Merck (MRK 0.37%) and Bristol Myers Squibb (BMY 0.34%) are both eyeing the same pie, and they're both serious about getting a big slice. But it isn't a hot market for drugs to treat a single disease that's in dispute. It's the market for antibody-drug conjugates (ADCs), an emerging but proven therapeutic modality that should really take off through the rest of the decade after a successful first act.
The stakes for shareholders are on the higher side. Per a report by DataM Intelligence, the market for ADCs will reach a size of $16.6 billion by 2030, more than tripling its value of around $5 billion today. So who will win the confrontation, and what should investors do about it?
What are antibody-drug conjugates?
Let's do a quick recap of the key scientific idea here. Antibody-drug conjugates are medicines that use an antibody as both a homing device and a carrier, to deliver a therapeutic molecule as a payload to a specific physiological target. So far, all ADCs on the market are intended to treat various cancers.
The concept is that the precision targeting gained by attaching a therapeutic molecule to an antibody can deliver higher efficacy by ensuring the molecule actually gets to tumor cells rather than healthy cells; that means it also causes fewer side effects for patients, as the chances of off-target activity are dramatically reduced.
In practice, the precision and lighter side-effect profiles of ADCs mean that they can often be used alongside traditional oncology approaches like chemotherapy and radiation. Therefore, there are a lot of angles for commercializing ADCs as a bundled product in conjunction with those other modalities, which is yet another reason why drug developers with significant oncology pipelines are eager to compete in the space. With that in mind, let's investigate what Merck is doing to compete.
Merck is making big moves
Right now, Merck has six ADC programs in clinical trials, all of which are focused on treating cancer, and all of which are the result of either collaborations or acquisitions. At the very end of 2022, Merck penned a collaboration and licensing deal with Kelun-Biotech, a small company based in China; the deal was worth $175 million up front for seven preclinical-stage ADC candidates for various indications in oncology. If all seven programs fulfill the pact's requirements, the biotech could earn as much as $9 billion in the process.
Then, in October of this year, Merck inked a much larger partnership with Daiichi Sankyo, a Japanese pharmaceutical company, for $4 billion up front. The pair will codevelop a trio of clinical-stage assets that could potentially treat a wide range of solid tumors, splitting costs and profits along the way. The total consideration of the agreement has a ceiling of $22 billion, assuming that all of the associated commercialization milestones are reached.
These two big collaborations aren't Merck's first, just its most recent. Past attempts to team up and develop more ADCs featured companies like Seagen. Competing in the space is doubtlessly a priority for management. But can Merck beat Bristol Myers Squibb?
Bristol Myers Squibb is swiftly acquiring candidates, but will that be enough?
Not to be one-upped by Merck, Bristol Myers Squibb (BMS) has also been on a multiyear ADC dealmaking frenzy. On Nov. 6, it paid $100 million for a phase 1 asset for treating blood cancers from the biotech Orum Therapeutics.
In April, it inked a deal worth $23 million up front with the German biotech Tubulis. This was to gain access to the latter company's ADC customization and stabilization platform for treating solid tumors, which may help to juice more efficacy from candidates while also improving safety characteristics. If the collaboration with Tubulis works out, BMS is prepared to cough up as much as $1 billion in milestones.
And in mid-2021, BMS signed a joint development agreement with Eisai, a Japanese biopharma company, for just one clinical-stage ADC program targeting solid tumors. The proceeds could cost it $2.5 billion in milestone payments.
What's more, BMS management explicitly lists ADCs as an area of prime interest. But as of now, the company doesn't actually have any milestones related to ADC trials coming up in the next couple of years. It only has one internally developed ADC in clinical trials -- in phase 1.
That's going to make it awfully hard to compete with Merck on the basis of ADCs alone. Its trailing-12-month (TTM) research and development (R&D) expenditures of only $9 billion -- compared to Merck's $25 billion -- won't make the situation any easier, either. Plus, it has less cash to throw into making more acquisitions; whereas Merck had close to $9 billion in cash and equivalents in the third quarter, BMS had roughly $8 billion. In other words, both companies hold a significant amount of dry powder should the need to acquire a promising candidate arises.
So can Bristol Myers Squibb actually beat Merck in the ADC market over the next seven years or so? Probably not: It has a lot less in the pipeline today, and it has significantly fewer resources to change that in future.
