Genscript Biotech Corporation

Good day and thank you for standing by. Welcome to Genscript Biotech 2024 Annual Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Xinyu Wei, CFO. Please go ahead.

Thank you, Maggie. Good morning and hello to everyone. This is Xinyu Wei, Chief Financial Officer of Genscript. Welcome to our company's 2024 Annual Results Conference Call. Joining me on the call today are Mr. Robin Meng, Chairman of the Board, Ms. Sherry Hsiao, Rotating CEO of Genscript, Dr. Ray Chen, President of Genscript Life Science Group, Dr. Ai-Shi Bai, General Manager of Best Time, and Mr. Alan Guo, CEO of Provide. During today's call, will be making statements about future expectations, plans, and prospects, as well as any other statement regarding matters that are not historical facts, which may constitute forward-looking statements. Actual results may vary materially from those indicated by such forward-looking statements because of various important risk factors and changing market conditions. We do not undertake any obligation to publicly update any forward-looking statements. During today's call, Sherry will present our annual business highlights, and I will guide you through the company's financials and future outlook. Following that, we will open the floor for Q&A session. As a reminder, today's presentation can be accessed on our investor relations section of the company's website. Now I will turn it over to Sherry.

Thank you, Xunil. And thanks to everyone for joining today's call. in 2024, despite industry hindrances and geopolitical tensions, GenScript remained resilient and achieved exciting breakthroughs. Before delving into each segment, let me provide a high-level overview. In the life sciences sector, despite geopolitical tensions affecting the first half, we experienced a strong recovery in the second half. driven by the solid customer trust we have established over the past two decades. Our protein segment, representing about 25% of life sciences revenue, achieved remarkable growth by capitalizing on the integrated strengths of our gene and protein platform and our continuous improvement on platform capabilities. We were able to deliver and exceed customers' expectations. This success unscores the exciting growth potential of our protein segment, unlocking a broad market for transcripts. In the CDMO business, following industrial trends in the past two years, ProBio has seen a strong recovery across North America, China, and Europe. Furthermore, through collaboration with Lenovo, provides its point to generate substantial cash flow in the coming years. We anticipate receiving a one-time upfront payment from Lenovo in the first half of 2025, along with potential milestone payments over time. The cash flow from the Lenovo deal will support our continued global expansion. BASAM's business continued to thrive, delivering up-to-year revenue growth in the enzyme industry and injecting new vitality into the sector with solid innovation. In product innovation, cost optimization, and key account development, BESM has achieved notable breakthroughs. In 2024, Janswept accomplished a turnaround in profit. We expect group-level profit to remain positive in 2025 and 2026. Beyond 2026, with improved profitability from our associate, Legend Biotech, the group's profitability is poised for further improvement. As of the end of 2024, Janscript has a global force of over 5,500 members, driven by our innovation-led growth strategy. 10% of our workforce is dedicated to R&D, leading the industry. With ongoing investment in research and development, GenScript has amassed over 250 patents and has more than 480 patents in the application process. We serve customers from over 100 countries and regions. positioning us as a global leader in the industry. Next page. Before diving into our business update, I'm excited to highlight the strides we have made in ESG. After joining the United Nations Global Compact, UNGC, we further solidified our sustainability commitment in 2024. Both Genscript and our subsidiary, Provile, became supplier partners of the Pharmaceutical Supply Chain Initiative, PSDI, supporting the industry's sustainable supply chain. We were awarded the bronze medal by Axis Bodies, placing us in the top 35% globally among all assessed companies. Our MSCI ESG rating was also upgraded from BBB to A, reflecting capital market recognition of our ESG efforts. We are collaborating with global partners to tackle climate change challenges. In early 2025, our carbon reduction targets were validated by the Science-Based Target Initiative , and we are committed to achieving net zero emissions across our value chain by 2050. On the social responsibility front, we are actively fostering a diverse and inclusive platform. Across multiple countries and regions, we advance local recruitment to boost employment and better integrate our operations into local communities. In 2024, we launched a global volunteer platform to support health, education, and environmental protection initiatives in local communities. Regarding corporate governance, we have established functional committees to enhance the roles of directors from diverse backgrounds. In 2024, we had the privilege of welcoming Ross Grossman, Alphonse Galdas, and John Koch to our board. Their expertise in corporate governance, sustainability, and global strategy will be instrumental in helping GenScript navigate complex global environments. has delved into our business highlights, starting with the life science group. In 2024, our customer base grew to 60,000 active customers. By the end of 2024, Gemscript's services and products were cited over 100,000 times in scientific journals, demonstrating strong recognition and trust in our work. In 2024, Genscript launched the Life Science Research Grants Program globally. This initiative is dedicated to empowering researchers by providing grant funding earmarked for utilizing Genscript regions and services. Through this program, we offer support to 117 pioneering research labs fostering collaboration, advancement, and excellence in life science research. Also, the GenSquad Biotech Global Forum has emerged as a prominent industry event, serving as an open and inclusive platform that promotes collaboration between academia and industry. The success of our life science business in 2024 is attributed to three key factors. Number one, industry-leading speed. To help our customers accelerate scientific breakthroughs, we are dedicated to pushing our limits and establishing new industry benchmarks for reagent services turnaround time. We proudly introduced the Flash Gene, offering a turnaround time of just four business days 50% faster than the industry. This covers gene synthesis, cloning, and plasmid preparation, which are all added time from other vendors. Importantly, all at flat rates for easy budgeting and ordering. These services are available from our global facilities in the US and China. We also introduced the TurboTrue protein expression, as quoted by many of our customers from Global Pharma and Biotech. This is a game changer. From frequencies to purified antibodies, we deliver reliable and high titer antibody expression services at high throughput in as little as five business days. Also designed to expedite discovery and target screening in devils, streamline mRNA library construction, and more. We introduced another industry defining 10 business days turnaround time, rushed RNA synthesis services. We are continuously enhancing our enabling platforms with cutting edge technology and unprecedented scale. Our intelligent production and automation have enabled us to provide high quality reagent services at significant cost savings. In 2024, our flat rates for flat gene not only addressed customers' concerns about fluctuating and complex pricing based on base pairs, but also delivered three times more cost savings. Additionally, our upgraded TurboChill antibody expression platform offers reliable premium quality services at nearly half the market price. More importantly, we were able to maintain a stable profit margin through internal cost optimization. Furthermore, in 2024, we successfully formed our scientific advisory board. We are truly thankful to have pioneering scientists, Dr. Ka Jun, Dr. George Church, and Dr. Liu to guide our R&D directions in a way that is deeply driven by research applications. From doubling titers in our 2.2 platform to being the first few pioneers in offering SARNA, from making ultra-long sites possible for next generations of gene editing to supporting the first-hand clearance for NK cell therapy from the FDA, from developing instruments made plasmid purification easy through automating cell isolation. We kept innovating to better serve science and make discovery easy. Next page. Here I would like to highlight our protein business here. The addressable market of protein reagents is over 4.5 billion US dollars. This market demand will keep growing with more discovery efforts in antibody drugs, as well as the promise of AI-driven protein engineering. For a long time, we have strategically pinpointed the protein business as the upcoming key growth driver for Genscript's life science group. And our strategic efforts have started generating solid returns, as I presented in overview, our protein business grew significantly in 2024, achieving nearly 50% revenue growth. The success in the protein business can be attributed to our operation excellence and proactive marketing strategy. Importantly, we also have a unique advantage to make this growth happen, that is, we have the world's Number one, gene synthesis platform. The integration of dedicated gene platform and protein platform made the industry defining speed of protein services possible. Compared to the first quarter of 2024, the proportion of genes delivered to our protein work increased by 12% points in the fourth quarter. The growth of our protein business certainly has driven growth for gene synthesis. As you can see from the figure, the volume of our genes synthesized increased with rapid and steady growth rates across all four quarters in 2024. More importantly, our continuous innovations in production automation at scale, intelligent production, and proprietary expression systems further enhance our delivery reliability, premium quality, and most importantly, platform profitability, even when we charge over 50% less of the market price. In 2025, we will further strengthen and utilize the synergy between our gene and protein platforms to deliver and exceed our customers' expectations. We are also upgrading other protein expression platforms and will soon launch our upgraded E. coli platform featuring a five business day turnaround time. By the second quarter of 2025, we expect to shorten our insect expression platform turnaround time to two weeks. Next page, building and expanding our capable capacity globally. and being closer to our customers has been our key localization strategy for the past four years to further strengthen supply chain resilience, enhance customer accessibility, and optimize production costs. It has been our commitment to our customers that we will be able to deliver the same premium quality reagent services at scale from any of our global facilities that are closer to you. In both of our newly expanded New Jersey gene and plasmid facilities and Singapore gene and protein facilities, we are able to deliver significantly more and more profitable and with significantly shortened turnaround time. in 2025 and beyond, we will expand more protein and gene to plasmid capacity in the US, China, and Singapore. Also, we are expanding our mRNA lab from Seattle to Netherlands. Then into our CDMO provider. Despite industry henwin, ProBio continues to serve our customers with the highest industry standards. Starting with our new orders booked in 2024, we observed an upward trend in the first half of the year and this trend continued to accelerate in the second half. In protein and antibody CDMO business, we secured 28 new CMC projects 50% from China region. We helped clients obtain 12 new R&D clearances and successfully delivered the first PPQ project, which anticipates submitting the BLA in 2025. In the first half of the year, we signed the first 2,000-liter CMO order. marking a significant milestone for our CDMO business. This project will enable us to further accumulate experience in late stage commercial production and quality systems, paving the way for us to become a more competitive global CDMO. In the CGT CDMO segment, we secured two new PCPV projects and 23 R&D clearances and supported 33 new CMC projects. We delivered the first PPQ project integrating plasmid and viral vectors and supported the client in submitting the BLA. In AAV manufacturing, we delivered 200 liter GMP batch and helped the client successfully obtain R&D approval. Notably, our partners, ChampionGene and Lenovo, have entered into strategic collaborations with GSK and Merck, respectively. In this project, ProBio has entered the development of this clinical asset consistent with global pharma quality standards. We are seeing more biotech companies take out ProBio services thanks to our high-quality standards. In terms of capacity, we launched a commercial biologics manufacturing facility in April 2024. Also, we launched our fuel finish line in Zhengjiang. It can support commercial production of liquid and life-life formulations. With the Maxima bench, capacity of 192,000 units. In the CGT field, our Zhengjiang-based CGT team works on enhancing GMP-level suspension and adherent varivector production capacities. At U.S. CGT site at Hopewell, our GMP Cosmic production line is operational and is currently working on its very first CGT order. I'd like to extend my gratitude to our team for this . Our GMP AAV production line is expected to start operation in Hopewell in the third quarter of 2025, followed by the GMP LVV production line by the first quarter of 2026. by expanding capacity in both China and the U.S. We believe we can mitigate supply chain risks for our customers and significantly shorten delivery time. Next page. In 2024, our partner, Lenovo, entered into a $3.3 billion collaboration agreement with Merck with an upfront payment of 588 million US dollars. Since the NGPD-1 single domain antibody in this project was exclusively licensed by Provile to Lenovo. Provile is entitled to 40% of the upfront payment and 25% of potential milestone payments that Lenovo will receive from Merck. we noticed that the transaction has been approved by the regulatory. Therefore, we expect to receive the upfront payment from the NOVA in the first half of this year and future milestone payments over the course of the collaboration project. I'd like to introduce Provile's NME Outlicensing Business Model. The outlicensing of Molecular is based on provides years of continuous development and accumulation in new molecular development as well as our industry insights. Currently, we have over 30 pre-developed projects with high-value targets. Notably, our proprietary CD3 VHH and CD3 TCE pipelines virtual innovative contracts, better developability, and improve the efficacy and safety, primarily targeting cancers with potential applications in autoimmune disease as well. To date, we have accumulated 16 licensing projects, two of which have entered clinical stage, depending on partners research, funding, and anti-efficiency, we offer flexible collaboration options, including favor service, co-development, asset buyout, and licensing out. Turning to our industrial synthetic biology product segment, Bethlehem. Bethlehem continued to maintain rapid growth in 2024. with its growth rate ranking among the top tier in the industry. Currently, its products primarily serve the growing processing, food and nutrition, animal nutrition, and health, and household care and textile industries. Growth in 2004 was driven by rapid expansion of mass share and improved product competitiveness. In terms of market expansion, the percentage of revenue from key accounts continues to grow, and these accounts have increased their spending is best then. We have strengthened our IP portfolio, ranking top tier in enzyme industry. In 2024, two of our co-products, high temperature resistant phytase and detergent protease were guaranteed patents. We also intensified IP protection. This lays a solid foundation for us to build trust with clients, especially leading players in downstream applications. We accelerated global expansion in 2024. Revenue from fChina accounted for about 19% of Bethlehem's revenue. Bethlehem is expanding into a larger market with more potential on profitability, driving Bethlehem's further rapid growth. In terms of product competitiveness, we continue to increase market share through product performance enhancement and cost optimization. In 2024, our top five products by revenue continued their rapid growth. We also launched higher value products to build barriers to ensure and reinforce our co-competitiveness. For example, revenue from our detergent enzyme, Purivise, nearly doubled compared to 2023. We anticipate explosive growth for to revise in 2025 as more industry-leading companies start to increase their purchases from us. In the synthetic biology pipeline, we are advancing regulatory-approved and pilot production for natural sweet protein. We have completed industrial-scale trial production for natural sweet protein, attained self-affirmed graph and submitted a graph notice to the US FDA. Our natural sweet protein has been successfully launched in the US market. Additionally, we are advancing a robust synthetic biology pipeline. Next page. We anticipate that BASAM will continue its strong momentum to address capacity needs. BASAM comes to construction of a new facility in the second half of 2024. This facility represents a total investment of RMB 800 million and is selected for completion by 2027. It will enhance capacity for the enzyme business and support the commercial production of synthetic biology products. Additionally, We have increased our investment in R&D capabilities and team to support future growth. To conclude the business update, I'd like to invite Xunil to share the company's financial performance for 2024.