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reporter of china business network: jin zhe editors of china business network: pu fuqiang, yi qijiang

china's innovative drugs caused a global sensation in the united states this month: on september 9, 2024, at the world lung cancer conference (wclc) held in the united states, more than 3,000 top lung cancer experts from around the world attended the meeting. a new tumor drug developed in china, ivoside injection (ak112), received thunderous applause at the meeting.

the results of the head-to-head phase iii clinical trial of ivosi have defeated the current global "king of medicines" - the american drug k (merckthe global sales of k drug in 2023 will reach 25 billion us dollars. it has a god-like status in the field of immunotherapy. the us food and drug administration (fda) has approved about 40 indications for marketing. almost as long as immunotherapy is involved, k drug is included in the standard treatment.

this is a disruptive event.

chinese people even choose imported cold medicines, so how could they possibly develop a cancer drug that is better than the world's "king of medicines"? as a result, china not only did it, but the results of the phase iii clinical trial showed that ivosi's efficacy was twice that of drug k: the median progression-free survival (mpfs, the survival time of 50% of patients without tumor growth and metastasis) was about twice that of drug k.

but it is such a world-renowned event that the original manufacturer of ivosiakeso biopharm(09926 hk) did not take this overwhelming wealth, but insteadSummit Therapeutics Inc.(smmt nasdaq) created a myth of getting rich quickly: smmt, which only owns the overseas core market interests of ivosi, saw its share price rise 12 times in 4 months, with a market value of us$23.1 billion (approximately hk$180 billion); while kangfang biopharmaceuticals, a hong kong-listed company that created ivosi, currently has a market value of only hk$62 billion.

some netizens lamented that either hong kong stock investors are "blind" or us stock investors are "crazy". the value of half a golden egg is actually more valuable than the hen that lays golden eggs plus the other half of the golden egg? the capital market is so wrong!

since ivosi is so promising, did smmt sell the license for $5 billion two years ago at a low price? if ivosi had chosen another commercialization path, would it have had a different story? where will kangfang and ivosi go next?

1

patient survival time pk:

ivoside is about twice as potent as drug k

"head-to-head" studies on drug k are the gold standard for proving drug efficacy. in this era of fierce competition, defeating drug k is the dream of oncology companies and scientists. in recent years, many "head-to-head" studies on drug k have focused on combination therapy, while ivosi is a "single-soldier operation."

however, can the status of the king of medicine be easily shaken? before ivoside, there had never been any head-to-head phase iii study with k drug therapy that had achieved positive results, and more studies gradually fell into obscurity over time.

at the chairman's forum of the global lung cancer conference held in the united states on the 9th of this month, professor zhou caicun, a famous oncologist and director of the department of oncology at the oriental hospital affiliated to tongji university, disclosed the conclusion data of the head-to-head comparison of the domestically produced new drug ivoside with drug k.

PFS（progression-free survival (pfs) is used to measure how long a new drug can suppress tumors, such as the survival time of patients without tumor growth, metastasis, or new lesions. the larger the pfs value, the better the efficacy and the longer the patient's survival time.

head-to-head study data showed that the median progression-free survival (mpfs) of ivosi was 11.14 months, nearly double the 5.82 months of drug k. the mpfs value of ivosi as a single-drug treatment exceeded the mpfs of many pd-1 combined chemotherapy treatments, and was therefore considered to be "far beyond expectations."

ivosi is "head-to-head" with drug k, and its efficacy is nearly doubled, which is of subversive significance in the development of new drugs worldwide. this is why it received thunderous applause at the global lung cancer conference. the fact that the experts at the conference gave warm applause shows that ivosi did not simply win based on the data given on the surface, because these experts are all top-tier in the industry and are real experts. they have a high level of understanding of the logic behind the data - without any subsequent treatment, ivosi's efficacy is significantly better than drug k, so ivosi may replace drug k and become a new cornerstone drug in the field of immunotherapy.

the share price of smmt, which bought the overseas core market rights of ivosi, continued to soar, which also gave "applause" to this innovative chinese drug from another dimension.

however, strictly speaking, ivosi's challenge to drug k, or the journey of iterating pd-1 (immunosuppressive molecule), has only achieved a phased victory. after all, drug k has been approved for dozens of indications and in dozens of countries around the world, which has established its status as the king of medicine. and ivosi's four phase iii clinical data challenging pd-1 drugs also continue to explain kangfang bio's strong confidence in this drug.

professor wu yilong, winner of the international association for the study of lung cancer outstanding science award, commented that harmoni-2 (the name of the first-line treatment study of ivosi vs. k drug mentioned above) "made a lot of noise and brought a lot of results", which is indeed an amazing result. whether it is squamous cell carcinoma or adenocarcinoma, the advantage of slowing disease progression is very obvious. of course, the overall treatment-related toxicity has also doubled, but fortunately there are almost no cases leading to treatment interruption or death. for immunotherapy, os (overall survival) is still a very important point, and we still need to wait for this result to appear. in short, ivosi has finally taken a key step, and we look forward to longer follow-up results.

in any case, it is an indisputable fact that ivosi defeated drug k in the first battle.

the picture shows the harmoni-2 research data

2

is it "blind" or "crazy"?

however, the subversive significance of ivosi has not been reflected in the stock price of kangfang biopharmaceuticals. since the beginning of this year, kangfang biopharmaceuticals' stock price has only increased by 54%. on the other side of the ocean, smmt has already been fiercely competitive and has become the biggest dark horse in the us stock market this year, with a cumulative increase of 1123.37% throughout the year.

data source: wind

"i just can't accept it. can't china grow a great pharmaceutical company?" lin cun, chairman of shenzhen senrui investment management co., ltd., couldn't help but blast when kangfang biopharma's stock price plummeted: in the final analysis, it is a lack of confidence. i don't believe that chinese pharmaceutical companies are growing and improving, and i don't believe that china's environment can breed excellent innovative pharmaceutical companies. even if the china food and drug administration has just accelerated the approval of ak112 ivosi for listing, i don't believe it. as for whether it can beat k drug in the united states and go global, can you believe it?

kangfang bio will license overseas rights in core markets such as the united states, japan, and europe to smmt in 2022(summit corporation).

the market value gap between smmt and akeso biopharma is getting bigger and bigger, which also leaves a question for the market: in addition to ivosi, akeso biopharma has a large number of potential projects under development and two other innovative drugs that have already been launched. ivosi's victory over k drug is a great fortune, so why did only smmt, which has the rights and interests in the overseas core market, take it, while the original drug manufacturer akeso biopharma has become a bystander on the other side? why do hong kong stock investors have no confidence in akeso biopharma?

many senior people in the innovative drug industry interviewed by reporters said:

first of all, the hong kong stock market is too bad and has been falling for about four consecutive years.if you take a look at the k-line of the hong kong-listed 18a biopharmaceutical companies, you will find that their share prices have fallen by 70% to 80%. this is not just a halving, but a drop to the ankle.

"because chinese investors have fallen into too many traps in the field of innovative drugs," chang xiantong, a pharmaceutical researcher at shenzhen weide investment management co., ltd., told the "daily economic news" reporter that as the saying goes, "once bitten, one becomes afraid of ropes for ten years." even in the face of such epic good news, they dare not be too optimistic.

second, the overseas price of the same drug is usually dozens of times higher than that in china.only those drugs that can be exported are the first choice for investment. for example, more than 70% of the sales of zanubrutinib, my country's first billion-dollar "blockbuster", came from the north american market. the same logic applies to ivoside.

lin cun discussed with his friends a few months ago how to estimate the value of smmt. merck's market value is $111 billion, and keytruda contributes about $50 billion, but keytruda has been in business for so many years and has 40 indications. ivoside targets lung cancer, the largest indication of keytruda. although there will be some other indications in the future, this process is still very long, at least four to five years. so he believes that smmt has the hope of challenging the market value of $30 billion, but the probability is that it will be just that.

as for why kangfang's growth rate lags far behind smmt, lin cun said that when ivosi was launched in china, the price might be only one-tenth or even one-twentieth of that overseas, so it was different from the expectations when it was launched overseas, which was the main reason. but no matter what, kangfang is really a groundbreaking chinese innovative drug, and it may even become the number one chinese innovative drug in the future.

3

was ivosi sold for 100 billion yuan less?

of course, ivosi's achievements today have also led some people to ask whether akeso was cheated by summit when it sold the drug to summit for a maximum price of us$5 billion. if it had chosen mnc (a multinational pharmaceutical company or international giant), would ivosi's commercialization have taken a different turn?

a senior expert in the field of innovative drugs told reporters:

first, let’s understand why kangfang chose summit.

in fact, two years ago, smmt was an inconspicuous company in the us stock market. in 2020, robert dugan acquired summit, which was on the verge of bankruptcy due to the failure to develop new anti-infective drugs. its market value was just over us$1 billion, and the most famous person was its founder.

when kangfang announced the cooperation between the two parties, although the stock price rose due to the record transaction amount, doubts also came out. people doubted how this company with only 120 million us dollars in its account could have the ability to start phase iii clinical trials overseas, let alone bring the product to market.

on may 24 this year, the market rumored that the clinical data was not as good as expected, and kangfang biopharma's stock price plummeted by 45%. at that time, the national business daily first interviewed the company, and kangfang biopharma's chairman responded exclusively that this was a market misunderstanding and clarified the rumor.

there are constant doubts such as "kangfang is just looking for a 'takeover man', and the executives may want to cash out and leave" and "ivosi sold less than 100 billion yuan".

chang xiantong also had such a guess, and it was not without precedent in domestic innovative drugs. but when he learned about summit's background, he felt relieved.

summit's ceo and largest shareholder, robert dugan, is a well-known wall street investor who turned the nearly abandoned first-generation tki drug ibrutinib into a blockbuster new drug. in 2021, ibrutinib's global sales were about 10 billion us dollars.

when xia yu, chairman, president and ceo of kangfang biopharma, first met robert dugan, he felt that their team was very reliable. after collecting and analyzing external information on the clinical research results of ivoside, the summit team believed that ivoside might be the goal they had been pursuing.

an insider revealed that the key point that impressed xia yu was that summit's goal was to quickly and successfully get ivosi approved for listing, which was exactly the same as kangfang bio's goal.

of course, we might as well imagine what it would be like if ivosi cooperated with international pharmaceutical giants?

a person familiar with drug research and development at large multinational pharmaceutical companies told reporters that in order to balance the risks of new drug development, international giants cannot put all their resources into any single product pipeline. it is not easy for introduced drugs to receive "normal treatment", and it is naturally unlikely that the development progress will be "extraordinary". on the other hand, the many uncertainties in new drug development may very likely lead to the "abortion" of introduced drugs midway. for example, they may be abandoned because the preliminary data of a study is not good enough, or they may not approve of the introduction behavior of previous executives due to changes in internal senior management.

xia yu doesn’t care whether the partner has the halo of an international giant, not to mention that kangfang has suffered losses before. in 2015, kangfang licensed ctla-4 monoclonal antibody to merck, and this drug has several phase iii clinical trials still underway. this is obviously far from xia yu’s goal of “the fastest overseas listing”.

at least from the results, less than four months after the contract took effect in march 2023, summit launched two international multicenter studies of ivosi. one of them is an international multicenter phase iii clinical study (harmoni-3 study) of ivosi combined with chemotherapy versus k drug combined with chemotherapy as the first-line treatment for metastatic squamous nsclc.

as for the highest transaction amount of us$5 billion, it was a record amount at the time. at that time, ivosi only disclosed the phase ii clinical data. today, the results we see are far beyond expectations. i don’t know if robert dugan anticipated such a good result at the time, but the conservative kangfang team felt that ivosi far exceeded expectations.

lin cun also told reporters that although judging from the current results, summit is three times more expensive than ivosi’s “father”, it cannot be said that kangfang sold ivosi at a low price.

first, buying ivosi at that time was like gambling on stones. after all, the clinical progress that summit saw had not yet reached the stage of producing final data. second, kangfang also needed a lot of funds to conduct clinical trials at that time, and obtaining a certain amount of funds was a very safe approach. more importantly, if kangfang could not enter the us market on its own, it would be a life-and-death situation.

in lin cun's opinion, kangfang not only received the $500 million down payment it needed at the time, but also received a $5 billion milestone payment. add to that the annual sales share and summit's 10% stake, and the overall loss would not be too big.

second, let’s take a look at the domestic innovative drug environment during cooperation.

since the second half of 2021, it has become difficult to raise funds for innovative drugs. by 2022, many small and medium-sized biotech companies have seen no hope. among the hong kong 18a stocks, some have sold factories, sold r&d pipelines, and laid off employees. some people commented that the cooperation between kangfang and summit has injected chicken blood into the cold winter of china's innovative drugs.

kangfang also has its own pressures. as a promising biotech, kangfang was the last to have the ability to generate revenue. although it was particularly frugal in r&d investment, it had not yet raised funds, and the financial pressure can be imagined. chang xiantong felt that the $500 million down payment from summit was a "timely rain" and played a key role in accelerating the subsequent r&d progress. it was also with the acceleration of r&d that kangfang successfully won the second bispecific antibody in china and carried out a series of "head-to-head" studies.

"it is meaningless to discuss whether there was a fire sale now. we can only say that kangfang found the most suitable partner at that time." chang xiantong said that no matter how good the innovative drug is, it must be launched on the market. looking back, this cooperation two years ago can indeed be said to be the basis for kangfang bio to accelerate. and from the terms of the cooperation, kangfang can obtain 15% of overseas revenue, which is also very considerable. if chinese companies rely on their own overseas commercialization, they may not be able to get a 15% net profit.

4

next stop: to be with international giants?

now, ivosi needs an mnc that can turn it into a "blockbuster", just like robert dugan found johnson & johnson many years ago. ivosi needs to be listed overseas faster, and it also needs a more comprehensive "head-to-head" comparison with k drug to prove that it can completely replace pd-1 and become the king of immunotherapy. but smmt does not have such capabilities, so the only way out for it is to be acquired by an mnc.

for mncs that are not short of money, whoever wins smmt will be ahead in future competition. as for who is the sponsor, some people guess it is abbvie, which has deep experience in humira and ibrutinib, while others guess it isroche、pfizer、novartis、astrazeneca, and some people think that merck is the most likely. mnc is not short of money, but also needs a "blockbuster" to cope with the performance fluctuations caused by the expiration of product patents. the two hit it off, and the market quickly scrambled for the already limited circulating chips.

in addition, kangfang biopharma may also become the target of mnc. in the process of biotech transforming into mnc, it must innovate blockbuster drugs, cooperate with mncs, and obtain capital support. if ivoside is the first point, then the latter two require kangfang biopharma to be deeply tied to mnc.

some market analysts believe that mnc may acquire a stake in kangfang biopharma while acquiring smmt, and will have bd cooperation (business development) with kangfang. if kangfang does not cooperate, future clinical trials of other indications of ivoside, as well as clinical trials of ivoside combined with other drugs, will be affected.

chang xiantong also said that kangfang bio's current shareholder structure is unreasonable and it does need to introduce external capital.

5

inspiration for chinese innovative pharmaceutical companies:

going overseas with the help of american companies?

andbeigenewith a different strategy, kangfang biopharma has become a hit in the global market. a senior expert in the field of innovative drugs told the reporter of china business news that its business path is also worthy of learning and imitation by all biotech companies in china.

first, challenge the most stringent clinical development standards for products。

china currently has two products that have successfully completed head-to-head studies. in addition to ivoside, the other is beigene's zanubrutinib. the core significance of this successful challenge for beigene is the explosive growth of drug sales revenue. in 2023, zanubrutinib's annual sales exceeded us$1.3 billion, a year-on-year increase of 129%, making it the most successful innovative drug in china to date.china biopharmaceuticalsthe industry has finally produced its first "billion-dollar" molecule.

second, the overseas commercialization path.

at the current level of international market expansion of chinese innovative pharmaceutical companies, many of them are at a dead end. in other words, the only way for chinese products to be sold globally is through overseas cooperation.

there is data to prove this. according to statistics from pharmaceutical cube, the entry threshold for the top 100 global pharmaceutical sales in 2023 is us$1.679 billion, and the highest sales can reach us$25.011 billion. the manufacturers behind them are all mncs, and no chinese companies are on the list.

at present, china's innovative drug companies have two choices: one is to "go overseas or be eliminated", and the other is to win in "head-to-head" studies to prove that they have better efficacy. only in this way can good products be sold and mncs will cooperate with them.

the third is how to choose a good partner.

in the past two years, china's innovative drug product licensing transactions have set "sky-high prices" one after another, and the partners are all mncs. but back to the question discussed earlier, can mncs focus on helping you advance research and development? the cooperation between kangfang and summit is considered a wise move by industry insiders. you can see that summit is indeed fulfilling its goal of "quickly launching" products.

in the view of some industry insiders, it has become a smoother path to directly license valuable pipelines to local american companies for incubation, and then seek mnc cooperation or financing and listing after clinical value is achieved. ceos like summit's robert dugan have many successful entrepreneurial experiences, strong financing capabilities, and are very professional.

reporter|jin zhe

editor|pu fuqiang yi qijiang

visual |zou li

typography|yi qijiang

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