MRSN - AstraZeneca And Daiichi Sankyo's Zauberkugel (Magic Bullet)

Summary

• FDA and EU approved, the joint therapy Enhertu is set to become a blockbuster.
• The therapy targets HER-2 cancers and is already expanding indications beyond breast cancer.
• With this successful antibody-drug conjugate, the entire sub-industry is now seeing renewed momentum heading into 2023.

Introduction

A major new therapy first approved in 2019 is now making waves across the biopharma industry due to rapid growth over the past year. AstraZeneca ( AZN ) and Daiichi Sankyo ( OTCPK:DSNKY ) have joined together to market the HER-2 cancer domain targeting therapy Enhertu. With annual sales now approaching $1 billion annualized, the therapy is a clear blockbuster that is disrupting other approved therapies across multiple indications. Enhertu is also special as an Antibody-Drug Conjugate ((ADC)) therapy, with other developers of this niche technology seeing renewed activity of late. This article will summarize the ADC market, summarize recent Enhertu success, and discuss the resulting investment implications.

Antibody-Drug Conjugates

Zauberkugel, or magic bullet in German, is a term coined over 100 years ago. It is a simple concept, targeting therapies to the exact location necessary unlike most treatments at the time. If a treatment can be targeted to cells or tissues that are diseased and not healthy areas, side effects can be reduced and efficacy increased. One such way is by using the body's own immune system, that already has the ability to attack disease, to transport other treatments as well. The field of ADC is the modern age rendition of this concept :

As early as the beginning of 20th century, Paul Ehrlich first proposed the concept of "magic bullets'' and postulate that some compounds could directly access to some desired targets in cell to cure diseases. Theoretically, these compounds should be effective in killing cancer cells, but harmless to normal cells. One of the plausible ways is to identify some specifically overexpressed antigens to distinguish cancer cells from healthy cells, such as HER2 (human epidermal growth factor receptor 2) on the breast cancer and CD20 (cluster of differentiate 20) on the B cell lymphoma.

Current research uses antibody therapies to treat cancers by targeting receptors that are overly expressed in cancer cells. By inhibiting certain receptors , or preventing them from working, the body's own immune system has a chance to target cancer cells. The results of antibody effectiveness are proven by the world's ultimate blockbuster therapies such as Merck's ( MRK ) Keytruda, AbbVie's ( ABBV ) Humira, and Bristol-Myers Squibb's ( BMY ) Opdivo. However, this one-step process does not always work, and the need to provide further layers of defense is necessary.

With antibody technology that is already proven to be capable of targeting cancer cells, the inevitable next innovation involves attaching other therapies to antibodies. When brought to the cancerous tissue, the compounds can have far more effect than other modes of treatment. The combined therapies, or conjugates, are already proven in a few specific cases, but the field is just getting started. I will now discuss some specific approved therapies.

Enhertu

Trastuzumab deruxtecan, now known as Enhertu, is an ADC that targets an epidermal growth factor receptor known as HER2. According to Penn Medicine, excess HER2 accounts for about 20% of all breast cancer cases. However, due to up to 65% of cases having low levels of HER2 expression, antibodies alone are not the best option. As such, the conjugation of deruxtecan, a chemo drug (that prevents cell division), increases the efficacy of treatment due to the targeting effects.

Enhertu was first approved in December 2019 for a small patient population but has gained further indications in 2022. Now, the therapy is approved for a wide range of metastatic/unresectable breast (across no, low, and positive HER2 cases), non-small cell lung cancer , and advanced gastric cancer (in the EU), with certain caveats. As a result of the expanded indications over the past year, Daiichi Sankyo has reported an 86% USD increase in oncology segment revenues (YoY) thanks to Enhertu, with therapy sales totalling over $350 million per quarter. As one can imagine, growth is expected to continue as Enhertu enters new indications, steals market share from less efficacious therapies, and expands market share.

Enhertu is already approaching blockbuster status, but there are a few positive growth factors to mention. As highlighted by AstraZeneca's presentation, Enhertu is effective across a wide range of breast cancers. The data also suggests that Enhertu will displace current first-line treatments such as Roche's ( RHHBY ) Herceptin or Perjeta (and the biosimilars), Sanofi's ( SNY ) Taxotere, hormone therapy, and chemotherapy. Enhertu may even work better than another approved ADC, Kadcyla, but more on that later. All that matters is that the data suggest Enhertu is expanding rapidly in the industry and taking more market share than other therapies. As reported by Fierce Pharma :

Based on the large patient population, Jefferies analyst Naoya Miura has pegged Enhertu's risk-adjusted peak sales in the DESTINY-Breast04 third-line patient group at 151 billion Japanese yen ($1.31 billion). Across all indications, Enhertu could reach $5.8 billion in global sales at peak, Jefferies' Peter Welford said in a Monday note.

Other Current Approvals

Antibody therapies are quickly becoming one of the most common new drug formats, but antibody conjugates remain rare. While the first ADC (Pfizer's Mylotarg) was approved way back in 2000, a subsequent reversal of FDA approval prevented mainstream usage. That is, until Mylotarg regained approval in 2017. Over the past 10 years, there has been a flurry of activity, and I will summarize the key assets below.

ADC Therapeutics ( ADCT ) Zylonta

As a pureplay biotech focused on ADCs, ADCT has finally earned their first approval with Zylonta in December 2022. The third-line treatment for a common form of lymphoma has already earned $22 million in sales, despite being a third-line treatment. Also, the drug was approved after an expedited Phase 2 clinical trial, highlighting the advantages in efficacy, safety, and first-in-class nature of ADCs. Moving forward, the company to leverage these advantages to expand Zylonta's indications and gain approval of other ADCs across a variety of cancers.

AstraZeneca's Lumoxiti

Not all ADCs are successful, as is the case of Innate Pharma's ( IPHA ) Lumoxiti. Licensed to AstraZeneca, the therapy was costly despite earning approval. Then, a lack of sales (blamed on the pandemic) caused AZN to stop marketing the therapy. Part of the issue was the effectiveness of the drugs, but it did not stop AZN from continuing to advance research into ADCs, as evident with Enhertu.

GSK's Blenrep

Another failure is GSK's ( GSK ) Blenrep, a blood cancer focused ADC that failed continuing clinical trials to prove increased efficacy over existing treatments. While the drug earned over $100 million, worries about a rescinded approval caused GSK to leave the US market before issues arose. Now, GSK will continue trials in other indications, but their technology may not be as strong as competitors.

Pfizer's Besponsa and Mylotarg

Pfizer ( PFE ) has had two ADCs in the news lately. First, a 2017 approval of cancer med Besponsa was met with a lack of UK health insurance coverage . This is despite that that showed some increases to quality of life for patients. Then, Pfizer saw the return of first-ever ADC, Mylotarg, that has found new life in specific blood cancer indications. However, data on the ADCs is lacking due to Pfizer's many other major oncological therapies. It is unknown what sales are or if the ADC pipeline is growing, although some news suggest Pfizer remains invested in the space .

Gilead's Trodelvy

Gilead's ( GILD ) Trodelvy is a HER-2 breast cancer targeting ADC with $180 million quarterly sales after approval in 2021. Growing at 79% per year, this therapy may become a competitor to Enhertu, although the current indication is for third-line triple negative metastatic breast cancer. Eventually, trials comparing the two therapies may cause one to be the preference.

Seagen

Seagen ( SGEN ) is a major oncology biotech with multiple approved ADCs. These are Adcetris, Tivdak, and Padcev, thankfully none of which compete with HER-2 breast cancer targeting Enhertu. They will in the future though thanks to their wide pipeline. However, for only $510 million in quarterly sales across all three therapies, and relatively slow growth, the current $25 billion market cap leaves little room for upside despite the success. Collaborators Zai Lab ( ZLAB ), Genmab ( GMAB ), or Astellas ( ALPMY ) may offer better value.

Roche Kadcyla

As I have noted with some therapies, competition will be a major factor for success or failure in the ADC sector. One key trial that has proven this is Enhertu compared with Roche's Kadcyla. Some of Enhertu's rapid success can be attributed to the steep safety and efficacy advantages of the medicine. As reported by Fierce Pharma :

In the head-to-head study against Roche's Kadcyla, Enhertu charted a staggering 36% reduction in death over Kadcyla, which was statistically significant. What's more, Enhertu yielded a 22-month improvement in median progression-free survival, investigators found. Patients on Enhertu lived a median of 28.8 months without disease progression versus 6.8 months for those who received Roche's med.

The results are significant because Kadcyla was, "until recently, seen as the most advanced technology that was available to treat second-line HER2-high metastatic breast cancer," [AZN VP of Oncology] Fredrickson explained.

Clinical Development Battles

The battle is not just with approved therapies, as most major pharmaceuticals are now in the ADC ring. As an example, AbbVie has a platform therapy, ABBV-154 , which will be one of the first ADC applications outside of cancer if approved. Also, Merck KGaA ( MKKGY ) is entering the fray by investing over $800 million into specialist Mersana Therapeutics ( MRSN ). Seagen is also one of the leading large biotechs hemming the clinical development battle with multiple collaborations with biopharmas across the industry. However, this has led to patent disputes, including one with Daiichi Sankyo over Enhertu. While Seagen lost, I am sure we will see many more patent battles over the coming years and these will cause damages.

Conclusion

For investors, there are many ways to take advantage, or risk, with regard to the ADC market. In my opinion, Enhertu is currently showing impressive performance and the rapid expansion in indications and comparison to Roche's ADC all suggest a blockbuster rating. However, for AstraZeneca, the impact is small as they have a diversified asset base. Daiichi Sankyo on the other hand looks like the Enhertu revenues will have a far larger impact on overall growth. I will be watching the company closely over the next few quarters to see how increased cash flows influence the financial fundamentals.

For full ADC exposure, ADC Therapeutics or Mersana are clinical-stage biotechs who have the most chance for upside if the technology is as groundbreaking as it seems. In the end, it may be patients who are the ultimate winners as lives are extended and quality of life increased. There is plenty of time for investors to benefit once valuations cool. For now, I would only consider accumulating some DSNKY for an Enhertu momentum play, but I hope this article helps each individual tailor their own research towards their preferences.

Thanks for reading.

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