Key Takeaways:
- JW Therapeutics prices its new cancer therapy at around a million yuan, with the high production costs hard to bring down. Large-scale market expansion is not going to be easy
- The company is undervalued compared with its peers pending further progress in commercializing its products
By Molly Wen
A medical breakthrough is only one milestone on a long and uncertain road to mass production and profitability, as evidenced by the latest results from a Chinese biotech pioneer that is developing tailored cancer therapies.
Even when an innovative treatment makes it onto the market, questions remain. Will it be covered by health insurance, can it gain a firm foothold, and could its use ultimately be widened to treat a range of conditions?
All these variables apply to JW (Cayman) Therapeutics Co. Ltd. (2126.HK), a pharmaceutical company specializing in developing personalized cancer treatments known as chimeric antigen receptor (CAR-T) therapeutics, which enhance a patient’s own immune defenses to attack tumor cells.
The company started to commercialize its products in September 2021 and is now expanding the market for its only CAR-T product to have gained approval so far, relma-cel. Last Tuesday, the company released its first-half financials, which indicated that its operating revenue for the period of 66 million yuan ($9.5 million) stemmed entirely from relma-cel sales, generating a gross profit of 23.13 million yuan.
Currently, China only has two approved CAR-T products, which are expensive and remain outside the scope of national healthcare insurance. Thus, their market penetration is very limited. The company said that 77 prescriptions of relma-cel were made in the first half of this year, with 64 patients receiving transfusion treatment.
With a gradual rise in patient numbers and company cost-cutting efforts, gross margin from product sales grew from just over 29% in 2021 to 35% in the first half of this year. The company also recently revealed that, as of August 15, a total of 260 Chinese patients had received its treatment during clinical trials and commercialization.
The company managed to generate revenues for the first time, but rising costs painted the half-year earnings report in red ink. Its net loss swelled nearly 53% from the year-earlier period to 430 million yuan, which the company attributed to a 42.90 million yuan rise in sales costs as the new drug went into production, as well as a nearly 83% jump in sales expenses to 84.40 million yuan from promotion activities.
CAR-T therapy is a new method for treating blood-related tumors that emerged in recent years. It uses genetic engineering to create customized immunotherapy using patients’ own cells. Extracted T cells are trained to recognize cancer cells and then transfused back into patients’ bodies in the hope that they will eliminate the disease.
Traditional treatments for blood-related tumors are prone to drug resistance and cannot offer a definitive cure. But CAR-T holds out the possibility of a lasting cure. For patients whose hematological cancers have defied other treatments, the new immunotherapy has shown powerful effects, making this category of ground-breaking drugs a popular development target.
Hard to mass-produce
Only a few CAR-T products are available on the global market, but they are all big earners. Last year, global sales reached $1.71 billion, spurred by two factors. First, the products are used to treat three major types of hematological cancer in the U.S. – leukemia, lymphoma and myeloma. Second, they are expensive. For example, the first CAR-T product launched worldwide by Novartis (NYSE:NVS), Kymriah, cost an eye-watering $475,000 when it first hit the U.S. market.
The earnings report from JW Therapeutics said that relma-cel was used to treat 64 patients with B-cell lymphoma that had recurred or was not responding to treatment, at a cost of 1.03 million yuan per person.
As things stand, the CAR-T products approved by Chinese authorities are not covered by the national healthcare insurance scheme, and patients can only receive them as a last resort after other treatments have failed. Thus, the company says it is no easy task to grow the market for the treatment on a large scale.
JW Therapeutics is striving to get its product included in commercial health insurance plans or local governments’ supplementary insurance schemes, to lower the cost for patients.
By the end of June, the drug was covered by 52 commercial plans and 28 policies overseen by local governments, benefitting a total of 12 patients. At the same time, the company is seeking collaborations with platforms that can provide installment plans or mortgage loans to help patients pay for the treatment.
CAR-T products require the extraction and modification of patients’ own cells and therefore cannot be mass-produced in the same way as chemical or biological drugs. As a result, their production costs cannot benefit from economies of scale. The company’s vice president for clinical development, Qin Yun, recently said that one R&D objective was to lower the cost of producing CAR-T products.
She said the company, while upgrading its existing technical platforms, would also explore universal cell therapies and other general-purpose products to address the issue of a long production cycle for the individualized CAR-T products.
In addition to seeking production cost savings, JW Therapeutics is also trying to widen the scope of conditions that the drug can be used for, to benefit more patients and boost sales. In February, the National Medical Products Administration accepted an application to use the drug for the treatment of recurring and difficult-to-treat follicular lymphoma. If approval is granted within the company’s expected timeframe, the drug would become China’s first authorized CAR-T therapy for the disease.
Sufficient R&D funding
The company is also moving ahead with clinical trials of relma-cel to treat other types of cancers including mantle cell lymphoma and B-cell acute lymphoblastic leukemia in adults and children, hoping to gain approval to treat further conditions.
The company has had to dig deep into its pockets to fund multiple development pipelines. JW Therapeutics spent 196 million yuan on R&D in the first half of the year, a year-on-year increase of 5%. But it is still in a comfortable liquidity position with 1.5 billion yuan in cash.
But perhaps due to the hurdles on the path to commercialization, its stock has been falling for over a year and was hovering as low as HK$4.28 on Tuesday, nearly 82% down from the IPO price of HK$23.8 two years ago. Its valuation now is even lower than it was during the A1 financing round in December 2018.
In terms of valuations, assuming its first-half revenue pattern persists to the end of the year, the company is projected to have a price-to-sales (P/S) ratio of 12 times compared to the 47 times of Legend Biotech (NASDAQ:LEGN), whose CAR-T products have been approved in the U.S., and the 31 times of InnoCare Pharma (9969.HK), another innovative drug company specializing in treating hematologic cancer.
JW Therapeutics is evidently undervalued for now. It may need to make further progress in commercialization to restore investor confidence in the business potential of its cutting-edge therapies.
