Friday morning, Chinese CDMO Genscript Biotech, parent company of Johnson & Johnson’s CAR-T partner Legend Biotech, put out a mysterious note on the Hong Kong Exchange, halting trading of its shares pending release of inside information. Now, we know the serious nature of the news it was preparing.
Monday, Genscript and newly Nasdaq-listed Legend dropped the bombshell that Fangliang “Frank” Zhang, Ph.D., chairman of Genscript and recently appointed CEO of Legend, has been put by China law enforcement under “residential surveillance,” a form of detention that restricts a suspect’s freedom for up to six months.
The custodial measure came after China’s Customs Anti-Smuggling Department raided Genscript’s businesses in the cities of Nanjing and Zhenjiang, including Legend’s office, the companies said. The inspections, according to Legend, were related to “suspected violations of import and export regulations” under Chinese laws.
Officials questioned several Legend staffers previously employed by Genscript, though Legend said it “has not experienced any operational disruptions” and that it “remains focused on conducting its business in the normal course.” Meanwhile, four Genscript employees were detained (PDF) for questioning.
It’s not immediately clear why Zhang himself is under surveillance—whether as a board member or executive of Genscript or any of its subsidiaries, including Legend, Genscript said.
Zhang, who has been Genscript’s chair since 2015, took the reins at Legend from ex-CEO Yuan Xu just last month. He was previously also Genscript’s CEO. Now, his Legend CEO role will be filled on an interim basis by Chief Financial Officer Ying Huang, who joined Legend in 2019 and helped orchestrate its $424 million Nasdaq IPO this summer. Before Legend, he headed up biotech equity research at Bank of America Merrill Lynch.
“As we await clarity from the authority, Legend Biotech remains focused on our path forward with upcoming regulatory and data milestones for cilta-cel and IND application for LB1901 being assessed in T-cell lymphoma, in addition to our internal pipeline. I am committed to ensuring that our company remains focused during this important time,” Huang said in a Monday statement.
Johnson & Johnson, in a statement, also said: “As it relates to cilta-cel, our focus is the ongoing global clinical development and advancing this novel BCMA CAR-T therapy towards future data and regulatory milestones.”
Legend is most famous for its collaboration with J&J, which put down $350 million upfront to license the Chinese biotech’s anti-BCMA CAR-T therapy ciltacabtagene autoleucel (cilta-cel), also known as JNJ-4528, or LCAR-B38M. The drug won an FDA breakthrough therapy designation in relapsed or refractory multiple myeloma last year, and the pair has said they expect to file it for FDA approval by year-end.
No official documents have been provided on potential charges, but Genscript’s flagship business in gene and cell therapy may offer a clue, in the context of newly enacted rules.
China very tightly regulates exports of human genetic resources. It also bans the import of most plasma products. Last June, China passed a new regulation further tightening the grip on collection and use of human genetic resources, including blood samples that can read out DNA.
The new law formalizes some restrictions that have been in place since 1998. Foreign individuals and organizations are not allowed to collect or store China’s human genetic resources within the country. Instead, they must work with Chinese partners and obtain government approval to use such material for scientific research.
As it took effect last July, unauthorized collections of such materials can face fines of up to 10 million yuan ($1.4 million). Individuals and entities violating the law could be permanently blacklisted from the field.
In 2018, Chinese authorities named several companies that had broken the 1998 version of the law about sharing biomaterials without approval. AstraZeneca and WuXi AppTec were among those dinged at the time.
Genscript’s business encompasses gene synthesis as well as gene and cell therapy discovery and development services, among others. In 2019, the company recorded revenue of about $273.4 million, up 18.4% year over year.