CARsgen's R&D Progress Should Be A Key Watchpoint For Investors

The developer of specialized cancer treatments is shifting from costly personalized therapy to more standardized options, but at the price of short-term financial pain

Key Takeaways:

• The company launched its first CAR-T immunotherapy product last year, bringing in around 39 million yuan in revenue, although its losses still widened
• CARsgen is hoping to score a world first by adapting its complex therapy to target solid tumors, not just blood cancers

It has been hailed as a revolutionary weapon against cancer: an immunotherapy that tweaks the genes in a patient's bloodstream to target malignant cells.

But companies developing CAR-T therapies are struggling to stay in business, let alone turn a profit, due to the high costs of individualized cancer treatment and the limited scope for prescribing their specialized products.

China's CARsgen Therapeutics Holdings Ltd. (2171.HK) is no exception. The company has succeeded in launching a CAR-T product on the market but its finances are sinking deeper into the red. The firm's annual net loss widened 6% to 798 million yuan ($110 million) in 2024, according to its latest financial results.

CAR-T is shorthand for chimeric antigen receptor T-cell therapy. The procedure involves taking white blood cells from a patient or a blood donor, genetically modifying them in the lab and delivering them intravenously to the cancer sufferer. Armed with the engineered cells, the immune system can more effectively identify and eradicate the cancer.

Founded in 2014 and listed in Hong Kong in 2021, CARsgen specializes in developing CAR-T therapies aimed at blood cancers and solid tumors. It has accumulated losses of more than 7.1 billion yuan in the past four years, with no turnaround in sight.

The company launched its first commercial product in March last year at an eye-watering 1.15 million yuan per dose, with sales handled through Huadong Medicine (000963.SZ), according to the earnings release. CARsgen said certification and regulatory filings for its product, zevorcabtagene autoleucel, had been completed in 23 Chinese provinces or cities, covering more than 200 healthcare institutions. Through Huadong Medicine it had received 154 confirmed orders, generating 39.4 million yuan of revenue so far.

China has approved six CAR-T therapies up to now, mainly to treat blood-related conditions such as leukemia and multiple myeloma. Despite the high efficacy rate, this remains a niche market. China had 4.83 million new cancer patients in 2022, but only around 170,000 of them presented with leukemia and lymphoma, which are the two most common hematologic cancers.

The numbers are much smaller than for patients with solid tumors, such as lung cancer or rectal cancer. The high price also means that CAR-T cell therapy is not covered by China's medical insurance system, requiring patients to pay out of their own pockets or rely on private health cover. The price is prohibitive for many sufferers, limiting the expansion of the cell therapy market.

Therefore, applying the CAR-T method for use against solid tumors, autoimmune diseases and other conditions is a crucial strategy for companies active in this field of research.

CARsgen is aiming to become the first company to launch a CAR-T product targeting solid tumors. The therapy, called satricabtagene autoleucel, would re-engineer a patient's blood cells to target gastric cancers. The company is wrapping up Phase Two trials and is planning to submit a new drug application to Chinese medical regulators in the first half of 2025.

Counting the cost of a new strategy

CARsgen has been trying hard to cut back on its expenses, judging from the results, slashing R&D spending by 30% to 477 million yuan. With the benefit of a product income stream and with no need to fund an in-house sales team, why has the financial performance not improved?

The company blamed a strategy shift towards so-called allogeneic CAR-T products, which use donor blood samples as the base material and could in the long run be administered more cost-effectively than those using a patient's blood.

In its earnings statement, CARsgen said the change of emphasis had placed "high uncertainty over the recoverability of certain non-current assets", resulting in an impairment loss of 189 million yuan.

The company is using its proprietary technology to explore various allogeneic CAR-T cell products. One of them, CT0590, has delivered promising results in investigator-initiated trials, the company said. Other products under development using donor cells are aimed at hematological malignancies, solid tumors, and autoimmune diseases.

The potential pay-off has caught the eye of venture capitalists. The company announced on February 25 that Zhuhai SoftBank had acquired an 8% stake in a CARsgen subsidiary, UCARsgen, for 80 million yuan to accelerate the push into allogeneic CAR-T therapies in mainland China.

The deal gives the subsidiary exclusive rights to develop, manufacture and commercialize CARsgen's allogeneic BCMA CAR-T cell products for multiple myeloma and plasma cell leukemia, as well as its allogeneic CD19/CD20 CAR-T cell products for B-cell tumors, in mainland China.

The terms of the agreement value UCARsgen at up to 1 billion yuan, reflecting high hopes for the biotech's prospects, even though work has not yet entered the clinical stage.

Personalized CAR-T products, known in the business as autologous therapies, have to go through multiple sampling, production and infusion stages, ramping up costs. The "off-the-shelf" allogeneic therapies could lower the price barrier, if CARsgen can achieve clinical and commercial success.

CARsgen's market value now stands at about HK$7.1 billion (6.6 billion yuan), while JW Therapeutics (2126.HK), which also boasts commercialized CAR-T products, is worth only one eighth of that figure. Investors appear to have higher confidence in CARsgen as a cell therapy pioneer, but they should keep an eye on its R&D progress, as many technical barriers still need to be overcome.