IPO Radar | Rapid Fundraising Sows Risks: Duality Bio Relies on Listing to Turn Things Around

ADC (Antibody-Drug Conjugates) is the fastest-growing category in the oncology field recently, with many young biotech companies in China betting on this sector. Some companies are not only alleviating financial pressure through external licensing collaborations but also aiming to seize the IPO time window.

Duality Bio is a typical example.

DualityBio Announces Exclusive Licensing Agreement with GSK for Potential Best-in-Class ADC Drug DB-1324DualityBio recently announced an exclusive licensing agreement with GSK (GlaxoSmithKline) for DB-1324, a potential best-in-class antibody-drug conjugate (ADC). Under the agreement, GSK will pay DualityBio $30 million upfront and certain pre-option exercise milestone payments to obtain global development and commercialization rights, excluding mainland China, Hong Kong, and Macau. Upon exercising the license option, DualityBio could receive up to $975 million in milestone payments and tiered royalties based on net sales across different regions during future commercialization stages.

This will effectively alleviate the financial pressure on Duality Bio, especially as the company is currently in the midst of its HKEX IPO冲刺阶段. However, the current "crisis" facing this company has not been completely resolved.

Outward licensing cooperation has surpassed investment and financing, becoming the most important "lifeline" for biotech companies during the capital winter. Public data shows that since the second half of 2022, the number and amount of outward licensing transactions for China-produced innovative drugs have significantly increased. By the first half of 2024, there were over 40 outward licensing projects with a total transaction value of approximately 25 billion US dollars. In contrast, the total amount of investment and financing in the biopharmaceutical industry during the same period was only about 36 billion yuan, and it continues to decline.

Founded in 2019, Duality Biologics has followed such a survival route. In April 2023, the company licensed two ADC drugs to BioNTech for over 1.5 billion US dollars in total (with an upfront payment of 170 million US dollars); in July, it also licensed a preclinical ADC toBeiGene, with a total potential transaction value of approximately US$1.3 billion; In early December, it reached another ADC licensing agreement with GSK, with a potential total amount of more than US$1 billion (an upfront payment of US$30 million and milestone payments up to US$975 million).

These three deals have brought Dyadic Biologics over $200 million in upfront payments and nearly $3.8 billion in potential future revenue. This demonstrates that, even amidst intense competition within the sector, innovative drug pipelines with differentiated products capable of addressing clinical pain points can still attract capital and international partners. For instance, the DB-1324 product involved in this collaboration, used for treating gastrointestinal cancers, is a next-generation ADC drug candidate developed by Dyadic Biologics based on its proprietary DITAC platform.

The DITAC platform possesses proprietary linkers and topoisomerase inhibitor payloads that have undergone rigorous selection and optimization. It allows for customized regulation of ADC design based on disease mechanisms, physicochemical properties, and bioactivity requirements, achieving the optimal balance between toxicity and efficacy. This technical foundation ensures the potential for high efficacy and low toxicity of DB-1324. Additionally, DB-1324 leverages the high-affinity binding of antibodies to specific tumor-associated antigens, with expected improvements in linker stability, drug-loading efficiency, and selectivity compared to previous generations.

Through platform-based development, DualityBio has established a pipeline of 12 self-developed ADC candidate drugs, among which three core products in clinical stages (including the core products DB-1303/BNT323, DB-1311/BNT324, and the key product DB-1305/BNT325) have received Fast Track Designation from the U.S. FDA. Notably, DB-1303 has also been granted Breakthrough Therapy Designation by the FDA and China's National Medical Products Administration for the treatment of HER2-expressing advanced solid tumors (including HER2-expressing endometrial cancer, breast cancer, ovarian cancer, colorectal cancer, and esophageal cancer), with plans to apply for accelerated approval of its first indication from the FDA in 2025.

DB-1311, as a B7-H3 ADC with leading clinical progress, has demonstrated preliminary efficacy and safety signals in various solid tumors. It has also received FDA Fast Track designation for advanced/unresectable or metastatic CRPC and Orphan Drug designation for ESCC. The development strategy of DB-1305/BNT325, a TROP2 ADC, focuses on underexplored indications (such as ovarian cancer) and combination therapies, aiming to become a potential cornerstone therapy in the TROP2 field.

In addition, DualityBio has multiple next-generation bispecific ADCs (BsADCs) and ADCs targeting autoimmune diseases (AI-ADCs), which are expected to enter clinical development stages between 2024 and 2026. The company has already launched global multi-regional clinical trials (MRCT) across more than 230 clinical trial centers in 17 countries, enrolling over 1,000 patients. Once these products demonstrate therapeutic potential, they are also highly likely to become follow-up candidates for out-licensing collaborations.

Relying solely on the down payment cannot meet the aggressive expansion needs of DualityBio. On August 26, according to the Hong Kong Stock Exchange disclosure, DualityBio submitted an application for listing on the Main Board of the Hong Kong Stock Exchange, with Morgan Stanley and Jefferies as sponsors.CITIC SecuritiesAs joint sponsors. The successful BD project has boosted market confidence in the pricing of Duality Biologics, but the company's "relentless" IPO pace may have other underlying reasons.

The development history of DualityBio is a continuous financing journey. Since its establishment in 2019, the company's valuation has increased more than 15-fold: from a post-money valuation of 13 million USD after the seed round in 2020 to 203 million USD at the conclusion of the B+ round. Throughout this process, the company has successively brought in several well-known investors, including 6D Capital, WuXi Venture (under WuXi Biologics), Lilly Asia Ventures (LAV USD), AstraZeneca-CICC Fund, and others.

As of the disclosure of the prospectus, Eli Lilly's LAV USD holds 16.55%, King Star Med holds 13.22%, the founder's holding company holds 9.54%, Shanghai Yingjia holds 9.38%, WuXi Biologics holds 6.12% through WuXi Venture, and 6D Capital holds approximately 5.87%. Notably, the actual controller of King Star Med is Lin Xianghong, who is currently the chairman of New Alliance Investment.WuXi AppTecAlso one of the partners of New Enterprise Associates. In addition, well-known investors such as China Biologic Products and Oriza Holdings also participated.

However, rapid financing expansion has also sown hidden risks. Duality Bio has issued a large number of convertible preferred shares during multiple rounds of financing. These preferred shares can be required to be redeemed under specific conditions (such as IPO failure, withdrawal, or exceeding the set deadline); at the same time, changes in their fair value need to be recorded on the company's liability side. As of the end of March 2024, the book value of financial liabilities generated by the company due to convertible preferred shares reached 2.294 billion yuan. Currently, Duality Bio's valuation has significantly increased over more than two years, which has also raised the fair value of the preferred shares.

By the end of March 2024, the book value of such financial liabilities of DualityBio reached 2.294 billion yuan, resulting in a severe insolvency situation for the company: total liabilities amounted to approximately 2.822 billion yuan, with total assets at only 1.744 billion yuan, and net liabilities reaching 1.079 billion yuan. Facing severe insolvency and significant redemption risks, DualityBio temporarily suspended the exercise conditions of preferred stock redemption rights in August 2023 by signing a supplementary agreement with shareholders, on the premise that the company successfully lists on the Hong Kong Stock Exchange within 18 months after its initial filing.

Duality Bio has immediately terminated the redemption right upon filing its IPO application with the Hong Kong Stock Exchange. However, if the IPO process encounters obstacles (such as withdrawal of the application, failure, or not going public successfully within 18 months), the aforementioned redemption right may be reinstated, posing the biggest risk to the company’s financial stability. Meanwhile, the company currently has no commercialized products on the market, and its licensing revenue is insufficient to offset the high R&D expenditures. At the current R&D spending rate (RMB 559 million in 2023), Duality Bio's cash balance (RMB 1.33 billion as of Q1) will only last for approximately one year, increasing the urgency of its IPO.

The CSRC has also noticed some "anomalies" concerning Duality Bio. In September this year, the International Department of the China Securities Regulatory Commission (CSRC) requested Duality Bio to provide supplementary materials. The focus was on its equity structure and changes, whether there was any transfer of interests in the employee stock ownership plan and equity incentives, and the compliance of the listing plan. The CSRC required Duality Bio to issue an opinion on the compliance of the equity incentive plan. In 2023, Chairman Zhongyuan Zhu's compensation exceeded 18 million yuan, increasing 2.4 times compared to 2022, with approximately 14.665 million yuan in stock-based compensation expenses.

This IPO is a must-win for DualityBio.

Editor: He Songlin