On April 3 this year, Genmab, a Danish pharmaceutical company, announced that it would acquire a Chinese local ADC drug research and development biotech in the form of an all-cash transaction of US$1.8 billion, so as to obtain its self-developed ADC technology assets.
As soon as the news came out, it attracted market attention. Because this may indicate that MNC "sweeps" China's ADC assets to change from pipeline acquisition to asset entity acquisition, it also reflects the "tightness" of domestic ADC technology product assets, and the probability of some leading high-quality enterprises or pipelines being realized in the R&D stage is increasing.
This market change is obviously more favorable to domestic ADC R&D head companies such as Kelunbotai Bio-B (06990) and Rongchang Biotechnology (09995), and its valuation seems to be predictable under the superposition of good conditions. However, for Remegen, there is still a certain gap between reality and ideals.
According to the observation of Zhitong Financial APP, the share price of Rongchang Biotechnology has fallen by 19.23% year-to-date, while the share price of Columbotai has risen by 50.34% over the same period. In addition, Columbotech, which was later listed on Remegen, currently has a total market value of HK$37.066 billion, while Remegen's current total market value is only HK$166.02, less than half of the former. Market competition and financial performance may be important reasons for the widening valuation gap between the two.
Investors prefer "staggered competition"
According to Zhitong Financial APP, the biggest difference between ADC drug R&D and antibody drug and targeted drug R&D is that ADC drug R&D mainly revolves around the arrangement and combination of antibodies, linkers and small molecule toxins, and finds the optimal solution in the field of indications, so even if the target of related products is the same, the difference between linkers and toxins can still form differentiation, so the track situation of ADC and PD-1 and other targets is not the same.
目前全球已有15个ADC药物获批上市，其中13款在美国上市，1款在中国上市以及1款在日本上市，分别对应11个靶点：CD33、CD30、HER2、CD22、CD79b、Nectin-4、BCMA、EGFR、CD19、Tissue Factor和FRα。
According to the Southwest Securities Research Report, there are more than 170 ADC drugs under development in China, of which nearly 60 have entered the clinical stage. Comparing the domestic ADC companies, it is not difficult to find that the domestic ADC targets under research are relatively scattered, and the number of HER2 targets with the highest concentration accounts for 38%. Previously, a research report released by Guojin Securities also showed that more than 60 domestic ADC drugs under development are targeting HER2, ranking first.
However, in the ADC track that emphasizes differentiation, it is not a good thing to gather mature targets, and as the market competition tends to be white-hot, it is unknown whether R&D companies can get a share of the limited indication market, which also affects the market's judgment on the company's subsequent value.
Taking Remegen Biotech as an example, its core product vedicitumab (RC48) is mainly aimed at the breast cancer market targeting the HER2 field.
In terms of overall molecular structure, RC48 has the characteristics of high stability, strong specificity, and side-killing effect. Under the construction of Remegen's proprietary Bridging (Thiel-bridge) conjugation technology, it has been proved that 3.3mg of RC48 has a stronger bystander effect than 10mg of T-DM1, which maximizes the killing effect of the drug under the premise of ensuring overall stability.
Compared with the microtubule inhibitor MMAE, which has a narrow anti-cancer spectrum and low activity against colorectal and gastrointestinal tumors, DS-8201 uses a DNA topoisomerase I inhibitor DXd, which acts on the entire cell cycle and also has a therapeutic effect on solid tumors.
Since most of the ADCs in China are developed against T-DM1, according to the available clinical data, there is currently no HER2 ADC developed by a company in China that can be comparable to DS-8201. Although vedicitumab and DS-8201 differ in structural design, their efficacy data are still inferior to DS-8201 in non-head-to-head comparison.
In the current global HER2 breast cancer market, DS-8201 is dominant. The market predicts that DS-8201 is expected to surpass the sales of the rest of the HER2 breast cancer treatment drugs in 2026 and may exceed US$6 billion in 2028 as the volume continues to increase and rise rapidly. At present, the drug has been marketed in China, and under the squeeze of DS-8201, it may be more difficult for vedicitumab to expand the front-line treatment market in the future.
According to the data, there are currently 171 HER2-related pipelines listed or under development in China, accounting for about 42% of the global HER2 pipelines, and the domestic HER2 ADC clinical pipelines account for more than 70% of the world's total. In other words, in addition to responding to the market challenges from DS-8201, vedicitumab also has to face more and more participants in the HER2 ADC track, and the competition on the track is becoming increasingly fierce.
Similar to vedicitumab, Remegen's other product, tetanercept, is also facing increasingly fierce competition, which may be one of the reasons why its valuation has been depressed.
Cash is an important anchor for growth certainty
An important factor in Columbotai's higher valuation may be cash. Both it and Remegen have entered commercialization, and the commercial performance and financial performance are also important anchors for the valuation of the two companies.
According to Zhitong Financial APP, the total revenue of Columbus will reach 1.54 billion yuan in 2023, a year-on-year increase of 91.6%, and its main source of revenue is the income from seven preclinical ADC asset licensing agreements for cancer treatment developed in cooperation with Merck. Driven by the sharp increase in revenue, the gross profit of Columbotai reached 760 million yuan, a year-on-year increase of 44%; R&D expenditure was 1.03 billion yuan, a year-on-year increase of 21.9%.
It is not difficult to see from the financial report that Merck almost single-handedly supported Columbotai's revenue last year. It is precisely because of this that in 2023, the cash flow from operating activities of Columbotai will turn from negative to positive, and the adjusted annual loss will be 450 million yuan, a year-on-year decrease of 24.4%; The company's current cash and financial assets were approximately RMB2.53 billion.
In other words, the current cash flow of Columbotai is sufficient, and the follow-up continuous R&D activities are stable. In addition, Merck is now betting on ADCs in order to alleviate the impending K-drug patent cliff. According to Merck's current planning in the ADC pipeline, 3 of its 6 new ADC drugs are from Daiichi Sankyo and the other 3 are from Columbotai. With the promotion of Merck and the support of the parent company Kelun Pharmaceutical, Kelun Botai does not need to worry about its own cash problems.
Remegen, on the other hand, is relatively poor. According to the company's 2023 annual report, Remegen achieved operating income of 1.083 billion yuan in the current period, a year-on-year increase of 40.26%. On the other hand, the company's net loss attributable to shareholders of listed companies for the current period was 1.511 billion yuan, mainly due to the company's continuous increase in R&D investment in research projects and the increase in the promotion of commercial products tetanercept and vedicitumab.
Specifically, Remegen's sales expenses in 2023 will reach 775 million yuan, a year-on-year increase of 75.90%, accounting for 71.56% of the current revenue. This is also related to the fierce competition in the market for the two core products of the companies mentioned above.
In 2023, Remegen has a self-built sales team, with an autoimmune commercialization team of about 750 people, and its sales channels cover more than 2,200 hospitals in more than 300 prefecture-level cities in 32 provincial-level administrative units across the country, and more than 800 hospitals have completed drug access.
On the other hand, Remegen did not despise R&D because of the commercialization of its core products. The company's current R&D expenses were 1.306 billion yuan, a year-on-year increase of 33.01%. It is worth mentioning that in 2023, the average salary of Remegen R&D personnel will be 349,100 yuan, a year-on-year increase of 26.21%.
However, the result of both sales and R&D is "making ends meet". In terms of cash flow, as of the end of 2023, Remegen had only 727 million yuan of cash and cash equivalents on its books, a significant decrease of 1.342 billion yuan compared with 2.069 billion yuan at the beginning of the year. In addition, the company has short-term borrowings of 284 million yuan and long-term borrowings of 841 million yuan, which account for 20.35% of the total assets of the current period. However, recently, Remegen Biotech issued a fixed increase announcement, announcing that it intends to raise 2.55 billion yuan for the research and development of innovative drugs.
However, compared with Columbotai, which has achieved positive cash flow from operating activities, Remegen's continued reliance on external financing may cause investors to worry about the company's sustainable R&D and operation in the future, especially at a time when the market's expectations for the Federal Reserve's interest rate cut have fallen sharply and the global biomedical financing environment is far away. Against this backdrop, it will take time for Remegen's valuation to improve.