Caixin
Sep 27, 2018 08:49 PM
BUSINESS & TECH

Biotech Firm’s Shares Plummet After Report Claims It Faked Data

Genscript's shares plummeted by as much as 45% Thursday morning before being suspended. Photo: VCG
Genscript's shares plummeted by as much as 45% Thursday morning before being suspended. Photo: VCG

Hong Kong-listed Genscript Biotech Corp. suspended trading Thursday after allegations of fake data were leveled against the upstart in one of China’s fastest growing sectors.

The company’s shares plummeted by as much as 45% in the morning before being suspended at which point they were down 26.79%, leaving the stock at HK$11.86 ($1.52) per share and cutting nearly HK$8 billion from its market cap.

Genscript hadn’t replied to Caixin’s request for comment as of the time of publication. It said in a filing that an announcement would be released in relation to “inside information,” without saying when.

In the as-yet unverified report, the Hong Kong-based short seller Flaming Research questioned Genscript’s capability to develop cutting-edge cell-based CAR-T cancer therapy, the management’s sale of shares at high prices, the downplaying of a trial participant’s death and its cooperation with a subsidiary of American multinational Johnson & Johnson. The report said the company’s share price should be HK$3.29.

Founded in 2002, the Jiangsu province-based Genscript started as a contract research organization and later ventured into CAR-T research, an immunotherapy considered the “fifth pillar” of cancer treatment, along with drugs, surgery, chemotherapy and radiation.

The relatively unknown firm made headlines in June last year when its CAR-T development subsidiary, Nanjing Legend Biotechnology Co. Ltd., released clinical data at a June 2017 Chicago meeting of the American Society of Clinical Oncology in that appeared to show it had made greater progress than some of its rivals. The company updated the data in September 2017.

However, the short seller claimed that the company didn’t fully disclose the results of its research, which was conducted in Xi’an, Shaanxi province and Shanghai. The report said the results of the Shanghai research were not revealed as they were unsatisfactory, citing “first-hand material” from two hospitals that Legend cooperated with on the clinical trials.

In September last year, a woman who was involved in the clinical trials at one of the two Shanghai hospitals passed away. The company acknowledged the incident at the time and vowed to investigate, but there hasn’t been any public follow-up and Genscript didn’t mention it in its annual report.

Small spending, small team

The short seller attempted to cast doubt on whether Genscript is really capable of making greater progress than its rivals, citing the difference in spending between the company and other players.

The short seller pointed that Genscript spent $27 million on research between 2014 and the first half of 2017, while its larger rival Kite Pharma spent more than $200 million in the same period.

The report said that Legend had 19 employees at the time the Chicago summit was held. Kite Pharma, a subsidiary of U.S. giant Gilead Sciences, had more than 700 employees as of October 2017, according to a Gilead Sciences press release.

According to a March Genscript statement, 140 Legend employees around the globe were committed to CAR-T research and development. Around the same time, it secured a partnership with Johnson & Johnson subsidiary Janssen Biotech Inc., for the development of the therapy.

Flaming Research also wrote that Legend Chief Science Officer Fan Xiaohu was previously a surgeon and had not worked with CAR-T prior to joining the company.

A Genscript shareholder who has met Fan several times told Caixin that he specialized in kidney transplants as a surgeon, which requires knowledge of the immune system, and CAR-T treatment is an immunotherapy.

The short seller said Janssen’s decision to partner with Legend was made in a rush due to fierce competition, and the American company only spent two days conducting due diligence on Legend, citing a report by The Wall Street Journal.

After the September clinical data update, followed by the partnership with Janssen, Genscript share prices skyrocketed to 53 times the initial public offering price. But September also marked the trial subject’s death, and management soon started to sell their shares, the short selling report said.

Over the past year, Genscript Corp., the largest shareholder of Genscript, which is owned by a handful of company executives, sold a total of 88.5 million shares, representing less than 10% of the total they held. The greatest amount of share divestment took place in June at the relatively high price of HK$26.5.

Contact reporter Coco Feng (renkefeng@caixin.com)

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