Company Reports

We will discontinue analyst coverage of GenScript Biotech on or about Jan. 31, 2024. We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are placing coverage of no-moat-rated GenScript under review pending the transfer of coverage to a new analyst. We expect to revisit our coverage of this company over the next three months. Our most recent fair value estimate was HKD 18.50.

No-moat GenScript’s full-year results were in line with our expectations. Top-line revenue for the year was within 2% of our expectations. However, revenue growth from the non-cell therapy businesses for the second half was only 15.7% year on year, suggesting that NCT growth will be slower than the last three years as COVID-19-related business fades. This is within our expectations, but we suspect it may have caught some investors by surprise, given the price action.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its Nasdaq-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

Chinese healthcare companies have rallied dramatically in the past month. Within our coverage, biotech names Innovent (narrow moat), Junshi (narrow moat), I-Mab (no moat), and Genscript (no moat) have rallied 39%, 47%, 5%, and 45%, respectively, since Oct. 11. Big pharma names CSPC and Sino Biopharm (both narrow moat) have rallied 26% and 16% in the same period. CR Pharma and Shanghai Pharma are narrow-moat drug distributors with drug manufacturing segments and have rallied 15% and 14%. No-moat WuXi Biologics has lagged, having sold off 6% despite rallies from other CDMOs. 3SBio (narrow moat biopharma) and Sinopharm (narrow moat distributor) have also lagged their respective comparables.

On Sept. 12, President Biden signed an executive order to create the National Biotechnology and Biomanufacturing Initiative. One of its goals is to improve U.S. manufacturing capacity for various biologics products. This includes medicinal biologics, which are a major source of revenue for some Chinese contract service organizations, or CXOs. On one hand, the tone of the press release sounded quite protectionist. An exclusionary policy toward medicinal biologics would hurt Chinese CXOs that derive significant revenue from U.S. biotech clients. On the other hand, the order’s text suggests that the policy will be stimulatory in nature rather than exclusionary, perhaps focusing on subsidies and investments, which we think is fairly benign for Chinese CXOs.

No-moat GenScript’s interim results were in line with our expectations. Revenue from non-cell therapy, or NCT, businesses was USD 248 million for the six months, which represents 27% year-on-year growth. Gross profit margin for the NCT segments declined 4.8 percentage points, which is the continuation of a trend we saw last year. We expect margins to stabilize around current levels. Our fair value estimate is unchanged at HKD 20.50 per share. The market price is a 20% premium to this and we are bullish on the company’s prospects.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its Nasdaq-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its Nasdaq-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

No moat GenScript’s full-year results continued the strong performance in noncell therapy, or NCT, businesses, in line with our expectations. Full-year NCT revenue was USD 425 million, or 35% year-on-year growth. Operating profit margin fell by 3.9 percentage points due to exchange-rate fluctuations, elevated shipping costs, and lower sales of high-margin coronavirus products compared with 2021. However, we think margins remain healthy for such a fast-growing business. Our fair value is unchanged at HKD 20.50 per share. Although the market price is at a slight premium to our fair value, it's within 3-star territory.

We lower our fair value estimates for Innovent to HKD 50.00 per share (from HKD 80.00 per share) and for Junshi to HKD 56.00 per share (from HKD 84.00 per share). The primary driver is a significant downgrade of all fast follower pipeline programs we previously deemed to have global potential. This reflects the scenario where Chinese drugmakers will have great difficulty commercializing fast follower drugs in global markets.

On Dec. 1, the Chinese biotech company BeyondSpring Pharmaceuticals (Nasdaq: BYSI, not covered) received a complete response letter, or CRL, from the U.S Food and Drug Administration, or FDA, regarding its application for approval of plinabulin for the prevention of chemotherapy-induced neutropenia, or CIN. Although this is likely contributing to the negative sentiment weighing on the Chinese biotech sector, we believe the read-through to other companies should be limited. We are not updating our fair value estimates s at this time.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its NASDAQ-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

No-moat GenScript’s interim results demonstrated excellent growth in the non-cell therapy, or NCT, businesses. NCT revenue was USD 196 million in the first half, or 37% year-on-year growth. Operating profit margin fell by 3.3 percentage points, mostly due to exchange rate fluctuations, elevated shipping costs, and lower sales from higher-margin COVID-19 products. However, much of this is transient and we think margins are healthy for such fast-growing businesses. Our fair value estimate is unchanged at HKD 20.50 per share.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its NASDAQ-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

On May 13, 2021, no-moat GenScript announced a total investment amount of USD 915 million by Hillhouse Capital into several of its entities, of which USD 767 million is for the purchase of newly issued shares and convertibles. This consists of USD 220 million into unlisted subsidiary ProBio, its biologics contract development and management organization, or CDMO, business; USD 300 million into its Nasdaq-listed subsidiary Legend Biotech, its Car-T and cell therapy business; and USD 395 million into GenScript, of which USD 247 million is for new shares and USD 148 million is transferred from the founders’ group.

GenScript’s full-year results continued to demonstrate excellent growth and margin improvement in non-cell therapy, or NCT, businesses. NCT revenue was USD 224 million in the second half, or 48% year-on-year growth. Operating profit margin for the period was 3.6% compared with 2.5% in the second half of last year, a welcome surprise for a business growing at this pace.

GenScript Biotech provides life science research services and products, and is well known for its gene synthesis capabilities. Its business can roughly be divided into non-cell therapy, or NCT, businesses and a cell therapy business. The latter is contained in its NASDAQ-listed subsidiary, Legend Biotech, whose key pipeline product is "cilta-cel," a CAR-T therapy for multiple myeloma. We estimate that more than two thirds of GenScript's value comes from Legend. Like most of the clinical-stage biotech companies we cover, we do not assign GenScript a moat rating.

On Nov. 21, Genscript announced an update on the investigation by China’s Customs Anti-Smuggling Department. Although we think the market is likely to perceive the headline as negative news, closer reading of the details indicates the investigation has little impact on the firm's current businesses. We expect volatility in the stock price and believe it makes sense to buy on large dips.

On Nov. 4, the abstracts for the 62nd American Society of Hematology’s, or ASH, Annual Meeting and Exposition were released a day earlier than expected. This included a number of abstracts in BCMA-targeting therapies for multiple myeloma, including cilta-cel (or JNJ-4528). This is the flagship pipeline drug of no-moat GenScript’s cell therapy subsidiary, Legend Biotech (not covered), and is co-developed with Johnson & Johnson’s subsidiary Janssen. We reviewed the abstracts and conclude that the new data reaffirms cilta-cel’s likely position as best-in-class among BCMA-targeting Car-T therapies. Although this does not change our forecast for cilta-cel, it removes the risk of a surprise development, given that ASH’s Annual Meeting is one of the most significant events of the year for new data on Car-T therapies. Our fair value estimate remains at HKD 20.50 per share, and since the market price is a 42% discount to our valuation, we view the stock as very cheap.