Legend Biotech has managed to remove Genscript Biotech as its majority shareholder, just as the former parent’s Chinese background falls under a U.S. biosecurity microscope.

After a financial maneuver by Legend, Genscript no longer considers itself as the cell therapy biotech’s majority shareholder, both companies said in separate securities filings Tuesday.

The announcements came shortly after Genscript lost the power to cast the majority of votes at Legend’s annual shareholder meeting Monday. As a result, Genscript’s board has moved to separate Legend from the Chinese CDMO’s financial reports and will instead treat it as an associate company.

Even after the untangling, Genscript is still assessed to have “significant influence” in Legend, Genscript said in a filing (PDF) to the Hong Kong Exchange. As of Sept. 30, Genscript still owned just under half (47.6%) of Legend’s shares.

The move comes around five months after lawmakers on the U.S. House of Representatives committee on China, the driving force behind the controversial draft BIOSECURE Act targeting certain Chinese biotech companies, requested an intelligence briefing on Genscript. At that time, Legend’s name also appeared on the request alongside two other Genscript subsidiaries.

The scrutiny on Genscript raises a potential threat—however small—that Legend may fall victim to the BIOSECURE Act through collateral damage. Amid the geopolitical tensions—and a separate report of a buyout interest in the firm—Legend CEO Ying Huang, Ph.D., said during an investor call in August that the company’s board and management “have been taking a close look at our business.”

In a statement to Fierce Pharma on Tuesday, a Legend spokesperson said the removal of Genscript as the majority shareholder was not triggered by the BIOSECURE Act nor the geopolitical situation.

“Rather, Legend is committed to good corporate governance and the Annual General Meeting of shareholders on October 21st provided an opportunity to update this policy,” the spokesperson said via email.

As part of a standard risk statement for a company that’s controlled by a majority shareholder, Legend has been warning in its annual securities filings that Genscript’s interests “may not always coincide with our corporate interests or the interests of our other shareholders.”

Legend effectively downgraded Genscript's investor status by ending its use of a “discretionary proxy” during shareholder votes. In discretionary voting, a proxy may cast votes on behalf of shareholders who haven’t provided specific instructions on how they wish their shares to be voted in a timely manner. That representative used to be Legend’s chairman, a position that has been held since 2022 by Frank Zhang, Ph.D., founder of both Genscript and Legend.

Thanks to this discretionary proxy, Genscript previously effectively controlled more than 50% of the voting rights in Legend even though it owned slightly less than 48% of outstanding Legend shares.

But, on Oct. 18, Legend reached a new agreement with its U.S. securities depository, JPMorgan Chase, deciding that it will no longer exercise the discretionary proxy, according to Genscript. That effectively eliminated the company's use of the discretionary proxy.

“In the best interests of shareholders to ensure that their votes cast exclusively determine the outcome of matters to be decided by shareholder vote, Legend removed its discretionary proxy when no voting instructions are given,” the Legend spokesperson confirmed to Fierce Pharma.

As Legend put an end to the proxy for non-votes, and, as roughly 95% of its shares were cast during its 2024 annual meeting Monday, Genscript has determined that it has “no power to unilaterally govern the financial and operation policies” of Legend.

Meanwhile, Legend is currently busy expanding for its Johnson & Johnson-partnered CAR-T therapy Carvykti. Thanks to an FDA approval in second-line multiple myeloma, Carvykti’s sales, as booked by J&J, jumped 87% year over year in the third quarter to reach $286 million.

Genscript, a major supplier of life science services and product provider, said it is still quantifying the financial impact of the deconsolidation but expects to record a significant amount of gain because of the large gap between the market value of Legend shares and the carrying value of Legend’s assets.