Early JW Therapeutics Backer Ruins Regulatory Breakthrough Party With Stake Sale

Key takeaways:

•      Less than two weeks after JW Therapeutics received regulatory approval to commercialize its core product in China, key early investor Temasek sold all of its stake

•      JW Therapeutics’ stock now trades nearly 30% below its IPO price, as numerous obstacles remain in the march to commercialize its cutting-edge cancer treatment

By Warren Yang

It seems a major breakthrough for JW (Cayman) Therapeutics Co. Ltd. (2126.HK) just wasn’t enough for one of its prominent early backers. That’s the story of the moment for this Chinese cancer drug developer, whose shares have been on a roller coaster ride over the last two weeks on a major regulatory advance, followed by the departure of a major institutional shareholder.

Temasek, Singapore’s state-owned investment firm, sold all of its 6% stake in Hong Kong-listed JW Therapeutics for HK$22.20 per share in a block trade, IFR reported on Sept. 14. The transaction was disclosed in a filing to the Hong Kong Stock Exchange two days later.

JW Therapeutics is a Sino-U.S. joint venture founded in 2016 by Juno Therapeutics, part of global biopharmaceutical company Bristol-Myers Squibb BMY, and WuXi AppTec (2359.HK; 603259.SH), a Shanghai-based pharmaceutical and medical device company. Following Temasek’s sale, Bristol-Myers Squibb remains a major shareholder in JW Therapeutics with a 20% stake.

The timing of the exit by Temasek, which was among JW Therapeutics’ early investors before the company went public last November, is curious. The move came less than two weeks after the cancer drug maker said it received approval from China’s National Medical Products Administration (NMPA) to commercialize its core “relma-cel” product for the treatment of adults with lymphomas that have relapsed or don’t respond to treatment.

The company touted that it is only the sixth CAR T-cell therapy approved globally. Such therapies are among a new generation of treatments that involve the extraction of blood with a patient’s own T-cells that are then modified to create CAR T-cells that attack cancer

JW Therapeutics shares surged 38% in the period from Sept. 3 when the news was first reported through Sept. 13, when the share sale by Temasek was revealed. The latter event erased all the share gains, with the stock now trading nearly 30% below its IPO price of HK$23.80.

Temasek cashed out at a 9.8% discount to JW Therapeutics’ Sept. 13 closing price, near the bottom end of its marketed range for the block trade, according to the IFR report. The sale price was about 7% below JW Therapeutics’ IPO price. Temasek netted about HK$539 million ($69 million) from the deal.

The Singaporean investor still probably earned a decent return on its investment, given that it bought into JW Therapeutics early on, and the price for its stake sale was likely well above its pre-IPO valuations. There can be many reasons why Temasek decided to quit JW Therapeutics. As an active investor, Temasek perhaps was cashing out of one investment to make another. At the end of the day, institutional investors engage in such behavior all the time.

Still, the timing of the sale at a discount to the IPO price and less than a year after the listing could say something about the biopharmaceutical company’s near-term prospects, at least in the eyes of Temasek.

JW Therapeutics has been around for five years now but, like many drug startups, has yet to generate any revenue, let alone a profit. General and administrative expenses, as well as research and development spending, swelled in the first half of this year from a year earlier, according to its latest interim report released late last month.

What’s more, the company incurred selling expenses during the six months, versus no such expenses in the first half of 2020, as it ramped up efforts to commercialize relma-cel. As a result, its operating loss in the first half of this year more than doubled to 333.6 million yuan ($51.6 million) year-on-year.

Big Potential

The market for CAR T-cell therapies that are JW Therapeutics’ main focus appears to hold big potential. It’s projected to grow to $4.7 billion by 2024 globally from $734 million in 2019, and further still to $18.1 billion by 2030, according to the company’s IPO prospectus.

The Chinese market may expand even faster as the number of cancer patients grows while increasing household incomes make pricey CAR T-cell treatments more affordable. Government policies to support drug development are also coming as a boon to the industry.

Anticipating the upcoming rollout of its treatment, JW Therapeutics has built a 10,000-square-meter facility that can make relma-cel for up to 2,500 patients per year. It has formed a team of 90 staff dedicated to commercializing the product, and has also lined up a company to distribute it.

However, as a clinical-stage drug developer in uncharted territory, JW Therapeutics likely has a long, bumpy road ahead in its journey to profitability. Regulatory approval marked a major milestone, but is just one of many hurdles to jump over.

In particular, the newness of CAR T-cell therapies means there is a long list of unknowns. Manufacturing is complex, involving specialized equipment and materials, so the company may fail to achieve mass production. JW Therapeutics also has no sales experience, so the possibility that sales may perpetually lag ever-growing expenses cannot be ruled out.

Furthermore, China’s pharmaceutical industry is heavily regulated, meaning any unfavorable change such as the implementation of price caps for its therapies, could cause JW Therapeutics to suffer. Whether JW Therapeutics’ product will be widely accepted is another uncertainty because it will not be cheap without good insurance coverage for many ordinary Chinese families.

Last but not least, competition among cancer drug developers is fierce. In June, Fosun Kite Biotechnology, a China-U.S. joint venture between Fosun Pharma (2196.HK; 600196.SH) and Kite Pharma, beat JW Therapeutics to the title of the first Chinese company to receive the regulatory greenlight for a CAR T-cell therapy in China, even though it was established a year later. Fosun Kite Biotechnology benefitted from access to the technology behind Kite’s Yescarta, the world’s first approved CAR T-cell product, which received a nod from the U.S. Food and Drug Administration (FDA) back in 2017.

In its IPO prospectus, JW Therapeutics warned that rival technologies that are more competitive, in terms of everything from safety to effectiveness to cost, and could make its products “obsolete.”

Despite all these risks, everything may still fall into place for JW Therapeutics, bringing fat gains for patient investors if and when that happens. But for Temasek, at least, such a wait may have been too risky, too long or perhaps both.