The Transactional Landscape Of ADCs: A Payday for Payloads
By Trent Gordon, Mavra Nasir and Peter Bak
With 12 FDA-approved antibody-drug conjugates (ADCs), three of which have already reached blockbuster status, the future of targeted cytotoxic therapy is upon us. Since the first ADC approval of Mylotarg (gemtuzumab ozogamicin) in 2000, there have been numerous advances in the discovery, development, and manufacturing of ADC technology, allowing for the development of increasingly potent ADCs with a reduced toxicity profile.1 Given the keen interest in the field and high-profile M&A discussions, we assessed the evolution of the ADC transaction and financing landscape. In the last five years, ADCs have commanded the highest deal value relative to any other technology in oncology, with the average overall deal value for ADCs exceeding $2 billion. The majority of ADC transactions were for discovery and preclinical stage assets that were able to demonstrate robust anti-tumor efficacy in xenograft models across tumor types.
The volume of ADC transactions has increased over threefold since 2018, and 2022 closed out with three ADC transactions in the last two weeks of the year. Given the notable efficacy, commercial success, and potential for a longer exclusivity runway, it is no surprise ADCs have been the darling of the oncology space.
Early-stage ADC Deals Signal Industry Confidence
The transaction landscape in oncology has been dominated by small molecule therapeutics, which have been the mainstay of cancer treatment since the first documented use of chemotherapy in 1946 2 (Figure 1). With the advent of monoclonal antibodies (mAbs), immune-targeted treatments (e.g., checkpoint inhibitors, adoptive cell therapy, CAR-T), and cellular therapies, there has been substantial deal flow for novel modalities. While fewer in frequency relative to other novel modalities, there has been an acceleration in ADC transactions, typically focusing on assets/companies in early stages of development.
ADC TRANSACTIONS
Since 2018, there has been over a threefold increase in deal volume for ADC-related assets (Figure 2), and partner interest may have been driven by the approval of eight different ADCs during that timeframe (excluding Blenrep due to its withdrawal from the market in 2022):
Lumoxiti, 2018
Polivy, 2019
Padcev, 2019
Enhertu, 2019
Trodelvy, 2020
Zynlonta, 2021
Tivdak, 2021
Elahere, 2022
ADC TRANSACTIONS: ONCOLOGY: DEAL VOLUME & TYPE
Currently, there are more than 500 industry-sponsored active clinical trials involving more than 140 unique ADCs, which is expected to result in continued interest and subsequent transactions in the space. To close off 2022, there was particular interest in ADCs from large pharma, with Merck executing two deals and Amgen initiating an ADC transaction during the second to last week of the calendar year. Notably, ADC deals are frequently struck early in the product development life cycle. When analyzing ADC transactions based on the phase of development (Figure 3), there is a clear appetite for early-stage technologies/assets, particularly at the discovery phase. Early-stage discovery transactions have predominantly focused on developing the mAb portion of the ADC to allow for improved targeting and optimization with linker chemistry to enhance ease of manufacturing.
ADC TRANSACTIONS: ONCOLOGY: DEAL VOLUME & TYPE
Active consolidators in the space span global biopharmas with a diverse oncology portfolio to those with a dedicated ADC focus (Figure 4). While Merck is known in oncology for its market-leading immune-oncology product, Keytruda, it has broadened its oncology portfolio with a focus on ADC business development. Merck’s ADC transactions include its $2.8 billion acquisition of VelosBio in 2020 and a $9.5 billion preclinical multi-asset acquisition deal in 2022 with Sichuan Kelun (Appendix Figure One), as well as the rumored $40 billion failed acquisition of Seagen. Seagen is broadly regarded as the industry leader in ADCs, with three commercial ADCs (Adcetris, Padcev, and Tivdak) and more than 10 ADCs in its clinical development pipeline. Seagen’s in-licensing actives have focused on acquiring early-stage ADCs and subsequent antibodies, while its Phase 2 license involved a novel HER2-targeted ADC, disitamab vedotin, potentially indicating its desire to enter the blockbuster HER2 targeted space currently occupied by Kadcyla and Enhertu.
ADC TRANSACTIONS: ONCOLOGY: DEAL SIZE & STRUCTURE
Sources: Cortellis, press releases
Exelixis, a commercial-stage oncology company, has recently added two ADCs to its pipeline and after $82.5 million in option and licensing fees to Iconic Therapeutics has successfully taken its ADC into Phase 1 development (Appendix Figure Two). The remainder of active consolidators have focused on bolstering their ADC development capabilities with early-stage transactions. While not typical consolidators, Iksuda (Series A, 2021, $47 million) and Emergence Therapeutics (Series A, 2021, $98 million) are both pure-play ADC companies, with cash in hand and looking to build out a differentiated ADC pipeline. LegoChem is both an active out-licenser of ADCs assets and a collaborator/in-licensor of ADC assembly technology from companies such as Mediterranea Theranostic Srl, NextCure, and Glycotope to expand its own development capabilities.
Potential Means Big Payouts In ADC Acquisition Landscape
While less frequent than other modalities, ADCs have commanded the highest deal value relative to any other modality (Figure 5). On average, the up-front deal value was $851 million across all stages (based on 42 disclosed deals) and, of those, five deals offered >$1 billion up front. When evaluating median value, the overall value for ADCs is $848 million, which is >$300 million more than the $512 million median for multi/bispecific antibodies. What is particularly striking about the transaction landscape for ADCs is the large overall deal value across stages of development (Figure 6). While there is a consistent increase in overall deal value from preclinical through Phase 3 (~$2 billion in preclinical to ~$4 billion for Phase 3), there is a significant increase in up-front value (tenfold increase from $52 million in preclinical to $520 million in Phase 1), demonstrating the value of de-risking the asset with safety and clinical data.
ADC TRANSACTIONS: ONCOLOGY: DEAL SIZE & STRUCTURE
Sources: Cortellis, press releases
Sources: Cortellis, press releases
The multibillion-dollar milestone payments offered for preclinical and clinical-stage assets are relatively unique to the ADC landscape. These large milestone payouts are likely due to the extended blockbuster potential of ADCs, which, because of challenges with biosimilar manufacturing, can continue beyond the drug’s patent life. There is a significant jump in up-front value for launched assets, which is driven by Gilead’s $21 billion acquisition of Immunomedics. The acquisition was centered around the ADC Trodelvy, which analysts projected would reach $4 billion in peak sales solely in triple-negative breast cancer (TNBC). Trodelvy was approved in TNBC five months prior to the acquisition in September 2020 and generated $20.1 million in revenue during its first two months on the market. The other disclosed commercial-stage deal involved a licensing agreement for Sobi to develop and commercialize ADC Therapeutics’ Zynlonta in Europe and select international territories for $55 million up front with the potential to receive up to $435 million in milestones. Despite the seemingly large value for commercial-stage deals, the total value could have been further increased had the rumored $40 billion merger between Merck and Seagen not fallen through because of pricing negotiations.
To cap off the excitement around ADCs in the past five years, 2022 ended the year with a very large ADC biobucks-centered deal between Merck and Kelun-Biotech for seven preclinical ADC candidates, valued at $175 million up front and up to $9.3 billion in milestone payments.
Unique Market Profile Makes ADCs An Attractive Investment
As the clinical pipeline matures, the next wave of innovative biotech companies within the ADC space has raised venture capital (VC) funds and is looking to enhance the therapeutic window of ADCs without compromising safety or stability.
VC funding for ADC technologies has steadily increased since 2018, with an aggregate of about $1.8 billion invested by the end of 2022 (Figure 7). A significant inflection in average deal value ($80 million, n = 4) occurred in 2019 following the approval of three ADCs in that year (Polivy/Roche, Padcev/Seagen, and Enhertu/Daiichi Sankyo, AstraZeneca).
Another milestone was achieved in 2021, with a record number of financings (3.5-fold increase compared to 2019) following four additional approvals in 2020-21 (Trodelvy/Immunomedics, Blenrep/GSK, Zynlonta/ADC Therapeutics, Tivdak/Seagen) and the unfolding commercial success of already approved ADCs (Figure 7). The healthy landscape of early-stage biotech companies as well as heightened interest from pharma holds great promise for actualizing the true potential of this magic bullet modality as a targeted therapy.
ADC TRANSACTIONS: VC FINANCINGS
When considering why ADCs have had such success in the transactional space, we hypothesize there are three major drivers to deal value:
EFFICACY
ADCs have demonstrated improved targeting of cytotoxic agents through increased tumor specificity and selectivity, which limits systemic exposure and increases cytotoxic potency. Due to ADCs’ targeted nature, their durability is increased relative to traditional chemotherapy, as they can deliver increased doses of cytotoxic agents directly to the tumor site.
ADC assets that successfully underwent preclinical transactions often demonstrated an ability to reduce tumor volume in multiple xenograft models and were differentiated in their target. For example, GSK’s option agreement with Mersana Therapeutics for $100 million up front and $1.36 billion in milestone payments was driven by XMT-2056’s efficacy in reducing tumor volume in both HER2-high- and HER2-low-expressing models and its novel STING targeting pathway (Appendix Figure Three). As successful ADCs progressed through the clinical stage, the excitement around their efficacy increased and may be best exemplified by the standing ovation that Enhertu received at ASCO 2022 for its Phase 3 DESTINY-Breast04 trial, where it showed a 4.8-month improvement in progression-free survival and a 6.6-month improvement in overall survival.
COMMERCIAL SUCCESS
Launched ADCs have seen significant returns for sponsors as three out of the 12 approved ADCs, Kadcyla (Roche), Adcetris (Seagen), and Enhertu (Daiichi Sankyo), have reached blockbuster status with 2022 sales of $2.2 billion, $1.4 billion, and $1.2 billion, contributing to 5%, 49%, and 15% of total company sales, respectively. 4
EXCLUSIVITY
ADCs are unique among biologics with respect to the market exclusivity they might command. One of the primary challenges that ADC developers undergo is the difficulty in manufacturing, particularly the conjugation of the antibody to the highly active cytotoxic component. The conjugation chemistry introduces further heterogeneity across ADCs and must be addressed with additional assays to assess the drug-to-antibody ratio and amount of free/bound cytotoxic drug. In order to develop biosimilars of an already complicated process, manufacturers must invest large amounts of capital to purchase specialized containment equipment, introduce advanced assay systems, and learn to apply advanced conjugation techniques to differentiated biological material, all while ensuring strict homogeneity across batches.
The manufacturing barriers make it challenging for biosimilar development, although not impossible, given that Zydus Cadila was able to produce the first biosimilar ADC of Kadcyla. However, given these significant manufacturing hurdles, we expect ADC biosimilar development to remain an anomaly rather than the industry norm.
ADC TRANSACTIONS: VC FINANCING LANDSCAPE
References:
Drago, J. Z., Modi, S. & Chandarlapaty, S. Unlocking the potential of antibody–drug conjugates for cancer therapy. Nature Reviews Clinical Oncology vol. 18 327–344 Preprint at https://doi.org/10.1038/s41571-021-00470-8 (2021).
Falzone, L., Salomone, S. & Libra, M. Evolution of cancer pharmacological treatments at the turn of the third millennium. Frontiers in Pharmacology vol. 9 Preprint at https://doi.org/10.3389/fphar.2018.01300 (2018).
Rome, B. N., Lee, C. C. & Kesselheim, A. S. Market Exclusivity Length for Drugs with New Generic or Biosimilar Competition, 2012–2018. Clin Pharmacol Ther 109, 367–371 (2021).
Evaluate Pharma
Databases: Cortellis, Pitchbook, TrialTrove, PharmaProjects
This article first appeared in Bioprocess Online.
Appendix Figure 1
Deal Overview: Merck to develop and commercialize 7 of Sichuan Kelun's ADC candidates with an option for cancer, worldwide excluding mainland China, Hong Kong, and Macau
Deal Value: $175M upfront and $9.3B in milestones
Key Takeaways: While the deal is the largest ADC preclinical deal to date, it is sparce on the specific details of the 7 acquired assets. What we do know is that the late December 2022 transaction, was Merck’s third ADC-specific deal with Kelun-Biotech over the span of 8 months, indicating a successful working relationship. The deal offered $175M upfront for 7 preclinical ADC assets and an incredibly large $9.3B in milestones; highlighting Merck’s belief in the significant revenue potential of the assets. Through their transaction history, it is clear that Merck is significantly committed to ADC development and has in-licensed 10 unique ADC assets just in 2022 alone. If deal signifies anything, it may be that for companies who are developing early-stage ADCs candidates, quantity can potentially be helpful in order to attract large pharma attention.
Appendix Figure 2
Deal Overview:
May 16th, 2019, Exelixis and Iconic Therapeutics enter into exclusive option, and license agreement for novel ADC, ICON-2 worth $7.5M
December 2nd, 2020, Exelixis exercises option and in-licenses Iconic Therapeutics’ ICON-2 ahead of planned investigational new drug application for $20M
January 6th, 2022, Exelixis and Iconic Therapeutics amend option and license agreement for XB002 for $55M
Deal Value: $82.5M total upfront ($7.5M upfront initial option agreement, $20 to exercise option and $55M to increase exclusivity of the asset)
Key Takeaways: When the initial $7.5M option deal was struck in 2019, ICON-2, was still largely in its discovery phase. The ADC was initially developed and discovered by Zymeworks, with the ADC specifically intended to target Tissue Factor (TF). With the absence of preclinical data released surrounding the deal, the $7.5M payment for the option was predominantly focused on the TF target. In September 2020, a year following the $7.5M option deal, Exelixis announced positive preclinical data surrounding ICON-2. The data highlighted the anti-tumor efficacy of ICON-2 in xenograft models and, importantly, showed its improved tolerability profile where bleeding, neutropenia, and skin toxicities were reduced, which have been observed with other anti-TF ADCs with a monomethyl auristatin E (MMAE) linker/payload. The demonstrated key findings included:
ICON-2 has a high affinity for TF binding but does not affect coagulation
Increased potency and activity relative to MMAE ADCs in mouse and patient-derived xenograft models from multiple tumor types
Improved safety and tolerability profile relative to MMAE ADCs in a NHP study
In December 2020, 3 months following the release of positive preclinical, Exelixis exercised its exclusive option to acquire ICON-2 for a $20M upfront payment. Exelixis additionally announced that a Phase 1 solid tumor basket clinical trial was planned for early 2021.
In January 2022, Exelixis and Iconic therapeutics amended their initial license agreement such that Exelixis was to make a onetime upfront payment of $55M to Iconic therapeutics in exchange to not pay Iconic future milestones or royalties. In October 2022, Exlisis announced initial positive results from their phase 1 JEWEL-101 trial. Exlesis anticipates continuing the expansion portion of the trial , utilizing XB002 as a mono/combo therapy with Opdivo.
Appendix Figure 3
Deal Overview: August 8th, 2022, GSK enters into an exclusive option to license and co-develop Mersana Therapeutics’ XMT-2056, an Immunosynthen ADC Targeting HER2
Deal Value: $100 Upfront, and up to $1.36B in Milestones
Key Data Generated: Despite the already unique MoA of ADCs, Mersana’s XMT-2056 takes a further differentiated approach in that its payload activates a stimulator of interferon genes (STING), in order to activate the immune system. XMT-2056 utilizes the targeting ability of an ADC to elicit an immune response in both tumor cells as well as inter tumoral immune cells.
In preclinical models, XMT-2056 demonstrated robust anti-tumor activity as both a mono and combination therapy. As a monotherapy, XMT-2056 was effective in reducing tumor volume in both HER2-high and HER2-low-expressing models. Furthermore, in mouse models, XMT-2056 monotherapy led to sustained tumor regressions in comparison to the control IV STING agonist, which did not show strong efficacy even when dosed at 100x higher than the ADC. XMT-2056 was further differentiated for its ability to activate the STING pathway in both tumor-resident immune cells and tumor cells. As a combination therapy, XMT-2056 was tested with multiple approved agents, including trastuzumab, pertuzumab, anti-PD-1s, and trastuzumab deruxtecan. Furthermore, preclinical data also suggests that XMTY-2056 may enable immunological memory for prolonged anti-tumor activity. The safety profile of XMT-2056 was evaluated in non-human primates, where it showed favorable pharmacokinetics at a dose 10x greater than needed for tumor regression in mouse models.
Following the transaction, Mersana expects to initiate a basket Phase-1 trial in HER2-expressing tumors such as breast, gastric and non-small-cell lung cancers. XMT-2056 was additionally granted orphan drug designation for the treatment of gastric cancers.