To The Moon

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$Merck(MRK)$ and $Bristol-Myers Squibb(BMY)$ both have their eyes on the same pie: Antibody-drug conjugates (ADCs), and both companies want to split them into chunks.

According to a report by DataM Intelligence, the market size of the ADCs will reach $16.6 billion by 2030, more than triple the current size of about $5 billion.

In this battle for the ADCs market, who will win the final victory? And what should investors do?

What are ADCs?

ADCs are formed by linking monoclonal antibodies targeting specific antigens with small molecule cytotoxic drugs through connectors, which combine the powerful killing effect of traditional small molecule chemotherapy with the tumor targeting ability of antibody drugs. The advantage of ADCs is that they can be able to target cancer cells more precisely and reduce damage to normal cells, thus reducing the toxic side effects of treatment.

At present, ADCs have been used in the treatment of many types of cancer. ADCs can be combined with other traditional cancer treatments, such as chemotherapy and radiotherapy, to bring more business opportunities for enterprises and huge commercial potential. Because of this, many cancer drug development companies are very active in the development of ADCs drugs.

Merck made a big move

Currently, Merck has six ADCs in clinical trials that come from partnerships or acquisitions, and all of which are focused on cancer. In late 2022, the company signed a collaboration and licensing agreement with $SKB BIO-B(06990)$, a small Chinese company, to license seven different preclinical ADC drug candidates in its pipeline to Merck, while receiving an upfront payment of $175 million. If all seven projects meet the requirements of the agreement, the biotech company could earn up to $9 billion in the process.

In October, Merck signed an even larger deal with $Daiichi Sankyo Co., Ltd.(DSNKY)$, a Japanese pharmaceutical company, with an upfront payment of $4 billion. The two companies will jointly develop three clinical phases, which are expected to treat assets of various solid tumors, and share costs and profits equally.

Assuming all relevant commercial milestones are reached, the total consideration for the agreement could be up to $22 billion. Prior to this, Merck also entered into ADCs research and development cooperation agreements with companies including $Seagen(SGEN)$.

Bristol-myers Squibb's strategy is buying

In order not to be overtaken by Merck, Bristol-Myers Squibb's strategy is to buy up ADC candidates. On Nov. 6, the company paid $100 million for a phase I asset in a blood cancer treatment from Orum Therapeutics, a biotech company.

In April, the company signed an agreement with German biotech company Tubulis for an upfront payment of $23 million, and milestone payments of up to $1 billion.

In mid-2021, Bristol-Myers Squibb also signed a joint development agreement with$Eisai Co., Ltd.(ESALF)$ to jointly develop clinical-stage ADC programs for solid tumors, with milestone payments of up to $2.5 billion.

Beyond these, Bristol-Myers Squibb has only one in-house, Phase I ADC clinical trial program.

In ADCs, Bristol-Myers Squibb will struggle to compete with Merck. The company's rolling 12-month R&D spending is just $9 billion, compared with Merck's $25 billion.

As for acquisition prospects, Bristol-Myers Squibb had cash and cash equivalents of about $8 billion in the third quarter, less than Merck's nearly $9 billion. The conclusion is that Bristol-Myers Squibb's R&D pipeline is inferior to Merck's, and it has far fewer resources at its disposal.