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with sales of us$25 billion, merck's k drug successfully replaced humira and topped the throne of "king of drugs" in 2023.

throughout 2023, merck's total revenue was us$60.1 billion, and k drug alone accounted for 41.6% of the company's total revenue. for merck, the way to continue growth is simply to continue to release the value of k drugs, which is also its core strategy for current development.

based on this, merck has continued to help k drug be approved for new indications. in june this year, it was approved for its 40th indication. but even so, k-drugs are not a panacea, and the response rate in some cancer types is still low. therefore, merck is also constantly exploring k-drug combination therapies, such as the "cola combination" combined with lenvatinib, which has achieved unprecedented success. the best effect in liver cancer treatment ever.

in the process of looking for a "partner", merck took a fancy to the potential of adc (antibody drug conjugate) drugs, which have the two advantages of "strong targeting" and "high toxin activity". if k drugs are combined with adcs, it is expected to achieve better results than combined use with chemotherapy and targeted therapy.

in order to continue to increase the value of k drugs, merck embarked on a global adc search journey.

01

drinking hatred for seagen, colombote is lucky to be in charge

among all adc companies, merck is the first to take a fancy to seagen, a global adc pioneer.

seagen is a true adc veteran. adcetris, the world's first commercially successful adc drug, was funded by seagen (the first adc drug, mylotarg, was withdrawn from the market due to excessive toxicity) and has accumulated more than 20 years of experience in the adc field. if merck can win seagen, it will be equivalent to quickly entering the adc field, thus forming a strong alliance between pd-1 and adc.

while merck was bargaining with seagen, the "new crown upstart" pfizer suddenly came out and directly acquired seagen at a sky-high price of us$430. merck had no choice but to withdraw in despair.

after the failure to acquire seagen, merck did not give up the idea of ​​pd-1 plus adc, but instead turned to look for new adc companies that had not yet been discovered by the market. in this way, colombote was selected by the goddess of luck.

the origin of kelun botai can be traced back to 2012. at that time, the most restrictive antimicrobial order in history, the "regulations on the clinical application of antimicrobial drugs" was issued. as the domestic "antibiotic leader" kelun pharmaceutical was deeply affected by the policy, and its performance stagnated. in order to find opportunities to break the situation, kelun pharmaceutical proposed the "three-drive" strategy, that is, the three clues of "large-scale infusion, antibiotics, and r&d innovation" are staggered. eventually, these three lines developed into three companies: kelun pharmaceutical, twinings biotechnology, and kelun botai.

among them, kelun botai is the most important subsidiary of kelun pharmaceutical in the field of innovative drugs in 2016. kelun botai proactively targeted adc opportunities, and in the next three years started clinical research on multiple projects such as a167, a166, a140, skb264, etc., relying on its independently developed adc platform, it has mastered two sets of linkers and two sets of toxins. it has independent intellectual property rights and a complete patent protection strategy, including toxins, linkers, overall adc, etc., making it one of the most powerful companies in the domestic adc field.

it was years of hard work that earned merck’s attention.

in may 2022, merck acquired the trop2 adc drug skb264 from lombote. the cumulative down payment and milestone payments for this drug reached us$1.363 billion, and commissions were based on the net sales ratio agreed by both parties.

in july 2022, merck upgraded its cooperation with colombote, and purchased colombote's adc product skb315 targeting claudin 18.2 with an initial payment of us$35 million and a milestone payment of us$900 million.

in december 2022, merck packaged up colombote's early-stage adc production line, with a down payment of us$175 million and a milestone payment of us$9.3 billion, and obtained the overseas rights and interests of 7 adc products. this transaction was also innovative at the time. the highest record of overseas authorization amount for a domestic innovative pharmaceutical company.

figure: overview of cooperation between merck & co., ltd., source: kaiyuan securities

behind the three adc project cooperations totaling over 10 billion u.s. dollars in one year was reached. on the one hand, it is kelonbotai’s powerful adc r&d and production technology platform, and on the other hand, it is merck’s desire for adc products.

in the subsequent spin-off and listing process of kelonbotai, merck invested us$100 million to lead the series b financing in exchange for 6.95% of kelonbotai's shares.

02

the daiichi sankyo who "killed with a diagonal stab"

although colombote has been deeply bound to merck, merck has not put all its adc resources on colombote.

on october 20 last year, merck announced that it had reached a cooperation consensus with daiichi sankyo for a total agreement price of us$22 billion, and obtained a total of three new adc drugs from the latter: patritumab deruxtecan (her3-dxd), ifinatamab deruxtecan (b7-h3 adc ) and raludotatug deruxtecan (cdh6 adc).

under the agreement, merck will pay daiichi sankyo an upfront payment of us$4 billion and continue to make milestone payments of us$1.5 billion over the next two years. merck may also pay up to an additional us$16.5 billion in sales based on future sales targets. payment.

comparing the amount, it is not difficult to find that merck spent much more money on daiichi sankyo than colombote. from this, it can also be seen that merck values ​​daiichi sankyo more.

daiichi sankyo is japan's largest pharmaceutical company by market value. based on its unique dxd adc technology platform, it has launched three blockbuster adc products, including the "big devil" ds-8201 (enhertu) that changed the expectations of the adc industry. ). in 2023, enhertu's sales increased by 113% year-on-year to us$2.315 billion, becoming the world's highest-selling adc drug.

on the day after merck launched a major cooperation with daiichi sankyo, merck announced the termination of two pre-clinical adc pipelines licensed from colombote, although this will not affect the down payment that colombote has received. although the adc assets returned are not the core products of kelanbotai, kelon pharmaceutical stated in the announcement that kelonbotai's status in merck's heart is declining.

based on the analysis of cooperation layout, there are obvious differences in the cooperation between merck, colombote and daiichi sankyo. the adc pipeline introduced by merck from colombote mainly targets trop-2, claudin18.2 and nectin-4. these are targets that are highly competitive and expected to be verified in the short term; the pipeline introduced from daiichi sankyo is her3, b7-h3 and cdh6 targets, which are all emerging or unpopular targets.

obviously, merck's cooperation with daiichi sankyo has a longer-term perspective and has invested more funds, while the cooperation with colombote is more like a card slot. although the total cooperation amount is high, the down payment is not not high.

on august 6 this year, merck once again expanded its cooperation with daiichi sankyo to jointly develop the dll3-targeting t cell adapter mk-6070. according to the agreement, merck will receive an upfront payment of us$170 million and receive certain royalties based on sales. in addition to retaining rights in japan, merck will jointly develop and commercialize the drug with daiichi sankyo in other regions around the world.

a coincidence happened again. two weeks after merck upgraded its cooperation with daiichi sankyo, it announced that it would abandon the claudin 18.2 target adc pipeline skb315 that it had previously introduced from colombote. this was also the third product that merck had abandoned. colombote's adc pipeline. unlike the two early adc pipelines that were abandoned in 2023, skb315 is one of the core adc pipelines of kelunbotei. the outside world was full of expectations for this pipeline, but it was eventually abandoned by merck.

looking back at the situation in the past two years, it is not difficult to find that as merck found daiichi sankyo as its new adc partner, colombote's position in merck's heart is gradually marginalized.

03

the merck harem controversy

whether it is colombote or daiichi sankyo, merck is pursuing maximizing its own interests.

from seagen, colombote, to daiichi sankyo, merck has repeatedly made moves in the adc field, simply hoping to continue the core competitiveness of k drugs with the help of combined adc therapies.

relying on financial leverage, merck has quickly established 11 adc pipelines under development, 6 of which have entered the clinical stage. the tissue-targeted therapy segment where its adc is located has also become the third largest cancer r&d segment after tumor immunotherapy represented by k-drug and precision targeted therapy represented by olaparib and lenvatinib.

figure: merck’s oncology pipeline layout, source: company announcement

these 6 adc pipelines under clinical development come from three different companies, three different technology platforms, and 6 different targets. among them, the fastest progress is mk-2870 (trop2 target) introduced from colombote, and mk-1022 (her3 target) introduced from daiichi sankyo, both of which are in the state of listing.

mk-2870, as an adc targeting trop2, is coupled with an igg1-like humanized anti-trop2 monoclonal antibody and a topoisomerase i inhibitor-like cytotoxic drug toxin molecule kl610023. currently, mk-2870 is in a leading position among similar target adcs in the world. merck has launched a total of 10 global phase iii clinical trials around it, covering non-small cell lung cancer, endometrial cancer, breast cancer, gastric cancer, cervical cancer, etc. a tumor species.

the expression of her3 targeted by mk-1022 is ubiquitous in a variety of tumor types, including breast cancer, ovarian cancer, colon cancer, gastric cancer, lung cancer, skin cancer and pancreatic cancer. in the past, it was difficult to prepare drugs due to the low binding capacity of her3 itself. . mk-1022 is a potential fic product. a marketing application has been submitted, which has been accepted by the us fda and granted priority review status. it is used to treat locally advanced or metastatic egfr mutated non-small cell lung cancer patients who have previously received two or more systemic therapies. adult patients with cell lung cancer (nsclc).

the successful experience of k drug + padcev has made many pharmaceutical companies realize that the efficacy of pd-1 + adc combination therapy is better than that of a single drug, producing a "1+1>2" therapeutic potential. all major pharmaceutical companies are actively developing research on pd-1+adc combination therapy. adc projects have become a hot-selling product in the international market. in addition to merck, other pharmaceutical giants such as pfizer's us$43 billion acquisition of seagen, abbvie's us$10.1 billion acquisition of immunogen, astrazeneca, gsk, johnson & johnson and other pharmaceutical giants have invested heavily in introducing adc projects.

judging from the cooperation between merck and daiichi sankyo, the purpose is to take advantage and see results as soon as possible. the cooperation with colombote, except for mk-2870, is more like a casual move: laying out several pre-clinical or early-stage clinical projects with a lower down payment. as the project progresses, if there is commercial potential, then it will pay subsequent milestone payments to continue research and development. if it loses its competitiveness, it will be decisively abandoned. the low down payment is irrelevant to merck.

for example, skb571, which was selected for advancement in august this year, is a new dual-antibody adc that has been developed to treat various solid tumors such as lung cancer and digestive tract tumors. although it is still in the preclinical stage, companies currently deploying dual-antibody adcs are relatively few, only dozens of them have entered the clinical stage. in december last year, bms acquired bailey tianheng’s her3/egfr dual anti-adc for us$8.4 billion, setting a new record for the highest down payment for a chinese innovative drug going overseas.

the addition of daiichi sankyo made merck's adc "harem" suddenly lively. colombote, which originally relied on merck to "live and feed itself", is no longer stable. like other biotechs, it needs to face increasingly fierce competition in the adc field. merck, which holds the "money printing machine" of k-drugs, can choose a more competitive adc to replace the former product at any time.

but colombote has not completely fallen out of favor. mk-2870 is one of merck's core adc pipelines and is fully promoting multi-indication clinical trials. other early pipelines have also occupied merck's bd position in the fierce competition and can obtain sufficient resources to speed up research and development progress, thereby gaining an advantage in subsequent competition.