Edited Transcript of 1548.HK earnings conference call or presentation 31-Aug-20 12:00am GMT

Within Life Science CRO, Catalog Products grew over 220%, primarily driven by COVID-19 testing-related raw materials. Together with Duke-NUS, we also launched the cPass, the first COVID-19 Neutralization Antibody Detection kit globally so this shows our extensive collaboration with the global academic leaders and our ability to turn ideas into commercial products.

So besides COVID-19-related business, our Life Science CRO’s R&D in new products and services are also starting to bear fruits. Our industrial-grade high-quality neoantigen peptide and sgRNA products are generating strong initial sales. We expect those products to continue meaningfully to our topline this year and beyond.

So our Gene Synthesis business remains strong as global number one Gene Synthesis provider, we continue to leverage our market reach to cross sell other complimentary products and services to best serve our customer demands.

Turning to our Biologics CDMO business, Genscript Probio delivered excellent growth in the first half of 2020. Revenue grew over a 100% and the backlog is now at 75.0 — 75.3 million. Our team overcame the pandemic impact to deliver existing customers’ projects on time so our team also found ways to take advantage of the COVID-19 impact to win new business.

Our Gene and Cell Therapy CDMO is helping multiple domestic and international companies to develop mRNA vaccines, including one that got the first NMPA IND approval.

So on the antibody drug development side, we are supporting six different COVID-19 drug discovery and development projects. We have a rich pipeline of promising projects helping to combat the pandemic.

Genscript Probio also continued to leverage its R&D advantage to expand business. We licensed out three antibody drug candidates and signed one additional co-development deal on our SMAB Platform. We expect more out licensing and co-development deals in second half of the year.

So in our Synthetic Biology business Bestzyme continues to increase operation by focusing on key accounts and providing customers with technology-based solutions, Bestzyme achieved 14% organic growth and improved gross margin against a tough economic backdrop.

Best — Bestzyme is actively invest — investing in R&D to capture future growth opportunities such as enzymes that can replace and eliminate the use of antibiotics in animal feed and other Synthetic Biology applications beyond enzyme.

Last but not least, our Cell Therapy Subsidiary, Legend Bio achieved a number of significant milestones in the first half of 2020. Legend raised over six — 650 million [crores] for its pre-[FU] and IPO, Legend raised a 160 million Pre-[FU] financing in March.

Then in June, Legend raised about 500 [million] in the — in its initial public offering on Nasdaq, becoming the first Chinese CAR-T company to go public. So these financing will allow Legend to continue to fund its R&D and the capacity build out throughout 2020 and 2021.

So on the clinical development front, Legend reported data from U.S. CARTITUDE-1 trial at ASCO in May. In a Phase 1 portion of this trial, our lead BCMA CAR-T product LCAR-B30 — LCAR-B38M JNJ4528 showed a 100% over — overall response rate and 8 — 86% stringent and complete response in 29 relapsed or refractory multiple myeloma patients. This is currently the best results published in the industry.

On the regulatory front as we also announced several weeks ago, we are very pleased to see the Chinese NMPA has granted this product Breakthrough Therapy Designation. This is the first BTD the Chinese Regulatory Agency has ever granted.

This product also received Orphan Drug Designations in South Korea and Japan as well. JNJ and Legend are working closely with all regulatory bodies in order to bring this product to the market as soon as possible. More specifically (inaudible) submission to FDA is scheduled for (inaudible) 2020.

We also reached a collaboration agreement with Noile-Immune, licensing its PRIME technology to enhance the development of next generation CAR-T and TCR-T products. Now I would like to turn the time over to Shiniu to cover the financial results

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Shiniu Wei, Genscript Biotech Corporation – VP, Investor Relations [4]

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Thank you Patrick. Now please turn to page 5. The Company continues to have strong financial performance in first-half 2020. Group revenue grew 36.5% year over year to a 166 — a 166.4 million. Group gross — profit reached a 108.2 million, grew 37.1% year over year.

Gross margin expanded to 65%, slightly higher than first-half 2019. Group consolidated net loss was a 160.5 million and adjusted net loss was 67.6 million.

Our Non-Cell Therapy business revenue grew 41.6% to reach 143.3 million, representing the fastest growth in the last five years. This revenue growth benefited from COVID-19-related business and strong delivery at Genscript Probio.

Non-Cell Therapy gross profit was 95.5 million, 49% higher than the same period last year. Gross margin increased from 63.3% to 66.6%, driven by fixed-cost leverage at Life Science CRO and improved operations at Bestzyme, while slightly offset by overall business mix.

Non-Cell Therapy net profit was 18.6 million, a 151.4 % higher year over year, driven by higher operating results, offset by higher taxes. After adjusting for share-based compensation and other one-time expenses, Non-Cell Therapy net profit was 25.4 million, a 100 — 11.7% higher year over year.

Cell Therapy revenue was in 23.1 million, 11.6% higher year over year. This represents continued amortization of the upfront and milestone payments Legend received from JNJ collaboration. Excluding share-based compensation, IPO-related expenses and

one-time non-cash loss from the conversion of preferred shares, adjusted net loss for Cell Therapy business was 96.4 million, mainly driven by increased R&D activities.

Please also note that Cell Therapy profit-loss numbers reported at Group level, may deviate slightly from Legend Biotech’s own reported numbers due to inter-company elimination.

On page 6 the Group continued to invest heavily in R&D to build a foundation for future growth. Total R&D in first-half was 11 — 111 — 115.5 million, sorry, up 83.9% year over year.

Cell Therapy R&D was 101.6 million in first half of 2020, up 81 — up 88.1% year over year. The majority of legend’s R&D expense is on the BCMA program. Non-Cell — Non Cell Therapy businesses continued to invest about 10% of revenue on R&D in first-half 2020.

Capital expenditure for first-half 2020 was 60.5 million, major areas of capex included 26.7 m for Cell Therapy business, to build GMP manufacturing facilities, to support current clinical trials, and future commercial demand, as well as 11 — as well as 17.7 million for GMP facilities in Nanjing and Zhenjiang to support our CDMO business growth.

The Group has a strong balance sheet. As of 6/30, 2020, total cash position including cash and cash equivalent, time deposits, and wealth management products, stood at 932.3 million. Legend has a cash position of 638.2 million. We expect this amount is enough to support Legend’s operations through 2020 and 2021.

On the next page, I will review the performance of each segment. On page 8, our Life Science CRO segment accelerated its growth in first-half 2020. Revenue was 115 million, up 39.9% year over year. We continue to leverage our strength as the global number one Gene Synthesis provider to become a one stop shop for our clients across various product lines.

While our Gene Synthesis business has maintained mid-teens growth, complimentary services and products in Molecular Biology grew at a faster rate thanks to deeper customer-organization penetration and cross selling.

On the next page you will see Life Science CRO continues to generate strong profits. Gross profit increased 49% year over year to 78.0 million in first-half 2020. Gross margin was 67.8%, higher than 63.6% it reached in first-half 2019 primarily due to fixed-cost leverage and mix change.

Most of the more mature product lines in Life Science CRO have stable gross margin year over year. Newer business has lower gross margin but as it scales gross margin started to improve.

Life Science CRO also — continued to leverage R&D and administrative expenses in first-half 2020. Segment operating profit before unallocated central management expenses and share-based compensation grew 65.5% to reach 44.6 million in first-half 2020.

Although Life Science CRO business experienced weaker academic customer demand due to COVID-19 disruption in the first half, the team did take advantage of the strong demand from downstream customers on detection and diagnostics raw materials. COVID-19-related revenue was 23.7 million, including protein antigens, detection kits, antibodies, nucleic acid-based testing reagents.

We also observed an acceleration of outsourcing R&D activities from pharma and biotech companies due to the COVID-19 Pandemic. We believe this is a long-term tailwind for our Life Science CRO business.

We launched cPass Neutralizing Antibody Detection kit. This is the first kit globally that specifically detects the type of antibody that can block the binding and entrance of virus to — into human cells. Having neutralizing antibody, is typically the best indicator of immunity.

Our collaborators have published the data on Nature Biotechnology and we have submitted an EUA application to the U.S. FDA. Given it is the first kit of its kind, the FDA is currently reviewing it very carefully with great interest.

We have received the first round of feedback from the FDA last week and we are preparing the answers. In the meantime, we are working with dozens of vaccine research and develop — development organizations, drug discovery and development companies, clinical labs, and third-party distributors to broaden the market reach.

Although it is very difficult to give an accurate forecast at this moment since the EUA application is still pending, we are optimistic about the cPass kit’s commercial potential.

Going forward, on page 11, we will continue to leverage our leadership in Gene Synthesis to increase the market penetration of our other products and services by offering protein, peptide, antibody, oligo, and other catalog products and services, we have expanded our addressable market beyond the 1.3-billion Gene Synthesis market.

Our R&D effort has also laid out the ground work for us to enter many high-growth markets. By offering high quality industrial and pre-clinical research tools and building out our GMP-grade production capacity, we are aiming to capture fast-growing markets that are multi-billion dollars. We see a bright future for our CRO business.

On page 12, our Biologics CDMO business, Genscript Probio, grew its revenue by 102.1% to 19 million in first-half 2020. Revenue growth was attributed to successful delivery of ongoing projects and out-licensing of deals. It is worth noting that within Probio, Gene and Cell Therapy CDMO service revenue grew over 500% in the first half — first half 2020.

Thanks to our high-quality standards and tireless business development team, we also saw strong revenue growth from both domestic and international customers. Revenue from China-based customers grew 101% while international customer revenue grew 144.1%

In terms of project numbers in Gene and Cell Therapy CDMO we added 15 pre-clinical stage projects, 7 [CMP] projects, and 9 clinical stage projects. Among these are multiple mRNA vaccine projects including virtually all of the tier-one players in China.

In Antibody Drug — CDMO service, Probio added 120 discovery projects, — 8 pre-clinical development projects, 1 SMAB co-development project, and licensed out 3 Antibody Drug candidates representing significant growth year over year. As of 6/30, we have 14 pre — pre-clinical development projects and 6 SMAB co-development projects, and 1 clinical project ongoing.

This rapid increase in project numbers in turn resulted in significant back-log build up. Total backlog now stands at 75.3 million of which 53.2 million is service back-log. We expect to convert the majority of this service backlog into revenue in the next 12 to18 months.

As Probio grew it revenue and backlog, gross profit also grew about 51% year-over-year to 4.7 million. Gross margin is lower year over year as we continue to invest in capacity and talent to improve its — to support its growth. A lower percentage of Discovery business as a total revenue also contributed to lower overall gross margin since Discovery business is typically higher margin.

Probio also continued to invest in R&D and sales and marketing efforts. As a result, segment operating loss before unallocated central expenses and share-based compensation was about 0.6 million, slightly improved from first half of 2019.

As we are witnessing the boom in Biologics and Gene and Cell Therapy drug development and approval, we will continue to invest in capacity to meet our customer’s demand and support future growth.

We are currently furnishing our second GMP Plasmid building in Zhenjiang. This will double our plasmid and virus capacity when it’s finished by the end of this year. A third GMP facility servicing clinical and commercial stage Gene and Cell Therapy projects will be online in a couple of years.

On the Antibody drug side, we are building a facility in Nanjing this year and it will be finished by third quarter 2021 and increase our GMP capacity to 2,600 liters.

On page 16, turning to Industrial Synthetic Biology products, Bestzyme reported external revenue growth of 3% year over year. Since the majority of this segment’s business is conducted in China on RMB terms, currency translation had a negative impact on reported revenue growth. Constant-currency revenue growth was about 14% in first-half 2020.

Revenue growth was driven by our focus on key accounts to provide clients with solutions instead of just products. We saw significant revenue growth in 8 out of the 10 largest accounts. Top customer revenue growth also outpaced overall segment growth. We also started to gain top-tier international customers such as Cargill.

In terms of major product categories, Bestzyme’s Industrial Enzyme business grew significantly thanks to better market penetration and new product introduction. Feed Enzyme business was flat year over year as domestic and international customer-demand and logistics were negatively impacted by the pandemic.

Biosynthesis business was negatively impacted by the pandemic and weaker Indian demand for drug API raw material due to heightened geopolitical tension. Overall, Bestzyme’s growth continues to outpace the industry and our major competitors in first-half 2020.

Revenue growth at Bestzyme resulted in improved profitability as we leverage fixed production cost. Gross profit increased to 4.3 million in first-half 2020. Focusing on key accounts also — allowed Bestzyme to leverage selling costs.

Segment loss before unallocated central expense and share-based compensation narrowed to $0.7 million. As we continue to grow the topline, Bestzyme is expected to be close to breakeven in second half this year, ahead of our original expectation.

On page 18, Legend continued to push forward in first-half 2020. Revenue was 23.1 million, reflecting continued amortization of upfront and milestone payments. On the BCMA program, R&D expense increased significantly to 101.6 million in first-half 2020.

R&D expenses at Legend included costs for conducting clinical trials in U.S. and China for the BCMA program, which was 73.6 million; non-BCMA R&D expense was 28.0 million. R&D expenses continued to be the majority of Cell Therapy operating expense and contributing to the majority of segment operating loss in first-half 2020.

On the clinical development stage — Legend is also making solid progresses. We updated data from the Phase 1 part of the CARTITUDE-1 Pivotal Trial at ASCO in May. In 29 patients who received treatment, at 9-month follow up, ORR was a 100% and sCR was 86%.

At 11.5 months follow up, 22 out of the 29 patients remained progression free. Compared to data reported last year at ASH, this data continues to demonstrate JNJ4528 can generate deep and durable responses in relapsed and refractory multiple myeloma patients. This is also highly consistent with the ORR, CR and PFS data we have previously observed in Legend-2 China Trial.

In 2020 first half, we have started enrolling patients in a global Phase 3 — randomized study to evaluate JNJ4528 against the current standard of care in patients who have received 1 to 3 lines of prior treatment and that are refractory to lenalidomide.

On page 20, looking at additional upcoming catalysts, we expect to report topline data for CARTITUDE-1 in the second half 2020 at a major medical conference.

We are on track to initiate a BLA filing for JNJ4528 in the U.S. by year end 2020. We expect to file a MAA in Europe in early 2021. We also — we also expect to file BLA in China and Japan in 2021.

Outside of the BL — BCMA program, Legend is also making moves on a number of IIT-pipeline programs including DLBCL, AML, Gastric cancer, Pancreatic cancer, and Allogeneic treatment for Non-Hodgkin Lymphoma. Furthermore, we expect to file IND in the U.S. for CD4 CAR-T treating TCL in the second half of 2020.

Now I will stop here and turn it to Frank to discuss the overall — strategy of Genscript Group. Please turn to page 22.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [5]

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Thank you, Shiniu. Reviewing our first half 2020 results, I’m very proud of the accelerated growth and the financial results our team has delivered. Thanks to our investment in R&D, and our employees’ dedication and hard work, the Company was able to cope with all challenges presented by the COVID-19 Pandemic and seize the growth opportunities that come with the pandemic.

The Company is growing very fast. We are making many important investments in infrastructure, capacity, and talent to make sure we can sustain and even accelerate this growth in the long term.

This year our regional headquarters in Europe and APAC are already contributing to our growth and helping us to achieve a more balanced geographical footprint globally. Our continuous improvements in manufacturing and the process development are helping us to increase efficiency and lower costs, and ultimately pass on the savings to our customers.

Our R&D investment is enabling us to go after the diagnostics and the therapeutics applications. Those are much bigger and faster-growing markets than we are currently addressing.

In Biologics CDMO, we have now established a core GMP capability both in terms of talent and facilities. Combined with our R&D capability and continued investments, we aspire to become a leading GCT CDMO services provider in a few years.

At Bestzyme, our R&D investments enabled us to better serve our clients and optimize our product portfolio. We are also exploring a few opportunities in the adjacent Synthetic Biology areas in order to capture the next wave of explosive growth.

Overall, I think the Non-Cell Therapy business at Genscript is on the right track of growing revenue and profits. With the recently announced management change, I believe Patrick and the next generation of leaders can maintain this momentum going forward.

At Legend, I am personally taking charge of the daily operation to ensure our BCMA CAR-T program can move forward on time and on budget. I am also — aiming to speed up the development of other pipeline programs in order to create more upside for our shareholders at Genscript and Legend.

Taken together, I do expect that consolidated profit and at the Group level will continue to face pressure in the near term due to higher level of R&D investment.

However, I’m sure you will be able to see that the values of both our Cell Therapy and the Non-Cell Therapy business are growing as we continue to make the right choices to improve our business and incubate high potential projects. Over time our shareholders will benefit from it.

Genscript has turned 18-years-old this month. We are proud that we have maintained very strong growth and created satisfactory long-term shareholder returns. Although the journey was not and will not be a straight line, we are confident in our long-term growth strategy of taking calculated bets on high-potential projects. I want to thank you for the continued support. Shiniu?

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Shiniu Wei, Genscript Biotech Corporation – VP, Investor Relations [6]

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Thank you, Frank. Operator, you can open up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of David Liu of Jefferies. Please go ahead.

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Unidentified Participant Jefferies – Analyst [2]

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Morning Management. This is [Ju] from Jefferies, [Christie]. I have two questions. First on COVID-19 and second on U.S.-China tension. COVID-19 has hit everyone in first Q and we expect ex-China would be hit harder than China in general.

But now we in — almost September, can you give us some guidance on the recovery by different segments in different regions if possible. Is there any guidance for the full-year top-line bottom-line growth for Non-Cell Therapy segment?

And the second question is regarding U.S.-China tension, have you seen any massive impact for — from the — particularly on the outlook on CDMO services demand from the U.S. clients? Thank you.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [3]

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Okay, thank you [Christie]. To answer your first question, in terms of regional differences as you correctly pointed out international clients especially in Europe and some U.S. academic clients were hit harder by the pandemic. Also as we stand here now we are observing some recovery both in China and internationally.

And in terms of the full-year guidance, we do expect that our academic customers on the CRO side to recover and the full-year C — Life Science CRO business to grow around 25 to 30%. And for our CDMO business we expect the full-year growth to be over 80% in terms of revenue.

And also on the Bestzyme side we are seeing some improvements from customers and so we do expect on a constant-currency basis external revenue to grow about 20% for Bestzyme. And then your second question was?

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Unidentified Company Representative [4]

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U.S.-China…

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [5]

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U.S.?

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Unidentified Company Representative [6]

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… tension.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [7]

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U.S.-China tension. So maybe Patrick can address that.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [8]

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Yes. So regarding the U.S.-China tension, at this moment we do not see any significant negative impact on our business, and in either short term or the long term we’re not quite sure what’s going to happen with that but we do recognize that the potential does have some impact on the business.

Internally we are trying to leverage our local resources. Let’s say we are [thinking of these happenings, and like overseas, our manufacturing facilities to really (inaudible) [added] risk for the U.S.-China tension, at this moment.

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Unidentified Participant Jefferies – Analyst [9]

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Understood. Thank you.

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Operator [10]

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Thank you for the questions. Next question comes from the line of David Li of J. P. Morgan. Please go ahead.

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David Li, J. P. Morgan – Analyst [11]

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Thanks for taking my question, Management. Congratulations on the interim results. So I have three questions related to the core business.

So for the Life Sciences and Products which who almost 40% in the first half, gross margin also improved very significantly, [really need to] I guess by the COVID-19-related projects, so what’s your gross outlook for full year and next three years and was the main driver for the growth?

The second question is related to the Biologic Development Services. You know, there are already many large competitors in this space. How do you differentiate your services and technology platforms from these already established players?

And the third question is related to the Industrial Hub, Industrial Synthetic Biology products. Can you explain the internal and the external revenue and also what’s your growth outlook for the business, as well as the gross drivers in the next three years? Thank you.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [12]

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Okay. Thank you, David. You do have a lot of questions. I’ll try to answer your first — your first question, and have Brian answer the second question on the CDMO competitive strategy.

So in terms of the — your first question, the Life Science CRO growth as I had answered earlier, the full-year outlook is about 25% to 30% top-line growth. And as we — as we think about it, first half we benefited from COVID-19-related business but also our more traditional academic customers were negatively impacted and as the — although it’s — at this point it’s really very hard to predict how the pandemic will evolve and what the responses will be.

But we do think if the pandemic wave starts to subside, the COVID-19-related revenue will start to come down but our more traditional-academics customers will — the demand will come back so overall we think in the long term we are still very positive on our revenue outlook and we think in the longer term we can sustain a 20% to 25% growth for the — year over year in the next three to five years.

And then on your question about Bestzyme’s internal versus external revenue, as you — as you understand that we have a Group Company — we have a group of companies and sometimes there are inter-segment revenues, our business can — that are conducted so in the first half of 2019, Bestzyme — benefited from providing products and services to our other subsidiaries and that benefit was no longer here in the first half of 2020.

That’s why on the overall revenue growth, Bestzyme was slightly negative when you look at external revenue growth, that revenue through external non-related customers that was still positive, and also because about 15% of the revenue for that time was outside of China, and 85% of the revenues inside China, conducted in R&D based — basis.

When we translate that revenue into U.S. dollars, I mean our reporting numbers, there was a currency hit. And Brian will answer your question about our competitive strategy for CDMO.

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Brian Min, Genscript Biotech Corporation – CEO Genscript Probio [13]

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Hi, this is Brian Min. I think that’s a tough question. Let me try to answer it. I think for us, I think to really differentiate ourselves from other CDMO large and small, I think is the fact that we are investing heavily in research and our capability.

Like I think you know, that’s not many CDMOs are able to innovate and — such as our — especially for our Discovery Services, we have a very strong Discovery Platform which we are going to leverage in the future as well.

And the other piece that I want to talk about is we — our global presence, right. Our global presence in terms of sales and business development network is you know, far greater than some of the other competing CDMOs. I think that’s another competitive edge that we have.

And also in terms of segments, for our GCT business I think we are — we got into the field early enough that we can be pretty competitive in the future if we play our cards right, and also if we keep investing in the research.

For our Antibody business, I think the market is big enough for smaller CDMO like us as well so we need to — all we need to do there I think is we need to find our customer segment that is right for us.

And we’re not going to — you know, obviously be the CDMO for the likes of Merck and JNJ but I think in China there are many antibodies being approved — coming up in the future and we’ll try to find our customer segment there. I hope that answers your question.

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David Li, J. P. Morgan – Analyst [14]

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All right. Thank you, Management.

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Operator [15]

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(Operator Instructions) Our next question goes to Jay Lee of MorningStar. Please go ahead.

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Jay Lee, MorningStar – Analyst [16]

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Thank you. Congratulations on these results. They demonstrate a lot of growth in margin improvement in the Non-Cell Therapy businesses, despite the tough COVID-19 environment.

I have three questions. My first is regarding the profit margins of the Life Science Services products — and products in the [pipeline] business. I noticed that both improved a lot. And I want to get your sense of whether this is — temporary or how much staying power this improvement will have?

My second question, will — is about the CDMO business. Can you comment on whether — what the capacity utilization is right now, if that is a facto? And then the second question is regarding the Zhenjiang [A-D] plant, how much capacity will Phase 1 and Phase 3 have, if you’re able to comment on that?

And then finally my last question is regarding, the — in the segment breakdown, there’s a part called operation (inaudible) which seems to provide — bears about 80% of the total admin expenses, and I just want to get a sense of what the breakout of that was, like how much of that — of those costs are allocated to Non-Cell Therapy businesses versus Legend? Thank you.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [17]

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Okay. Thank you Jay. For your last question, in terms of administrative expenses the majority of that is for our Non-Cell Therapy business.

And then your question about margins, in the Life Science CRO business margin for the first half did benefit from the COVID-19-related products because those are higher margins — higher-contributing margin products and in the long-term let’s say if we assume the COVID-19-related business goes away, we do expect Life Science CRO business to have a stable gross margin around 65%, plus or minus.

And for Bestzyme, the first-half gross margin includes from last year, so — and we expect that improvement will stay here. And for the full year, we do expect around 36%, 37% gross margin. And we think in the future as we continue to ramp up the top line, there’s further room for improvement in gross margin there. And then lastly for your CDMO capacity question, I’ll have Brian answer that.

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Brian Min, Genscript Biotech Corporation – CEO Genscript Probio [18]

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Yes. So right now for our Antibody, we launched our first building, our Building A, last July so it’s been about a year or so. That building is mostly for development and it has a two, 200-liter GMP Bioreactors. And that building is running at nearly a 100% capacity right now.

And the other building that is launched in December of last year so it’s been about six months, that which is our Virus and Plasmid Building, and that building is running at about 30% to 40% capacity right now. We do expect that to increase.

And for our [next] buildings that are coming online, which is our second GMP facility which will be online October of this year, and also our (inaudible) GMP building which will be third quarter of next year, those will be just in time I think for us to you know, to have the sustainable growth in those — in the months to come.

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Operator [19]

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Next questions will comes from the line of [Catherine Wang] from [Python] Securities. Please ask your question.

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Unidentified Participant Jefferies – Analyst [20]

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Thanks a lot for taking my question. I’m [Peg] here from (inaudible) Security. I have two questions.

First, what’s the revenue from COVID-19-related [products] and how many COVID-19 [products] we have, especially how many COVID-19 drugs [products] or vaccine [products], respectively, and I also want to know more about the sustainability of COVID-19-related revenue. Are these [products] expected to generate consistent revenue, in the next year and the year after.

And the second question is for the Industrial Synthetic Biology segment. When do you expect the — [in the] (inaudible) Biology [products] can break even, and what’s the percentage of the revenue from overseas, and will this segment recover from COVID-19 in the second half of this year?

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [21]

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Okay. Thank you. I think those two questions are related, so in terms of COVID-19 impacts, as we had stated previously on the Life Science CRO business, they are say positive impact of about 27 — 23.7 million in COVID-19-related products. But also there was a negative impact on our academic customers, and that was difficult to quantify.

And in terms of our CDMO business, we do have a number of [products], related to COVID-19 but as you probably noted, many of those are still in early discovery or early sort of manufacturing stages so revenue recognized in the first half on the CDMO business from COVID-19-related [products] was not very much.

And then on the Industrial Enzyme business, Bestzyme customers were negatively impacted because of logistics issues and also [weaker in compassionate] demand. International business is about 15% of the total Bestzyme business.

We estimate about 3 million, so — or so — sales were delayed or negatively impacted there in the first half. So overall we would say there’s some positive impact and some negative impact from COVID-19.

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Unidentified Participant Jefferies – Analyst [22]

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I get you. Thank you.

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Operator [23]

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Our next questions comes from the line of Linda Shu of Haitong International. Please go ahead.

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Linda Shu, Haitong International – Analyst [24]

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Thank you for taking my question. Actually I have two quick questions. One is that — actually one is focus on [customer about] COVID-19-related orders. And I would like to especially know about the contribution of the revenue by the cPass kit which is the first one to test the neutralizing antibodies, and is there any planning to commercialize this kit in China? This is my first question.

And my second question is, I would like to understand the reason for the change of [cPass] margin of the Industrial — Synthetic Biology, which was up by 8%, and also the Biologic CDMO which was down by 8 — 8.4%, and any guidance of the full year’s margins in each segment? Thank you.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [25]

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Okay. In terms of cPass-related revenue, I’ll have Aaron talk about that. And then Patrick will talk about the management expectation for that.

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Aaron Qian, Genscript Biotech Corporation – VP, Finance [26]

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Okay. In the first, how did cPass (inaudible) in the production (inaudible), we did not record much cPass revenue in the first half [as you see from the numbers] around (inaudible) million.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [27]

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Okay Patrick.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [28]

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Yes. So yes, so I think (inaudible) confirm upside is (inaudible) [product] and that can be used to detect neutralizing antibody which are the (inaudible) indicator of our immunity. Also it is not guarantee that immunity to the — to the potential patient.

And so from the business side, we already have been in the (inaudible) market in Europe. We are already doing the retrofitting with many countries in Europe. We hope there will be some positive contribution to our revenue in the second half of the year. In the — in the U.S., and we already submitted an EUA application to FDA.

Now it’s antibody, we already got a first one our [questions] from FDA, and we’re trying to address other criteria with the (inaudible). In particular in China, as you just ask, I’ll be — yes, we also have been planning to register with [MC] as well, now is you — like a in progress.

And so in terms of the potential revenue contribution, we would like to see some revenue contribution from Europe, and the second half of the year but for U.S., there definitely some kind of uncertainty. And although from the first [round of] (inaudible) we have a few positive but it do — depends on regulatory coming from the [IP]. Overall we (inaudible)…

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Linda Shu, Haitong International – Analyst [29]

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Got it, guys.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [30]

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… yes but it has uncertainty, regulatory uncertainty [over the] (inaudible).

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Aaron Qian, Genscript Biotech Corporation – VP, Finance [31]

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And also in terms of margins, gross margin side, for Bestzyme we expect the full-year gross margin to be 36% to 37%. And we do expect in the future there still upside, Bestzyme gross margin.

And for our CDMO business, gross margins we think for the full year will stay in — will be close to the first year — first-half levels as we will continue to invest and prioritize revenue growth.

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Linda Shu, Haitong International – Analyst [32]

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Got it. Got it. Very encouraging. Thank you very much.

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Operator [33]

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Thank you for the questions. The next questions comes from the line of [Jo Huo] of CMVI. Please go ahead.

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Unidentified Participant Jefferies – Analyst [34]

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Thank you. Thank you for taking my questions. I have two questions. One is could you please further elaborate your customer mix for your Biologic CDMO business, like how much is — how much of your in — of your income is from Big Pharma and how much from [biotech] companies and I would also follow up on the previous question that the split of your CDMO income from domestic and overseas customers? Is my first question.

And my second question is on the preparation for your commercialization of your CAR-T products in the U.S. given that you’re going to — submit your POL — POA before the year end, so I believe it will be quite [virtuous] so you could prepare for the commercialization (inaudible) and could you please tell us how much is your manufacturing capacity and how large growth is your sales teams? That is all my questions. Thank you.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [35]

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Okay. Thank you [Jo]. Your line wasn’t very clear so if we understood correctly, you were asking about CDMO revenue split in terms of domestic and international, and also in terms of Big Pharma versus small biotechs?

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Unidentified Participant Jefferies – Analyst [36]

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Correct.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [37]

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Okay. Maybe Brian will have — help answer that.

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Brian Min, Genscript Biotech Corporation – CEO Genscript Probio [38]

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Okay. Well, thank you, for the question. Our business in terms of by region, China is the most important region, having about 60% of the business. And next is the U.S. with about 30%. And AP having the rest. Europe is right now the smallest market, having negligible revenue.

In terms of — in terms of the different customer segmentation, so far the most of our business is coming from small biotech and midsize biopharma, and we have a very negligible business from big multi-national pharma so we do have some business there as well.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [39]

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And [Jo] your second question was about our preparation for the CDMA CAR-T product, the commercial launch?

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Unidentified Participant Jefferies – Analyst [40]

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Yes. That’s right.

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Patrick Liu, Genscript Biotech Corporation – Rotating CEO [41]

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Okay. I think, as you understand Legend and our partner, JNJ are — actively working on that and in the U.S., JNJ is leading that effort, although Legend will be responsible for manufacturing.

And because of the nature of the collaboration we are not at liberty to talk about our manufacturing capacity at this moment. I hope you understand (inaudible).

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [42]

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I’ll kind of added — to that, this is Frank, so for the commercial alliance, we actually invest (inaudible) in this firm. We have hired all the key positions about two years ago and so we are going to start the recruiting the salesperson, the increased pace of hiring (inaudible) for the (inaudible) for 2021, and therefore for U.S., we are going to partner with Johnson, we are going to contribute 50% of working force.

(inaudible) going to contribute another 50% so in China we are going to be using the commercial effort so we are well prepared for the (inaudible).

For our manufacturing facility, we feel the commercial manufacturer in U.S. and we have built sufficient manufacturing space for [we think, improved state of] demand in this facility. And we also feel the commercial manufacturing facility in China, for ready for the commercial [launch].

In the meantime we are also planning to start of our manufacturing facility in Europe, to add more capacity for the Europe commercialization.

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Unidentified Participant Jefferies – Analyst [43]

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Very clear. Thank you.

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [44]

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Thank you.

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Operator [45]

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Thank you for the questions. With that, I’d like to hand the call back to the Management for any closing remarks.

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Shiniu Wei, Genscript Biotech Corporation – VP, Investor Relations [46]

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Great. Thank you, Operator. Thank you everyone. This concludes today’s call. And we look forward to speak to you again, at the Full-Year Results Conference.

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Operator [47]

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Thank you ladies…

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Frank Zhang, Genscript Biotech Corporation – Genscript Board Chairman & Legend CEO [48]

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Thank you.

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Operator [49]

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… and gentlemen. That does conclude the conference for today. Thank you for your participation. You may now disconnect the lines.