone to developing secondary tumors even without receiving CAR-T treatment.

At the same time, the development of CAR-T is also a life-and-death struggle, like other drugs.

On April 9, the National Enterprise Bankruptcy Restructuring Case Information Network disclosed that Nanjing Landun Biotechnology Co., Ltd., which had obtained the first CAR-T product approved in China for clinical treatment of recurrent and refractory ovarian cancer, was ruled by the court to undergo bankruptcy liquidation due to its inability to repay mature debts. This made it the first publicly declared bankrupt CAR-T R&D company in China in 2024.

In addition to the controversies surrounding CAR-T therapy itself, the exorbitant cost of cell storage services is also enough to deter the average person.

The prospectus shows that the price for the 20-year storage service, including Baize Cell Ren-Taihe Edition Storage and Baize Ai Health Storage for immune cell storage, ranges from 108,000 to 176,000 yuan and 68,000 to 136,000 yuan, respectively. The price for Jiliang Yuan Health Storage for stem cell storage is 60,000 yuan.

Currently, the utilization rates of the company's cell banks are relatively low. As of the end of 2023, the utilization rates of the three cell banks in Shanghai, Henan, and Beijing were 66.2%, 55.2%, and 20.3%, respectively.

Source of the image: Prospectus of Shanghai Cell Therapy Group

Meanwhile, the progress of another business line of Shanghai Cell Therapy Group, the cell empowerment products, has not been smooth sailing either.

The charging products of Shanghai Cell Therapy Group mainly consist of new products containing active compounds such as Nicotinamide Mononucleotide (NMN) and Pyrroloquinoline Quinone (PQQ).

The prospectus shows that NMN plays an important role in maintaining immunity and energy in the human body. PQQ, as a redox cofactor, can bring benefits to cardiovascular and cognitive health, and promote the production of new mitochondria, thereby providing power to human cells.

However, the National Market Supervision Administration issued a letter in January 2021 titled "Regarding the Investigation of Illegal Operation of 'Anti-Aging Drugs'", which clearly stated that NMN cannot be produced or operated as food within China.

Therefore, Shanghai Cell Therapy Group stated that its NMN oral health supplements are produced overseas and sold through cross-border e-commerce channels (such as Youzan WeChat Mall and JD.com).

On the JD.com platform, the "Cheng Huang Nutrition & Health Overseas Flagship Store" sells both the ladies' and men's versions of "Cheng Huang Taishui NMN18000" in a 300mg*60 capsules specification, with a single bottle priced at 2,376 yuan each. The recommended dosage is one capsule per day, meaning the cost of taking it for a year would reach tens of thousands of yuan.

Whether it's the cell storage business that costs hundreds of thousands of yuan for 20 years of storage, or cell energizing products that cost tens of thousands of yuan per year, both seem far from the goal of being "affordable for 60% of ordinary people." Meanwhile, Shanghai Cell Group, which has incurred losses of nearly 1.5 billion yuan over the past three years, still has a long way to go before turning a profit, given the significant losses in its hospital operations and high marketing and R&D expense ratios.

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       Title: Shanghai Cell Therapy Group IPO: Cell Storage Costs Over Ten Thousand Yuan, Hoping 60% of Common People Can Afford It?