Junshi Biosciences Back in the Red, Pins Hopes on Covid Drugs

The innovative drug developer reported a first-quarter loss as a result of a steep drop in licensing revenue

Key Takeaways:

  • Junshi Biosciences’ revenue tumbled 61% in the first quarter, reflecting its high dependence on income from overseas licensing
  • The company is hoping for steadier future revenue from an oral Covid-19 drug now in Phase 3 multi-regional clinical trials (MRCTs)

By Molly Wen

2021 was a bittersweet year for Shanghai Junshi Biosciences Co. Ltd. (1877.HK; 688180.SH). Its Covid-19 neutralizing antibody drug JS016 was a hit overseas and became a major new business driver. But that was more than offset by chaos in its sales and marketing team that caused a nearly 60% plunge for sales of its Toripalimab, a PD-1 drug used to treat small-cell lung cancer.

The downward spiral continued into the first quarter of this year. According to the company’s first-quarter financials released last week, its revenue plummeted by 61% to 630 million yuan ($95.5 million) year-on-year during the period, and it swung to a 396 million yuan loss from a 377 million yuan profit a year earlier. Just a year after it successfully emerged from a sea of red, it seems its fortunes were reversing again.

So, what went wrong?

The company blamed the precipitous turn for the worse to declines in revenue from its drug licensing. Contrary to what one might expect, the company’s stock rose 4.4% the day after report’s release. The stock closed that day at HK$58.75, in the middle of last-year’s price range, suggesting that investors are not totally pessimistic about the company’s prospects.

Junshi signed an agreement with Coherus in February last year, granting it exclusive licensing and other rights for its Toripalimab drug and two other projects in the U.S. and Canada. It received a one-off payment of $150 million from the deal, which boosted its revenue in last year’s first quarter more than nine-fold to 1.62 billion yuan.

The company’s own Toripalimab sales are still limited. It continues to rely on similar licensing deals with foreign companies for revenue instead, making its revenue volatile in recent quarters. That was also the case in the latest period, with the company deriving most of its first-quarter revenue from overseas licensing for its recombinant humanized anti-TIGIT monoclonal antibody JS006, its Covid-19 neutralizing antibody drug JS016 and Toripalimab sales in China.

Key products at disadvantage

Junshi Biosciences is an exemplary member of a new generation of Chinese cancer drug developers. Toripalimab, its key product, was approved in China in 2018, becoming the country’s first domestically produced wide-spectrum PD-1 immuno-cancer-drug. A number of Chinese companies are now developing antibody drugs in the PD-1 category, including Innovent Biologics (1801.HK), BeiGene (BGNE.US; 6160.HK; 688235.SH) and Jiangsu Hengrui Medicine (600276.SH).

But unfortunately for Junshi Biosciences, the company has not been able to come up with new successful cancer drugs since Toripalimab. The drug has been approved for types of treatment that aren’t in high demand, and thus is not a major drug for lung and liver cancer treatment. The company’s commercialization team has also been rife with instability. Its last two chief commercial officers were at the helm for only 12 months and four months, respectively, posing a challenge to the team’s continuity.

With many similar PD-1 drugs now on the market, Toripalimab suffered a Waterloo moment in 2021 when its sales plunged nearly 60% to just 412 million yuan. By contrast, one of the drug’s strongest competitors – BeiGene’s Tislelizumab – went in the other direction, posting a 40% sales increase for the year to 1.6 billion yuan. That drug has been approved for six treatment indications, including major types of cancer like lung cancer, liver cancer and lymphoma.

Junishi attributed Toripalimab’s steep revenue drop to a similar decline in its price for the drug as a result of being included in China’s government procurement program. After being included in 2021, it was forced to reduce the drug’s price by more than 60% from the initial price set in 2020. Sales went up, but that failed to offset the big price cut.

The company posted 110 million yuan in Toripalimab sales during the first quarter, pointing out the figure was up both quarter-on-quarter and year-on-year. That may be partly due to changes in of the sales and marketing team. The company appointed a CEO in full charge of commercialization in November 2021, overseeing both the team’s reorganization and management. It announced this January that it terminated promotional cooperation with AstraZeneca (AZN.L) for Toripalimab, and its own commercialization team took over all marketing and sales activities for the drug.

The company is still working hard to expand the scope of treatment indications for the drug, with more than 30 clinical trials underway for more than 15 indications in countries including the U.S. and China. According to Zhongtai Securities, the company’s applications for use of the drug to treat non-small cell lung cancer and esophageal squamous cell carcinoma have been accepted and are expected to be approved in 2022.

High hopes for Covid drug

The company has been even more active in developing Covid-19 drugs as new growth drivers. It VV116 oral drug, co-developed with the Chinese Academy of Sciences, is now in Phase 3 clinical trials in several countries. Trials of the drug targeting patients with moderate to severe symptoms and mild to moderate symptoms administered first doses in March and are expected to obtain key clinical data before June.

The clinical trial center of the Chinese University of Hong Kong announced in April that it would partner with CUHK Medical Centre to carry out clinical trials in order to evaluate the effectiveness of VV116 in treating Covid-19 patients with mild or moderate symptoms, and expects to complete the trials by the end of 2022.

In addition, Junshi Biosciences licensed the clinical development, production and operation of JS016 to Eli Lilly (LLY.US) in May 2020. The combination of JS016 and another Eli Lilly neutralizing antibody as a therapeutic treatment for Covid-19 has secured approval for emergency use in more than 15 countries, with the U.S. and EU purchasing the drugs in bulk.

The company has scored a strong valuation thanks to hopes for its Covid-19 drugs that have captured investors’ attention. In currently trades at a price-to-sales (P/S) ratio of 11, lower than the 15 for BeiGene but higher than the 7 times for both Innovent Biologics and Jiangsu Hengrui Medicine.

While the company continues to rack up losses on heavy R&D spending, its receivables fell sharply to just 350 million yuan at the end of March, from 1.29 billion yuan at the end of the first quarter a year earlier. That suggests the company has received most of its technology licensing and franchise royalties. Now its commercialization just team needs to settle down to better realize the potential of its drugs.

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