Kelun-Biotech, a trailblazer in biotech innovation, boasts a diverse ADC pipeline with strategic backing from MSD. Leveraging a robust integrated ADC platform, the company has developed several differentiated clinical-stage ADCs -　　including SKB264 (TROP2 ADC), A166 (HER2 ADC), SKB315 (CLDN18.2 ADC), and SKB410 (Nectin-4 ADC) - and numerous preclinical candidates. This pipeline's potential is underscored by a strategic partnership with MSD, which includes the out-licensing of select ex-China rights for seven ADC assets in deals potentially worth up to US$11.8bn. MSD, also the company’s second-largest shareholder with a 6.1% stake, is currently progressing SKB264 through multiple global Ph3 trials, showcasing confidence in Kelun-Biotech's drug development expertise.
　　SKB264 emerges as a potential BIC TROP2-targeting ADC for challenging cancers such as TNBC and HR+/HER2- BC. Standing out for its efficacy and safety, SKB264 has shown promising results against competitors like Trodelvy and Dato-DXd in later-line treatments. Notably, SKB264 may offer similar or superior performance to Enhertu in HR+/HER2- BC without the associated risk of interstitial lung disease (ILD). Kelun-Biotech had secured a priority review for its BLA submission to the NMPA for 3L+ TNBC as of December 2023.
　　Strategic alliances with MSD are crucial for SKB264's global journey, with ongoing trials for NSCLC, particularly EGFR-TKI resistant cases. While competitors like Trodelvy and Dato-DXd are still early in clinical development in EGFR-TKI resistant NSCLC, SKB264 is advancing with a Ph3 trial in this setting. SKB264’s preliminary results indicate potentially better efficacy compared with other innovative regimens, including sintilimab, AK112, HER3-DXd, amivantamab and others. For the first-line setting, Kelun-Biotech is planning a Ph3 trial of SKB264+A167 for 1L NSCLC in China in 2024, while MSD has already started a global Ph3 trial of SKB264+Keytruda vs Keytruda for 1L PD-L1+ NSCLC patients. Moreover, MSD has initiated a Ph3 trial of SKB264 in pretreated EGFR-mutated nsq-NSCLC and a Ph3 trial in endometrial carcinoma. These advancements are key in positioning SKB264 as a worldwide treatment option.
　　Initiate at BUY with TP of HK$152.26. We estimate SKB264 to be the major revenue driver of the company. We anticipate SKB264 to commence commercial rollout in China by 2025E for TNBC treatment, followed by HR+/HER2- BC and NSCLC in 2026E. We estimate Kelun-Biotech’s total risk-adjusted sales from products and licenses of RMB1,351mn/ RMB1,039mn/ RMB1,079mn, and net losses of RMB337mn/ RMB440mn/ RMB653mn in FY23E/24E/25E, respectively. We expect Kelun-Biotech to turn profitable in FY27E. We derive our TP of HK$152.26 based on a DCF model (WACC: 10.47%, terminal growth rate: 3.0%).