Merck emphasizes sac-TMT as a core ADC asset; J.P. Morgan maintains a positive view on Kelun Biotech

Overview

This report focuses on interpreting Kelun Biotech's core asset sac-TMT/SKB264 following Merck management's conference call after its ASCO investor event. The report believes Merck has placed sac-TMT at the center of its ADC oncology pipeline, emphasizing its strategic value across multiple tumor types, late-stage clinical development, and global commercialization. Kelun Biotech's current valuation is considered still attractive relative to the opportunity size and maturity of sac-TMT.

Core views

The core views include: first, the global Ph3 endometrial cancer data from TroFuse-005 showed PFS and OS benefits, representing an important event in which a TROP2 ADC demonstrated OS benefit versus chemotherapy in this indication; second, the consistency between the China Ph2 results and the global Ph3 results enhances the credibility of Kelun Biotech's ability to translate China data to global development; third, Merck's comments on biomarker strategy imply sac-TMT may be developed in a more biomarker-agnostic way, thereby expanding the eligible patient population; fourth, the potential combination use of MK-2010 and sac-TMT may become an important future catalyst.

Analysis framework

The report mainly makes its integrated judgment based on Merck management's comments during the ASCO investor call, interpretation of the global Ph3 data from TroFuse-005, the translatability of Kelun's existing China study data, the breadth of the global TroFuse program, the competitive landscape among comparable TROP2 ADCs, and DCF valuation assumptions.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  The Dec-26 target price of HK$535 is based on DCF valuation, assuming an equity risk premium of 6.6%, a risk-free rate of 3.8%, a beta of 0.85, a WACC of 9.4%, a terminal growth rate of 3.0%, and estimating free cash flow through 2033E.

• Clinical project evaluationGlobal Ph3 data readout and translation validation

  Using global Ph3 results to validate China Ph2 data and cross-indication development logic

  The report views the PFS and OS improvements of TroFuse-005 in endometrial cancer as a major de-risking event and believes it validates that clinical signals generated in China by Kelun can support global development.

• Competitive landscapePeer comparison of TROP2 ADCs

  Comparison of indication breadth, data consistency, and biomarker strategy

  The report believes SKB264/sac-TMT covers a broader range of indications than competing products such as Dato-DXd and Trodelvy, and may have best-in-class global potential.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kelun Biotech (06990.HK)

  Covered target and holder of sac-TMT rights

  Strengths

  It has ADC development capabilities, the OptiDC platform, and a deep scientific collaboration with Merck; the report believes the current valuation remains attractive relative to the global opportunity of sac-TMT.

  Weaknesses

  Its commercial value is highly dependent on delivery from the core ADC asset, while uncertainties remain in global development, regulatory approval, and the competitive landscape.

  Comparison

  The report believes SKB264/sac-TMT covers a broader range of indications than Dato-DXd and Trodelvy and may have best-in-class global potential.

  Risks

  Regulatory, geopolitical, R&D failure, competition, financial, and intellectual property risks may affect the rating and target price.

• sac-TMT/SKB264

  Core value-driving asset and Merck collaboration project

  Strengths

  TroFuse-005 global Ph3 showed PFS and OS benefits in endometrial cancer, the global Ph3 program covers multiple tumor types, and it may adopt a broader biomarker-agnostic development strategy.

  Weaknesses

  Efficacy across different tumor types, OS maturity, and global translatability still require validation with more complete data.

  Comparison

  Relative to other TROP2 ADCs, the report emphasizes its broader indication coverage, larger potential patient population, and potentially lower companion diagnostic friction commercially.

  Risks

  Weaker-than-expected subsequent readouts, delays in regulatory communication, or superior efficacy from competitors could all weigh on commercialization expectations.

• Merck

  Overseas partner for sac-TMT and driver of global development

  Strengths

  It has global Ph3 development execution capabilities and has positioned sac-TMT as a key asset in its late-stage oncology ADC portfolio.

  Weaknesses

  A formal combination therapy plan has not yet been disclosed, and the combination strategy remains at the stage of management commentary and market inference.

  Comparison

  Merck's openness toward potential combination use of MK-2010 and sac-TMT could compete with other PD-1/VEGF bispecific and ADC combination strategies.

  Risks

  The pace of collaboration advancement, clinical resource allocation, and changes in global regulatory strategy will affect the speed at which Kelun Biotech realizes its economic interests.

Key data

• Target priceHK$535.00J.P. Morgan Dec-26 target price.
• Current share priceHK$403.6Current share price cited in the main report text.
• Implied upsideapproximately 32.6%Calculated based on the HK$535.00 target price and the HK$403.6 current price.
• Coverage of the global TroFuse Ph3 programmore than 7 tumor typesCovering disease stages from early to late stage.
• Addressable patient populationapproximately 400,000 peopleRefers to potential addressable patients in the United States, European Union, and Japan.
• Number of global Ph3 trials14Merck has initiated 14 global Ph3 trials for SKB264.
• Forecast peak sales of SKB264 in China>Rmb9bnEstimated by J.P. Morgan.
• Forecast peak overseas sales of SKB264US$6bnEstimated by J.P. Morgan.
• Key DCF assumptionsequity risk premium 6.6%, risk-free rate 3.8%, beta 0.85, WACC 9.4%, terminal growth rate 3.0%Used for the Dec-26 target price calculation.

Impact & implications

If subsequent data for sac-TMT continue to deliver, Kelun Biotech may benefit from global milestones, royalties, and China commercialization revenue, and its valuation center could move higher with data readouts and indication expansion. Conversely, if global data, regulatory communications, or combination therapy strategy fall short of expectations, the current re-rating thesis will face pressure.

Risks

• Changes in regulatory policies or standards may increase compliance costs and affect cross-market operating efficiency.
• Geopolitical risks, trade disputes, tariffs, or sanctions may affect cross-border collaboration, technology transfer, and supply chain stability.
• Clinical trials may fail due to safety, efficacy, or unknown side effects, causing R&D investment losses and weakening investor confidence.
• New competitors or superior treatment options may erode Kelun Biotech's competitive position and long-term growth outlook.
• Cost overruns or revenue falling short of expectations may affect the company's financial health and operating flexibility.
• Patent disputes, challenges to patent validity, or expiration of key patents may lead to litigation costs, reduced exclusivity, and loss of market share.

What to watch

• Disclosure of full TroFuse-005 data at upcoming scientific meetings, which the report speculates may be at ESMO.
• Progress in Merck's communication with regulators regarding the endometrial cancer indication.
• The pace and consistency of data readouts for sac-TMT in other global TroFuse Ph3 indications.
• Whether MK-2010 and sac-TMT enter a formal combination therapy clinical development plan.
• Whether sac-TMT continues to adopt a biomarker-agnostic development strategy, and the impact of that strategy on the size of the eligible patient population and commercialization friction.
• The ramp-up of SKB264 sales in China, overseas milestone payments, and royalty realization.