Chinese biotech firm Genscript’s shares jump by a third on US$350m Johnson & Johnson unit tie-up

PUBLISHED : Friday, 22 December, 2017, 7:03pm
UPDATED : Friday, 22 December, 2017, 11:19pm

Shares of Genscript Biotech, one of the most valuable pharmaceutical stocks listed in Hong Kong, have surged 31.6 per cent to a fresh record after unveiling a pact worth over US$350 million with a unit of Johnson & Johnson to develop blood cancer treatments.

The deal with a biotech subsidiary of the American health care giant is a major shot in the arm for the Chinese drug developer and appears to recognise its potential as one of the world’s largest providers of gene synthesis services.

It comes 11 days after Genscript said the Chinese government had accepted its application to run clinical trials for its treatment for multiple myeloma. It is an incurable form of cancer that causes the build-up of abnormal plasma cells in the bone marrow.

“The group’s collaboration with Janssen will enhance its experience and infrastructure in connection with its clinical trial development and commercialisation of its products,” Genscript said in a filing to Hong Kong’s bourse on Friday.

Under a “collaboration and licence agreement” with Janssen Biotech, the latter will pay a Genscript subsidiary US$350 million within 10 days.

There are significant research and development costs related to clinical trials … the sharing of costs with Janssen would alleviate the burden of Genscript
JP Morgan report

More “milestone payments” will be made to cover factors including manufacturing costs, commercialisation approval and sales of the proven treatment.

Nanjing-based Genscript will share 70 per cent of the development costs and profit from the tie-up in Greater China, and 50 per cent elsewhere globally. Janssen takes up the remainder.

Genscript shares finished Friday at HK$21.3. It was the sixth most actively traded stock, with some HK$1.18 billion of shares changing hands.

They have jumped almost six-fold since the start of the year, giving the company a market value of HK$28 billion, or 175 times last year’s earnings – one of the highest among Hong Kong-listed health care stocks.

“There are significant research and development costs related to clinical trials … the sharing of costs with Janssen would alleviate the burden of Genscript,” said a report by JP Morgan, a joint bookrunner of Genscript’s initial public offering two years ago.

While Genscript gets to retain the intellectual property for its “chimeric antigen receptor T-cell”

(CAR-T) therapies that can be used to develop treatments for other cancers, the bank’s analysts noted the success of the joint project is far from certain and “significant risks remain”.

“As CAR-T is a leading edge technology with only two drugs approved globally this year, we cannot ascertain the possibility of success for [Genscript’s] CAR-T multiple treatment,” they said.

Citing the US government’s National Cancer Institute, they said CAR-T is the most advanced cancer treatment available to date that uses a patient’s own immune system to recognise and eliminate cancer cells.

The therapy involves genetic modification of patients’ T cells, which are grown in the laboratory in large numbers before infusing into the patients to combat the cancer.

Genscript is planning to submit clinical trial applications to US and Chinese regulators by the end of this year or early next year, and those can be completed in two to three years, the JP Morgan report said.

Multiple myeloma is the second most common haematological malignancy after non-Hodgkin’s lymphoma, with 750,000 patients globally and 114,000 new cases annually. One in 100,000 people in China, and four in 100,000 globally, are affected by the disease.