China's ADC Drugmakers Seize Global Leadership as New IPO Filing Highlights Sector Dominance

HLX43 is a proprietary antibody-drug conjugate (ADC) targeting PD-L1 developed by Shanghai Henlius Biotech, Inc., which has demonstrated remarkable potential in the treatment of various solid tumors, including non-small cell lung cancer. Its development progress globally is second only to Pfizer's.PF-08046054。

The above are just two examples of the rapid rise of China's innovative drug companies in the global ADC field in recent years.

In fact, if we extend the view to the recent five years, we can find that,Global ADC Drug Research and Development Field,China's innovative drug companies are gradually taking an indisputable leading position.

Taking 2023 as an example, according to IQVIA's statistical data, whenIn 2023, there were 64 deals in the global ADC pipeline, of which 24 involved transfers and authorizations from Chinese innovative drug companies to European and American pharmaceutical companies, accounting for nearly 40%.

In terms of monetary value, in the past five years, several ADC drugs from China have completed pipeline deals with a total value exceeding 1 billion US dollars.

Among them, including Biocytogen Pharmaceuticals (Beijing) Co., Ltd.$800 million upfront payment, $500 million near-term potential payment, and $7.1 billion in milestone payments for the licensing of a bispecific ADC to Bristol-Myers Squibb.

In addition, Merck struck multiple consecutive ADC pipeline licensing deals with Kelun-Biotech in one go. Not only did the total transaction value reach approximately 10 billion US dollars, but Kelun-Biotech was also dubbed by investors as "Merck's Directly Affiliated ADC Research Institute."

As can be seen from the above case, China has become one of the main sources of the global ADC innovation pipeline in recent years.

Chinese innovative drug companies occupying a leading global position in a pharmaceutical niche is extremely rare in the history of the industry's development.

This leading advantage has been achieved,It is the result of the combined effect of technology, talent, policy, and clinical resources.

ADC drugs consist of three components: antibodies, linkers, and toxin payloads. Their R&D innovation falls under combinational innovation, which is well-suited for Chinese innovative pharmaceutical companies with strong engineering and iterative capabilities.

After more than a decade of accumulation and efforts, China's innovative drug companies have gained significant advantages in ADC drugs, particularly in areas such as target combinations and process improvements.

Moreover, in the face of the leading advantages of international giants in popular targets such as Her2, Chinese pharmaceutical companies have generally adopted a strategy of differentiated innovation. They actively explore emerging targets and investigate new technological forms such as bispecific antibody-drug conjugates (ADCs) and immune-stimulating ADCs, carving out a unique path in the innovation of ADC drugs.

In addition, the rich clinical resources in China and the strong support from local CXO resources are also important factors for ADC drugs to quickly undergo clinical validation.

Under the叠加 and resonance of the above advantages, the leading position of China's ADC drugs is obviously sustainable in the long term, and may even continue to expand.

So, how to embrace the significant dividend in this niche area?

Due to the impact of the listing policies for innovative drug companies in previous years, the listed pharmaceutical companies that currently have an advantage in the ADC field or have already completed large BD deals are still mainly concentrated in the Hong Kong stock market (such as Biocytogen, Shanghai Henlius Biotech, Inc., and Kelun Botai mentioned above).

For ordinary investors, investing in Hong Kong stocks through ETFs may still be the most comprehensive and cost-effective approach.

The recent Pharmatech Anxin incident, due to the sharp rise and fall of individual stocks, has brought certain fluctuations to the net value of some ETFs, and also had a certain negative impact on investors who have invested in pharmaceutical ETFs.

However, this is not a problem with the ETF itself, but rather an issue with the temporary imperfection of certain index compilation methods.

This also reminds us that it is necessary to pay attention to the rigor and scientific nature of the index compilation method when screening pharmaceutical ETFs.

InTake the Hong Kong Stock Exchange's Innovative Drug 50ETF (513780) as an example. During the two trading days when Pharmjet experienced sharp rises and falls, its net value performance remained very stable, completely unaffected.

The main reason lies inHK Innovative Drug 50ETF (513780)TrackingCSI HK Stock Connect Innovative Pharmaceutical Index, and the compilation method of this index is quite robust:Generally, free-float market capitalization weighting is used, while the weight cap for a single sample stock is set at 10%, which largely avoids the impact of individual stock volatility.

At the same time, the index is adjusted every six months, which also avoids the probability of incorporating "penny stocks" like Pharmaron into the Hang Seng Stock Connect too quickly.

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