Pharma’s billion-dollar Antibody Drug Conjugates (ADC) acquisition spree: Gamble or unplanned buyout?

The pharmaceutical landscape is witnessing a gold rush, but this time, the treasures aren't hidden beneath mountains; they're shimmering brightly in the realm of science. Antibody–drug conjugates (ADCs), or biological missiles as popularly referred to, are reshaping the future of oncology, and pharma giants are scrambling to stake their claim in this lucrative market.

The battlefield? Mergers and acquisitions (M&A) worth billions of dollars, leaving investors, analysts, and patients holding their breath, wondering: Are these companies striking gold, or digging their own graves?

Let's dissect the recent mega-deals, their strategies, and the bigger picture:

Why the Gold Rush?

Antibody-drug conjugates (ADCs) embody a simple, but elegant, vision for cancer therapy, which is to deliver a potent cytotoxic agent to tumor cells with minimal damage to normal cells. It combines both the advantages of highly specific targeting ability and highly potent killing effect, to achieve accurate and efficient elimination of cancer cells, thereby making this approach the hotspot for the research and development of novel anti-cancer drugs.

Since the first ADC, Mylotarg (gemtuzumab ozogamicin), was approved in 2000 by the US Food and Drug Administration (FDA), there have been 14 ADCs, which have received market approval so far and over a 100 new ADCs in clinical trials encompassing a wide variety of tumor types.

The most successful application of ADCs for solid tumors has been in breast cancer, with ADCs becoming the standard of care across traditional human epidermal growth factor receptor 2 (HER2)+, hormone receptor+ (HR+) and triple-negative disease subtypes. Recent developments that have focused on altering linker chemistry and tapping into novel cytotoxic payloads to generate high-potency ADCs, have dramatically improved outcomes, especially in breast cancer while some novel ADCs have demonstrated clinical efficacy regardless of the level of tumor antigen expression, enabling the treatment of tumors with heterogeneous expression of the target. It is also noteworthy that ADCs have had spectacular success in the past 5 years, particularly in some highly treatment-refractory diseases. All in all, the rush and the hype appear to be well founded and justified, SO FAR.

The current ADC acquisition and licensing landscape is a mix of clinical and pre-clinical molecules, with a trend reflecting a shift towards acquisition more than licensing. Big Pharma is betting huge at companies with 2-3 ADC candidates in the pipeline and are offering significant premium, indicating it is more than meets the eye.

The Acquisition Spree: Visible trends

Johnson & Johnson-Ambryx Biopharma: Key Pointers

This acquisition represents a typical two pronged inorganic growth strategy -getting access to early stage pipeline products as well as the platform which can be used to develop many similar drugs in the future, thereby ensuring an ongoing pipeline of ADCs, all in all as a one-time offer

Value:?$2 billion all-cash transaction, representing a 105% premium to Ambrx's closing stock price on January 5, 2024.

·Strategic Rationale:?Johnson & Johnson gains access to Ambrx's most advanced drug candidate ARX788 targets the protein HER2 for breast cancer treatment, with additional ADCs targeting PSMA for prostate cancer and CD70 for kidney cancer. Johnson & Johnson is particularly interested in Ambrx's ADC for prostate cancer, known as ARX517. Ambrx's proprietary platform for developing next-generation antibody-drug conjugates (ADCs) with improved targeting and efficacy.?This bolsters Johnson & Johnson's oncology pipeline and aligns with its focus on precision medicine. The acquisition also comes as Johnson & Johnson scrambles to fill a revenue hole that’s approaching in 2025, when its top-selling drug Stelara, which is used to treat psoriasis, is expected to face generic competition.

AbbVie-Immunogen: Key Pointers

AbbVie's acquisition of Immunogen for $10.1 billion was far more strategic than Johnson & Johnson's acquisition, since it was focused on driving immediate commercial benefits from day one. The acquisition took place just after Immunogen's ovarian cancer treatment Elahere received FDA approval and the drug was on its commercial path.

Strategic Rationale:?Given that AbbVie's oncology business was sputtering, this acquisition not only re-fueled Abbvie's oncology portfolio, it also gave a quick hope of making up for losses that were happening as revenues for the company’s flagship drug Imbruvica had shrunk by more than one-fifth year over year through the first nine months of 2023.

Elahere gives AbbVie an on-market drug that could help boost sales as the company awaits clinical trial results and the potential approval of experimental cancer drugs in its pipeline. Elahere would also be the only drug in AbbVie’s portfolio approved to treat a solid tumor, rather than the blood cancers that Imbruvica and AbbVie’s other marketed medicines target and it has been a rightly chosen strategic fit and a well-chosen priority.

These deals along with Pfizer -Seagen, Merck -Daiichi Sankyo deals around antibody drug conjugates indicate that the recent acquisitions have been well founded and have been strategically planned, not just a wild goose chase. As we scratch the surface of recent ADC drug launches, there have quite a few which have delivered value beyond expectations

Unveiling Hidden Gems: Potential Future Acquisition/Licensing Targets

As the gold rush intensifies, several smaller companies with innovative pipelines and unique technologies could become attractive targets for acquisition./or licensing. Here are three such potential gems:

Pyxis oncology:

Pyxis Oncology is a clinical stage biotech company focused on developing antibody-drug conjugates (ADCs), and immunotherapies for cancer treatment

Strategic fitment: Commercially validated ADC platforms: Pyxis Oncology is building next-generation ADC candidates’ pipeline based on two complementary platforms, APXiMAB and Flexible Antibody Conjugation Technology (FACT). APXiMAB is a commercially validated antibody discovery platform acquired from Apexigen through Pyxis’ acquisition of the company in August 2023. FACT is a clinically validated ADC platform in-licensed from Pfizer in 2020 and later received exclusivity in 2022.

Promising Pipeline (ADC plus) : Pyxis Oncology’s lead ADC candidate, PYX-201, is a first-in-class, non-internalizing ADC in-licensed from Pfizer in 2021. PYX-201 targets EDB-FN, a protein enriched in the stroma of many solid tumors and is being evaluated in several solid tumors. ?and expects to report preliminary data in 1H24. Other non ADC candidates include PYX-106, which is a Siglec-15-targeted monoclonal antibody and has potential to treat anti-PD-(L)1-refractory patients. The third candidate is PYX-107 (sotigalimab), a CD40 agonist which has shown compelling data from two Phase 2 studies suggest best-in-class potential of PYX-107 in patients with advanced melanoma and soft-tissue sarcoma (STS. The company ended 3Q23 with cash, restricted cash, and short-term investments of $134M, which as per analysts (HC Wainwright's report "Developing Novel ADCs and I/O Drugs on the Shoulders of Giants") is sufficient to run operations into 1Q26.

China based Kelun Biotech:

Kelun Biotech is a leading biotech company in China, specialising in the development of antibody-drug conjugate or ADC (see glossary) drugs. The company has established a proprietary ADC platform, namely OptiDC, having an innovative conjugator being its key differentiation.

Kelun Biotech currently has a portfolio of 33 assets, of which 14 are in the clinical stage of development. We think its core candidate is SKB264 (TROP2 ADC), which has obtained three breakthrough therapy designations (BTDs). The OptiDC platform has incubated over nine ADC candidates. So far, the company has submitted new drug applications (NDA) to the National Medical Product Administration (NMPA) for four of its drugs (SKB264, A166 (HER2 ADC), A167 (PD-L1) and A140 (cetuximab biosimilar)).

As per UBS report on China Healthcare, SKB264 (TROP2 ADC) is the company's core ADC product, developed using OptiDC, SKB264's main potential is in the treatment of breast cancer (mainly TNBC and HR+/HER2- BC) and NSCLC (mainly in 1L EGFRwt and EGFRm TKI treatment failed patients). Being the key ADC asset, SKB264 (TROP2 ADC) is currently undergoing multiple clinical trials to explore its potential in monotherapies and combination therapies to treat various advanced solid tumours, including BC, NSCLC and other major cancers.

For list of other potential targets for licensing/acquisition, Please DM us.

Conclusion: Beyond the Buzz, Building the Future

The ADC gold rush is more than just a financial phenomenon; it represents a collective surge towards revolutionizing cancer treatment. While the glitz and glamour of mega-deals grab headlines, the true story lies in the tireless efforts of researchers, developers, and investors paving the way for a future where ADCs become standard weapons in the fight against cancer. By making informed decisions, prioritizing innovation, and collaborating effectively, companies can navigate the gold rush and emerge not just with riches, but with the potential to save lives.

Disclaimer: This article represents a fact-based research piece and is not in any manner a guidance document or represents an exhaustive review.

The author represents a CI firm called Intelligience. Please DM her for a detailed discussion around the ADC CI landscape

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