Genscript, Legend Biotech founder arrested in China for suspected smuggling

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Fangliang Zhang, founder of Chinese CDMO Genscript and Johnson & Johnson's CAR-T partner Legend Biotech, has been arrested in China for suspected smuggling. (tolgart/ iStock)

Two months of “residential surveillance” have now been turned into an official arrest for Fangliang “Frank” Zhang, the founder of Chinese CDMO giant Genscript Biotech and its CAR-T subsidiary Legend Biotech.

Genscript made the announcement (PDF) on Saturday, and the company’s stock in Hong Kong immediately tanked 14.8% on Monday.

The arrest was for “the suspected offense of smuggling goods prohibited by the import and export regulations” in China, a securities filing shows, quoting a copy of the arrest notice issued by the Chinese customs’ anti-smuggling department in the city of Zhenjiang.

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No formal charges have been filed, and the exact nature of the goods Zhang allegedly illegally trafficked remain unknown. The handling of human genetic sources such as blood and cells might be implicated, given the Chinese government has lately been further tightening its regulation of the sector—especially when foreign entities are involved. Two other Genscript employees who handled international trade activities have also been arrested, according to the company.

As a result, Zhang has resigned from his position as the chairman of Genscript, which he founded in 2002. He has also resigned from a board position at Legend, the partner of Johnson & Johnson on investigational anti-BCMA CAR-T therapy cilta-cel (LCAR-B38M/JNJ-4528). The CAR-T specialist said it doesn’t believe that it’s a subject of the authority’s investigation, but Genscript’s statement didn’t include that language.

RELATED: J&J CAR-T partner Legend's new CEO under 'residential surveillance' after Chinese customs raid

Zhang founded Legend in late 2014 and served as its chairman before taking over as CEO in August. But after less than two months at the job, he was put under residential surveillance—which is a form of detention in China—after local customs raided Genscript’s offices in Nanjing and Zhenjiang.

Since then and before Saturday’s disclosure, Legend has filled his CEO and chair roles permanently by Ying Huang and Ye “Sally” Wang, respectively. Huang was previously Legend’s chief financial officer, joining in 2019 from a position as head of biotech equity research at BofA securities.

Zhang has also shed his board seat “to avoid unnecessary distraction” to the company, Legend said Monday. In addition, his chair role at Genscript is now being filled by executive director Jiange Meng.

RELATED: 10 biotechs to know in China | Legend Biotech

Legend is at a critical point in the company’s history as it edges closer to its first commercial product in cilta-cel. The company plans to file cilta-cel for Chinese approvals next year, and J&J has said it intends to file it in relapsed or refractory multiple myeloma this year, putting it in a collision course with Bristol Myers Squibb and bluebird bio’s ide-cel, which bears an FDA action date of March 27, 2021.

Earlier this month, Genscript won FDA emergency use authorization for cPass as the first commercially available SARS-CoV-2 neutralization antibody detection kit. In the first half of the year, the CDMO recorded revenues of about $166.4 million, up 46.5% year over year, with the majority coming from its CRO side of the business. The company said its operation remains normal at this point but it has retained legal service as appropriate.