Behind the $5 billion deal, Akeso has three endings

On December 6, Akeso announced a cooperation agreement with Summit, a U.S. listed company. The new record is set by Akeso, a Hong Kong-listed company. 

Summit introduced Akeso's investigational drug PD-1/VEGF biantibody AK112, with an initial payment of US$500 million and a total amount of up to US$5 billion.

$5 billion, becoming the ceiling of domestic innovative drug license out.

This news instantly detonated the biopharmaceutical market. After all, the current industry has not yet come out of the cold winter, and it urgently needs "confidence". The willingness of overseas pharmaceutical companies to invest heavily in the introduction of domestic innovative drugs is undoubtedly a shot in the arm.

However, while the market remained positive about the deal, there were also skeptical voices. The reason is that Summit has a market capitalization of less than $200 million and is not well received by U.S. stock investors.

For now, Summit itself does not have the ability to complete the transaction, but needs to rely on a series of operations such as high-interest loans and refinancing to successfully promote this project.

Against this backdrop, the market believes that there are still various variables in this blockbuster deal.

So, where will the cooperation between Summit and Akeso eventually lead? There are no more than three cases.

Ending 1:

Summit counterattacked, and Akeso hitched a ride

The best outcome of this cooperation is naturally a "win-win", which is not impossible.

Although Summit is not famous, the actual controller Robert Duggan has a lot of origins.

In 2008, biotech company Pharmacyclics failed to take a brain cancer drug, and the company's stock price fell below $1 and was on the verge of collapse.

In times of crisis, Robert Duggan joined Pharmacyclics and focused on advancing the development of ibrutinib.

The later story may be familiar to everyone. In May 2015, AbbVie acquired Pharmacyclics for $21 billion, targeting ibrutinib.

The deal made Robert Duggan a big winner of about $3.5 billion.

Today, Robert Duggan brought in the AK112 in the hope of winning again.

As a PD-1/VEGF dual antibody, AK112 is a potential challenger to K drugs, and the phase III clinical trial of its single-agent head-to-head K drug has entered the substantive research stage for non-small cell carcinoma.

As we all know, in the field of tumors, there has always been a saying that people with lung cancer get the world, and the base camp of K drugs is also a non-small cell carcinoma indication. If AK112 can successfully pick off K drugs, it will undoubtedly be of great value.

For now, the AK112 does have this potential.

At this year's ASCO, Akeso announced early data on single-agent and combination chemotherapy for the treatment of non-small cell carcinoma.

In the clinical treatment of non-small cell carcinoma with monotherapy, the objective response rates of the four dose groups of AK112 were 32%, 63%, 53%, and 75% for PD-L1-positive patients, respectively.

According to the phase III clinical trial KEYNOTE-024 of K drug, the objective response rate of KEYNOTE-024 for patients with high PD-L1 expression is 39%.

The two trials were not head-to-head and could not be directly compared. But in any case, from the objective response rate dimension, AK112 has the possibility of surpassing K drugs.

At the same time, for patients with non-small cell lung cancer who failed EGFR-TKI therapy, the objective response rate of AK112 combined with chemotherapy was 68.4%, and the median progression-free survival was 8.2 months, which was twice as long as the gold standard.

Overall, the AK112 does not seem to be weak. Once the K drug is successfully defeated, the subsequent monetization of AK112 is naturally not a problem.

At that time, not only Summit, but also Akeso will become a big winner. The milestone of 5 billion US dollars will become a large treasury for Akeso's independent R&D and mergers and acquisitions.

Outcome 2:

AK112 clinical failure, Akeso smiled down payment

Of course, the above picture is a very optimistic situation.

In the past, countless examples have taught us that we must remain "cautious" in the field of innovative drug investment. No way, who let the research and development of innovative drugs, the uncertainty is too great.

This time, Akeso and Summit cooperation, there is a variable is, can AK112 successfully defeat K drug?

As mentioned above, there is not a head-to-head study between the two clinics, and the final results are still highly variable.

More importantly, objective response rates do not necessarily prove the efficacy of a particular drug. Because the gold standard for evaluating a tumor drug is an indicator of survival.

The objective response rate and survival cannot be equated. The objective response rate is sky-high, and cases of final overall survival overturning abound.

PI3K inhibitors are a prime example. Once upon a time, with the explosive data of the objective response rate, a PI3K inhibitor was approved by the FDA for accelerated marketing. The final clinical data showed that many PI3K inhibitors did not prolong the survival of patients.

The rollover experience of PI3K inhibitors is not unique, and in general, the objective response rate correlates poorly with survival rate, so no one can guarantee that the same thing will not happen to AK112.

In the end, whether AK112 can successfully defeat K drugs requires complete phase III clinical data to provide the answer. If the final clinical failure of AK112 will be a huge blow to Summit and Akeso.

However, Akeso's losses are relatively small. After all, entering the clinical stage means that Akeso has probably received a down payment.

$500 million is astronomical for any biotech.

Ending Three:

Summit snake swallowing failed, Akeso's benefits are doubtful

So, what is the most pessimistic ending? Perhaps, the Summit plan to devour elephants failed.

The sword of Damocles hanging over Summitt's head is whether the loan to the major shareholder can be successfully received, and whether the fixed increase after the loan is received can be successful. Two things are related to the success or failure of the entire transaction.

Today's Summit doesn't have enough strength to complete the deal.

Looking at Summit's third quarterly report, it is not difficult to find that as of the end of September this year, the company had only $120 million in cash. Before the announcement of the partnership, Summit was worth just $150 million. That said, Summit is unlikely to come up with $500 million.

To solve this dilemma, Summit's answer is to borrow money from major shareholders and then increase repayment.

At the same time as the agreement was announced, Summit announced two things at the same time:

First, an additional offering of US$500 million will be raised, and both major shareholder Duggan and second shareholder Maky Zanganeh have said they will participate in the additional financing and have said that they have at least subscribed for basic subscription rights, but have not yet signed a formal commitment letter.

Second, Summit issued $520 million in unsecured notes to Robert Duggan and Maky Zanganeh. Of course, shareholders are not philanthropists, and Summit is required to pay shareholders an annual interest rate of 7.5%, and the latest repayment date cannot exceed September 6, 2024.

In other words, according to Robert Duggan's vision, it introduced AK112 through borrowing, and then raised funds in the capital market through AK112 to complete the capital replacement.

As things stand, it won't be difficult for Robert Duggan to complete the loan. In 2022, Robert Duggan ranked 1513th on the Forbes Global Billionaires List 2022 with a fortune of $2 billion, which is not bad money.

But even so, Summit's subsequent refinancing is critical.

At present, there are no other products in Summit's pipeline that can achieve short-term hematopoiesis, and AK112 will not be able to carry out clinical trials in the United States until the second quarter of 2023, and it will still take a long time to obtain approval and hematopoiesis.

That is, for a limited period of time, the source of repayment funds is "refinancing". At the moment when domestic PD-1 is folding one after another, it may take time to answer whether a bispecific antibody product with only Chinese clinical data can win the favor of Wall Street.

In general, during the development of the AK112, the pressure of funds will always revolve around Summit, but if there is a link in the capital chain that cannot keep up, the deal may end in failure.

This also means that before the cooperation finally enters the substantive stage, there are still certain variables in whether Akeso can get a down payment of 500 million US dollars.

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Of course, regardless of the outcome of this deal, we can't deny the significance of the AK112 going to sea.

In the past period, a number of domestic drugs have failed to go overseas, casting a shadow on the research and development of innovative drugs in China.

But nowadays. AK112's blockbuster overseas cooperation has undoubtedly injected strength into the market. China's innovative drug industry is constantly rising. As long as they can prove their value, the road of domestic innovative drugs to the sea will not be blocked.