With the rise of the ADC drug race track, major pharmaceutical companies are competing for potential blockbuster drugs from ADC, causing global ADC drug cooperation transactions to rise all the way.
Recently, MSD announced that it had won the rights of the first three companies, HER3-DXd, I-DXd, and R-DXd ADC drugs, with a total transaction amount of 22 billion US dollars.
The announcement states that the two parties have reached a global development and commercialization agreement on three candidate ADC drugs developed by First Third Co using the proprietary DXd ADC technology platform, namely Patritumab deruxtecan (HER3-DXd), ifinatamab deruxtecan (I-DXd), and raludotaug deruxtecan (R-DXd). They will work together to jointly develop and potentially commercialize the aforementioned candidate ADC therapies on a global scale. The First Third Party retains exclusive rights in Japan and is fully responsible for production and supply.
This is the second time that AstraZeneca set an ADC transaction record for the first three companies, the first three companies, after winning the ADC drug DS-8201 with a total price of $6.9 billion in 2019. This is also another major layout of MSD after introducing ADC drug transactions with Chinese pharmaceutical company Kelenbotai three times, with a total amount of over 10 billion US dollars.
Shortly afterwards, Hansen Pharmaceutical announced that its wholly-owned subsidiary Hansen Biotech and GlaxoSmithKline Intellectual Property (No. 4) Limited (licensee), a wholly-owned subsidiary of GlaxoSmithKline, had entered into a license agreement, according to which the licensee would be granted a global exclusive license (excluding Chinese Mainland, Hong Kong, Macao and Taiwan) to develop, produce and commercialize the ADC drug HS-20089. Hansen Biotech will receive a down payment of $85 million (equivalent to over 600 million RMB) and is eligible to receive a milestone payment of up to $1.485 billion (equivalent to over 10 billion RMB) for HS-20089.
CITIC Securities pointed out that ADC's technological breakthroughs have brought rapid development to the industry. The emergence of DS-8201 (First Three Co/AstraZeneca Enhertu, commonly known as Detrituximab in Chinese) heralds the arrival of the next generation of ADC, from "higher toxicity, smaller DAR value" to "higher DAR value, more stable Linker", pushing the clinical efficacy of ADC to another level.
In addition, the number of transactions in the ADC field has shown a rapid growth trend in the past five years, with a 50% increase in the number of transactions in 2022 compared to 2021; In terms of transaction amount, the global ADC transaction amount reached a historic high of 25.197 billion US dollars in 2022. From the current perspective, this amount will reach a new historical high in 2023.
ADC is rapidly emerging as one of the most closely watched tracks in the global field of innovative drugs. Multinational pharmaceutical companies quickly enter this arena through mergers and acquisitions and authorized cooperation.
In this global competition for ADC, Chinese pharmaceutical companies have quickly followed suit, leading the world in terms of layout speed. Whether it is the number of authorized projects or the size of transaction amounts, there is a trend of "overtaking on the bend". Regarding this, Liu Jun, CEO and Executive Director of Dongyao Pharmaceutical, told 21st Century Economic Report that ADC drugs have a development history of over 20 years. Judging from the number of research and development enterprises, the number of projects entering clinical trials, and the number of drugs approved for marketing, the entire ADC circuit has entered a stable and relatively mature stage.
In the past year or two, there have been frequent collaborations between domestic and foreign companies on the ADC track, but there is still a long way to go in order to enter a relatively sustained and stable upward period, "Liu Jun said.
Statistics on China's ADC License out transactions in recent years (as of October 10, 2023) Source: China CITIC Securities ADC Track Rapid Development
The layout of the ADC track can be described as a "bumpy ride".
In 2000, the early ADC drug development process was rapid, which led to the first ADC drug being approved for market launch. However, it was later withdrawn from the market due to safety issues. Subsequently, after 20 years of re listing, this was also the early stage of ADC drug development. After entering 2012-2013, two ADC drugs with good therapeutic effects were successively approved and launched, sparking a "boom" in ADC research and development in the market. But then, the market fell silent for many years, due to the immaturity of random coupling technology, which led to some clinical trial projects failing and not being favored.
Until 2018, technological development was far better than the early stages, resulting in approximately 2-3 ADC drugs being approved each year. The continuous market development has led industry planners to seriously invest in the entire ADC drug research and development team.
According to Frost Sullivan's report, global sales of ADC drugs were approximately $7.9 billion in 2022, with a compound annual growth rate of over 40% since 2018, and it is expected to further increase to $64.7 billion by 2030. In terms of acquisition, since 2022, there have been over 100 acquisition and authorization transactions involving ADC; At the same time, ADC licensing transactions are also on the rise, with a total of 63 ADC licensing transactions worldwide in 2022, an increase of 270% compared to the previous year.
According to publicly available data, as of March 31, 2023, 15 ADC drugs have been approved globally, with over 500 ongoing clinical trials involving 222 ADC candidate drugs. There are over 170 ADC drugs under research in China alone, of which nearly 60 are in the clinical stage.
CITIC Securities also believes that China's pharmaceutical industry ADC is rapidly catching up with the global innovation wave and achieving a considerable number and amount of external authorization. Recently, multiple domestic and foreign ADC candidate drugs have released important data at the ESMO conference, which is expected to trigger a new wave of ADC drug research and development.
Liu Jun introduced that in the past two years, Biotech companies that have laid out ADC tracks in China have signed projects with multinational pharmaceutical companies abroad, which actually means that the trend of "going abroad" is constantly accelerating. According to our observation, China has a significant advantage in the layout of ADC circuits, and the overall number of domestic ADC projects has even exceeded the number of research and development in the United States. In the following year, expanding overseas markets is also a key direction for all parties to layout
In a recent interview with 21st Century Economic Report reporters, Liu Bowei, co head of China Investment Bank at JPMorgan Chase, also pointed out that ADC drugs have high difficulty in technological research and development. This is a drug that needs to connect a large molecule (NT target) with a very toxic small molecule, and also needs to have strong stability, safety, and a very high threshold in process development. This also means that although ADC is not the latest track, in the past decade, there have been fewer approved drugs in the ADC field and the industry has not achieved significant development. Until recent years, HER2 targets achieved tremendous success, leading the industry into a period of rapid development.
Chinese pharmaceutical companies have many outstanding engineers in chemical processes and have accumulated a lot of experience in the technical field, so this is also why Chinese companies are currently accelerating their catch up and surpassing some global companies in the ADC field, achieving 'overtaking on curves'. Liu Bowei introduced that from data performance, among the companies that conducted ADC circuit layout globally from 2022 to the first half of 2023, There are a total of 35 projects being promoted by Chinese enterprises, while 25 projects are being promoted by American enterprises. From a quantitative perspective, Chinese enterprises have made rapid progress in project "going overseas" and transformation in the global wave.
The challenge of commercialization is difficult
From the current market situation, ADC has already hit the market and is becoming the next PD-1 in terms of popularity. So, is the ADC track suitable for increased investment?
The answer may not necessarily be. After all, there are many companies that have exited the ADC market. For example, on August 23rd, Abervey updated the pipeline and removed two ADC pipelines from its product line, including ABBV-011 and ABBV-647, which collaborated with Pfizer; Previously, Yunding Xinyao also announced to the public that it would cut off the ADC plus mRNA race track; Hong Kong listed company Dongyao Pharmaceutical also announced the termination of phase III clinical trial research and development of HER2 targeted ADC (antibody coupled drug) TAA013 in China. This is also due to the significant R&D and commercialization barriers on ADC circuits.
Even the leading company in the ADC field, First Third Party, recently lost in the patent dispute over its heavyweight product DS-8201 and was sentenced to pay Seagen 8% of DS-8201 sales as a patent license fee. In addition, at the same time as the introduction of three ADC drugs with the first three companies, Kelenbotai announced on October 23 that its two ADC authorized cooperation projects were "returned" by MSD.
ADC is different from antibody drugs in terms of overall process investment, recruitment of high-end talents, and accumulation of experience. However, domestic CDMO companies are relatively good at this aspect, which is also the reason for the popularity of domestic ADC research and development. Currently, domestic ADC research and development enterprises, including Yingen Biology and Yilian Biology, have all been authorized to MNC abroad, which also confirms that domestic ADC research and development has advantages and the future is promising, "Liu Jun said.
ADC drugs, in addition to the antibody part, also include the toxin part and the coupling interconnection part. The process amplification has certain complexity. In addition, there are many difficulties in screening and matching small molecule toxins and antibodies, as well as the stability of the overall amplification of coupling technology. This also makes ADC less suitable for platformization of antibody drugs. This also means that ADC drug research and development companies highly rely on CDMO companies.
In addition to the research and development part, many ADC drug development companies have also encountered difficulties in commercialization. A pharmaceutical industry analyst from a securities firm pointed out in a 21st century economic report that the production of ADC drugs is actually very difficult. Due to the interdisciplinary nature of ADC drug production, few companies worldwide are truly capable of doing so.
For example, the particle size and purity of small molecule chemical drugs in ADC drugs may sometimes differ slightly, which may affect their crystal form and directly lead to different results in ADC drugs. Chemical drug manufacturers believe that this indicator may not be relevant at all, but it will ultimately affect the purity of ADC drugs and even affect production. Some ADC projects may have a purity difference of only 0.1%, resulting in a yield difference of 80% -90%.
So many domestic companies say they have strong ADC research and development capabilities, and they really need to prove it through large-scale production and more data, "said the securities analyst mentioned above.
When it comes to the challenges of commercial production, Liu Jun believes that there are indeed many barriers and challenges to the commercial production of ADC drugs. Unlike antibody drugs, due to the complex structure of ADC itself, antibodies are only a part of it, as well as small molecule toxins, high cytotoxicity of Payload toxins, and the intermediate conjugated part, which are all different from antibody drugs. Therefore, overall, the challenge of ADC drug production is much greater than that of single antibody drugs.
The process development and commercial production of antibodies have been well established, basically a platform based operation. The biggest advantage of antibodies in their own drugs still lies in the target, the confirmation of the target, and its uniqueness and innovation. In fact, once the target is determined, the later stages of these processes are relatively mature and the changes are not significant.
However, ADC drugs can come in various combinations, and the overall process development has a lot of variability and diversity. In addition, from the perspective of the supply chain, ADC drugs have high cytotoxicity safety issues at the commercial production level, and various barriers determine that ADC drugs are different from antibody drugs and cannot be promoted in the form of antibody platforms. "Liu Jun believes that despite the difficulties, However, there are many scientific and technological personnel or process developers in China who are better at the research and development and promotion of ADC drugs, which also means that the future development of ADC drugs has promising prospects, and differentiated competition and layout in the future are the direction.
Is it feasible to increase investment in CDMO?
Despite numerous barriers, many companies still choose to participate. Currently, many ADC R&D companies have chosen to enter the CDMO track and carry out platform based layout after completing their commercial layout. In addition, many enterprises have also increased their investment in the CDMO track and carried out commercial layout and production.
In response to this phenomenon, Anxin International Securities analysis believes that the CDMO business is growing rapidly and the ADC field has unique advantages. However, the rapid development of CDMO has also led to "overcapacity" in the industry.
Recently, the global R&D service center of Dongyao Pharmaceutical was officially completed, with a total construction area of 25000 meters; Sup2;, The core experimental area includes cell culture process development, purification process development, cell library building, analytical method development, and quality control laboratory. At present, Dongyao Pharmaceutical is a leading CDMO enterprise in China with non segmented ADC commercial production capacity.
Regarding this, Liu Jun pointed out that many companies are now establishing commercial platforms that are biased towards the backend, which will also lead to a saturation state of production capacity, because once a track or target is unanimously favored by everyone, there will be a phenomenon of crowding in the early stages. After reaching saturation state, it is also necessary to pay attention to the screening process, as many tracks have high technical barriers, and after a period of competition, they will eliminate a group of layout players, leaving behind some more excellent enterprises.
The so-called saturation may be more biased towards the number of layovers, but we can also see that many people believe that the production capacity is only limited to a few fermentation tanks. However, in reality, more tests lie in the ability of enterprises to undertake projects and the construction of compliance.
In addition, the experience of the team is not built in a day and needs to be honed over a long period of time. Liu Jun believes that many startups are now laying out the CDMO industry, and most believe that buying a few fermentation tanks and building a few product pipelines is enough, which is a wrong direction. At present, high-quality commercial platforms are still relatively limited in China, especially in the field of ADC drugs. The overall capacity of commercial production is far from meeting customer needs, and there are very few companies that can truly meet customers' long-term drug promotion and future commercial production.
This also means that Chinese biopharmaceutical companies building their own factories is a very high-risk behavior. The above securities analysts also emphasized in the 21st Century Economic Report that many innovative pharmaceutical companies will find it very difficult to operate after building their factories. Innovative drugs are a high-risk and high return industry. If the R&D enterprise has built a large capacity on its own, and the market demand for the product after its launch is not high, and the capacity utilization rate cannot keep up, the production cost of drugs will be very high. For example, if a company has built a production capacity of 10000 liters and only requires 1000 liters of production capacity, its shared cost is 10 times the actual cost, which means that the original cost was only 100 yuan. However, considering personnel and hardware facilities, the cost sharing may become 700 to 800 yuan.
Boston Consulting analysis points out that after a period of rapid development, CDMO enterprises that can continue to grow need to possess three major elements: firstly, in terms of technological advantages, focusing on advantages in research and development, production, and other aspects. Covering mainstream production processes and precipitating characteristic technology platforms, such as continuous flow of APIs, enzyme catalysis, spray drying, solubilization of preparations, nano platforms, etc; Secondly, in terms of layout planning, a balanced layout is necessary. Pharmaceutical companies and Biotech have a wide coverage and high potential to enter overseas markets, extending moderately along the value chain towards research and development, formulation, and commercialization. The "one lead multiple" MoA layout will become the main direction; Thirdly, in terms of excellent management, the industry will inevitably enter the integration stage after rapid development. Successful enterprises need to develop towards refined management, improve management and operational efficiency through digitization, and continuously upgrade the talent team that supports business development.
From the current market environment, ADC research and development is currently in a stage of continuous exploration, and it is expected to become one of the important means of tumor treatment in the future. The research and development of ADC drugs highly relies on CDMO enterprises. With the continuous progress of medical technology and the increase of market demand, the commercialization prospects of ADC will become increasingly broad. However, whether CDMO can provide high-quality services to enterprises in the future still needs to be tested by the market.