Adagene Inc - ADR Stock

Great. Thank you very much, everyone. I'm Max Skor, a biotech analyst with Morgan Stanley. And before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures.

And with that, I'm happy to introduce Mickael Chane-Du, Chief Scientific Officer for Adagene. Welcome.

Thanks for having me.

Great. So for investors who may be less familiar with Adagene, could you briefly explain how the SAFEbody masking technology is designed to widen the therapeutic window? And any other key takeaways you think are important to understanding the story?

Of course. So Adagene is a protein engineering company. As you mentioned, we're developing our own masking technology, wholly-owned, wholly-proprietary. If you take a look at what we do with our lead compound called ADG126, a masked CTLA-4, I will mention the fact that the compound is protease-cleavable. But I'll also mention that as far as ADG126 is concerned, we don't only need high concentration of protease within the tumor microenvironment for the mask to be cleaved and removed. We also need a high level of expression of the target, here in this case, CTLA-4.

So -- but the story of Adagene is not just limited to CTLA-4 and colorectal. We have a very broad library and early-stage pipeline. For people who are listening to us, keep in mind that we also have, for example, among others, a masked T-cell engager going after HER2 and CD3. We have also -- we have other interesting things in the pipeline, but I'm just going to mention this for now.

Okay. That sounds good. So maybe we'll start with ADG126, CTLA-4 targeting. Could you introduce the program, evidence to date that the combination with pembrolizumab in patients with colorectal cancer without liver metastases, how these data look so far?

Sure. We know that CTLA-4 is a very de-risked target from both from a clinical perspective as well as from a commercial perspective. You have the Imjudo tremelimumab or the ipilimumab, Yervoy of the world that are now generating revenues close to $3 billion, $4 billion annualized. We know it works in a number of tumor types such as lung cancer, melanoma, RCC.

Now, when it comes to the cold tumors, especially looking at microsatellite stable colorectal cancer or MSS CRC with or without liver metastases, we know that immuno-oncology agents, and in this case, PD-1, CTLA-4, unfortunately, that kind of regimen doesn't really work. We know, for example, that PD-1 monotherapy has a response rate of close to 0% in patients -- including in patients without liver metastases. And when you look at some data from a randomized Phase II for durvalumab, tremelimumab, the response rate was 2% to 3%. Again, in patients with late-line MSS CRC without liver metastasis.

So, the fact that we at Adagene with ADG126 in combination with pembrolizumab, we have generated a response rate at the relevant doses between 15% and 36%, admittedly in a small data set, small population, small N, we believe that this is a much stronger set. This is a very, very strong signal.

The other thing that I want to mention, so we have SAFEbody. The whole idea of SAFEbody is to improve upon the safety profile of CTLA-4. It is -- the safety profile -- the tolerability profile of CTLA-4 is very well established. You know that you come up with things such as pneumonitis, colitis, et cetera, and a lot of discontinuations due to adverse events. In our data set in more than 60 patients with MSS CRC, our discontinuation rate due to adverse events was less than 10%, even though we're dosing patients at really high levels. Up to 20 milligrams per kilogram.

For those who are listening to us for benchmark, the first generation of CTLA-4 have been tested and approved at doses more around 1 mg to 3 mg per kg -- more, closer to 1 mg to 3 mg per kg if you look at the other, ipilimumab, for example.

Okay. That's helpful. So specifically, what gives you confidence that the masking approach can preserve anti-CTLA-4 activity in the tumor while limiting systemic toxicity?

It's really about -- it's really the safety data that we have generated, as mentioned, in more than 60 patients with MSS CRC. We see a very controlled incidence of Grade 3 adverse events. No Grade 4, no Grade 5 despite the combination of ADG126 with pembrolizumab. And again, at a dose of up to 20 milligrams per kilogram, a dose level that has not been reached by any other CTLA-4s.

And the fact that we have this efficacy that seems to be very differentiated versus the PD-1s of the world or the first PD-1, CTLA-4 and more particularly durvalumab, tremelimumab in that setting of MSS CRC without liver metastases is telling us that we are -- again, that we do have a differentiated therapeutic index.

Okay. Stepping back for a second, can we just talk about the market opportunity in microsatellite stable colorectal cancer? What are your thoughts on the incident population, the opportunity?

Sure. If you think of MSS CRC, microsatellite stable CRC. The first -- the initial addressable market for us would be late-line non-liver mets. We're talking about a little bit north of 10,000 patients just in the U.S. We and other -- and some third parties do estimate that global market to be a little bit north of $1 billion, okay?

Now, we are addressing this initial market through the combination of ADG126 plus pembrolizumab. Keep in mind that we also have nowadays, a trial collaboration with Incyte, which is evaluating a combo of ADG126 with a PD-1, TGF-beta bispecific. That PD-1 TGF-beta is -- has generated, we believe, a very differentiated response rate compared to the pembros of the world. Again, close to 0%, where Incyte generated a response rate of 15% in ITT, 23% in patients without liver metastases and 12% in patients with liver metastases.

Thanks to that combo, we now have access to a broader late-line population. We are talking about more than 30,000 patients, okay? And last one that I want to mention, talking about MSS CRC. We have an ongoing Phase II trial in neoadjuvant CRC, much broader patient population, more than 100,000 or maybe more than 150,000 patients just in the U.S.

Okay. That's helpful. And yes, I recognize the efforts that Adagene is making, but there are competitors in the space. Could you comment on how the competitive landscape looks?

Sure. I believe a couple of months ago, very recently, our very direct competitor, Agenus announced a very important pivot for them. So they abandoned -- not abandon, they deprioritized their BATTMAN trial -- love the name, by the way. They deprioritized the BATTMAN trial, which used to evaluate botensilimab, the Fc-engineered CTLA-4 in combination with their proprietary anti-PD-1, to pivot into neoadjuvant colorectal cancer, right?

I believe this is -- that was actually a pretty smart move because neoadjuvant CRC is a wider space. It's a much bigger population. They can worry a little bit less about the toxicity because per protocol, the ROBBIN trial -- great name here again, has only one dose of CTLA-4 botensilimab and three doses of PD-1. And technically, they compare themselves with placebo. So the technicals of the success are higher.

We, as we speak, are going after late-line metastatic CRC. We believe that we can be very differentiated there. And we need to look at the totality of the data. But we believe that we can also be, down the road, very competitive in neoadjuvant CRC, thanks to our differentiated therapeutic index, our ability to dose high, give more cycles, et cetera, without saying too much.

Okay. That's helpful. So the randomized Phase II CRC study is ongoing with results expected in the first half of 2027. Can you provide an update on enrollment and explain what you hope the study will establish beyond the earlier Phase Ib/II results?

Sure. Enrollment for this ongoing Phase II trial should be completed in the near future before the end of the year. That's for sure. That's #1. #2: I invite investors and non-investors to look at the totality of the data. Keep in mind that, that ongoing randomized Phase II is testing two dose levels of ADG126, 10 milligrams per kilogram every three weeks in combination with pembro and the second dose is 20 milligrams per kilogram every six weeks plus pembro.

We generated at these dose levels, response rates between -- confirmed between 15% and 25%. But don't look just at ORR. Look at ORR, duration of response. With immuno-oncology agents, you should expect a very long duration of response. Look at PFS, progression-free survival, keeping in mind that standard of care has very short PFS, but also that immuno-oncology agents, they don't necessarily win normally on ORR and PFS. They ultimately win on overall survival.

As a reminder, we generated a median overall survival of close to 20 months from the low-dose cohorts, the 10 milligrams per kilogram, Q6W and Q3W combined in our Phase Ib. If we were to replicate that kind of number, this would put us significantly above what the standard of care is sitting nowadays. And I'm talking about patients without liver metastasis.

Without liver metastasis. Okay. That's helpful. And you've indicated that a potential registrational study could begin in 2027 once the recommended dose regime has been established. How are you thinking about the potential study design, patient population, comparator endpoints? Anything in that regard.

Sure. The Phase II will answer the question of what is the optimal dose in the context of late-line metastatic CRC without liver metastasis. We want to have an end of Phase II meeting with the FDA. And after that, we will communicate what will be the ultimate design of that Phase III trial.

But at a high level, our expectation is that this will be a randomized Phase III trial evaluating ADG126 at the RP3D in combination with KEYTRUDA versus control arm and the control arm will be dictated likely by the patient selection. Like, for example, if we were to go with something very similar to the BATTMAN trials. So you look at the much later-stage -- much later lines and later-stage patients, then you'll end up with physician choice of therapy, including salvage therapy, fruquintinib, et cetera.

Now if you go into slightly earlier line like third line only, for example, I think the fair expectation is that you will have to compare versus TAS-102, bev or fruquintinib. So again, I think the control arm will be dictated by the patient selection of the Phase III.

Okay.

In terms of endpoints, that's two scenarios to keep in mind. I think people should assume that the base case scenario is the primary endpoint will be overall survival. We have a lot of precedent from the FDA in that regard. But there's also a scenario where -- and this is a discussion that we need to have with the FDA. Can we have, for example, two co-primary endpoints. One would be obviously overall survival, but can we have a second endpoint of response rate.

And we have seen a number of companies in the past that were able to use response rate as a way to do an interim analysis and potentially to ask for accelerated approval. It should not be the base case scenario for investors, but just saying that we have seen precedent in the field of oncology in the past.

Okay. So I'm going to press a bit more on regulatory interactions. How has dialogue gone? Any color on what we should look for from Adagene in regards to communication with the FDA?

We've had a fantastic end of Phase I meeting. Last year, the FDA was very, very supportive. We expect the FDA to continue to be very supportive. Our data sets so far, we believe, show a very differentiated therapeutic index. We have a very safe CTLA-4 when combined with PD-1. Let's generate the data. Let's -- and once we have some -- the right data sets and mature enough, we should have a good discussion with the FDA. Again, probably, say, around middle -- mid-2027.

There we go. I was going to follow up with the timeline.

Around that time.

Helpful. And maybe if we can just talk on differentiation and the broader combination strategy. How do you see ADG126 differentiating within the evolving next-generation CTLA-4 landscape? Which clinical measures will matter most? Any additional color would help.

We need to look at really at the totality of the data. Response rate is important. But again, take a look at duration of response, PFS and OS, et cetera. Your question was about our ability to combine with beyond PD-1 in a sense, right? Listen, we are very, very excited about the combination with PD-1 TGF with Incyte, PD-1 IL-15 with Sanofi, but also with PD-1 VEGF, remember that we have, we generated data in first-line HCC with atezolumab.

The improved/differentiated therapeutic window that we have with ADG126 is opening a lot more venues than other CTLA-4, I believe. We can now think about combination with PD-1, VEGF in first-line HCC. I don't think that this is something that was pursued aggressively by prior companies. I think that -- if you take a step back, I think that down the road, Adagene's ADG126 would be hopefully perceived as a very natural combination partner. Not just for PD-1 like pembro, like the pembrolizumabs of the world, but also for a lot of bispecifics or broader regimens.

Okay. That's helpful. And can you comment -- I believe you presented data at AACR recently, evaluating ADG126 in combination with regimens in first-line hepatocellular carcinoma, later line MSS CRC, which we commented on. But any takeaways we should have from that presentation?

Yes. In both cases, we have -- we believe that we have demonstrated our ability to be part of broader regimens, broader -- not just a dual mechanism of action of PD-1, CTLA-4. Here in both cases, we were -- well, I see fruquintinib as a multi-kinase inhibitor -- lot of activity against VEGF, but it's an MKI, right? But we did show that CTLA-4 PD-1 VEGF is -- could be a very important regimen or mechanism of action in the context of -- especially in the context of first-line metastatic liver cancer.

We're very, very excited. Keep in mind that the standard of care in the context of first-line HCC is one of the very important ones is atezo-bev. The fact that we showed that we can be very safe, the safety profile that we had was great, although at a very small dose of ADG126, 6 milligrams per kilogram every 6 weeks. We strongly believe that we can dose higher in combination with PD-1, VEGF and that dosing higher should hopefully lead to stronger outcomes from an efficacy perspective while maintaining an appropriate toxicity profile.

Okay. So before maybe moving on to the collaboration, stepping back, big picture, how should we think about the CTLA-4 efforts evolving over time? I know we've touched on several different programs and indications you're interested in. But what over the next 6 to 12 months or even longer should we look out for in regards to measuring how these efforts are developing?

Sure. First and foremost, so H1 2027 will have data from the randomized Phase II in late-line metastatic CRC without metastases. So this is a very important clinical milestone for the company. And as mentioned earlier, the first addressable market for us. You should think of that market with a number of $1 billion plus worldwide, right?

I don't think people should -- I mean I don't think people should expect data from the combination with Incyte. We don't control the timing of the data readout. But I think that Incyte should qualitatively speak -- I mean, I think Incyte should have a view on whether this is an appropriate combination or not internally, right? That would be my expectation, given the pace of enrollment that we expect as well as the protocol that we've put in place with them.

Okay. Can you introduce the Incyte collaboration?

Sure. So Incyte collaboration is something that we announced back in April of this year. Incyte is a sponsor of a new trial, which will evaluate their PD-1 TGF-beta bispecific with ADG126, our masked CTLA-4 in late-line MSS CRC with and without liver metastases. So this is a very important one. We -- as we speak, are the only CTLA-4 player evaluating such combination and looking at patients -- at least in a substantial exhaustive manner, looking at patients with liver metastasis.

The hope is that we can improve upon the outcomes generated by the PD-1 TGF-beta from Incyte. Remember, their response rate was 15%. They presented data last year at ESMO. 15% in ITT, 23% in patients without liver metastases and 12% in patients with liver metastases. One reason why we're so excited -- we and Incyte are so excited about that combo is because we may be addressing an important mechanism of resistance to that agent. We inhibit CTLA-4, we deplete Tregs. So hopefully, we can -- the hope is that we can get to better response rate, long duration of response, et cetera. And down the road, can Incyte decide to go beyond late-line MSS CRC? Time will tell and more importantly, data will tell.

Yes. That's fair. So how could the results from the study inform the broader development strategy for ADG126? What evidence would support expanding the collaboration or evaluating in combination in earlier treatment settings?

I don't want to give a hard number in terms of what to expect. But I would say some -- a number that is higher than what they showed at ESMO 2025 would certainly be a good start, right? On top of a manageable safety profile, right? You obviously don't want to see an outrageous discontinuation rate due to adverse events or an outrageous incidence of immune-related adverse events with this novel combination. So yes, higher response rate and a manageable tox profile would be very welcome.

Okay. And now maybe pivoting to the Sanofi collaboration. Could you provide an update on the clinical collaboration with Sanofi and the broader portfolio strategy or plans for potential expanded external partnership?

Sanofi is also sponsoring and executing on a new trial, and this one is evaluating ADG126 in combination with their PD-1 IL-15. We're also very excited about that combination. We have dosed a number of patients. We mentioned that in our H1 2026 results. The number of patients is not disclosed. But you should think of patients -- you should think of solid tumor patients with the warmer histologies where PD-1, CTLA-4 are approved.

Cannot give you an exact timing of when we will have data from that trial and novel combination. Sanofi is -- here again, is in control of the timing.

Okay. And is Adagene in general, interested in pursuing additional external partnerships? Or any color on business development strategy?

Yes. We want to remain very active on the BD front. We can -- we have shown in the past that we can raise non-dilutive capital. We have shown in the past that we can sign trial collaborations. Incyte and Sanofi are great examples. We are open to these kind of collaborations, but we also want to make sure that these kind of collaborations make sense from our standpoint. But it has to -- we want to see potential synergies between ADG126 and whichever -- whatever molecule we would be testing with.

Okay. Going back to CTLA-4, I guess, just briefly, are there any competitor readouts in the relative near term that we should keep a particular eye on?

Next year, I believe that Agenus will have, in the context of the neoadjuvant CRC, some interim analysis looking at the response rate, major pathological response rate for BOT/BAL. And I think they expect it in the second half of 2027.

Okay. Now let's move over to the financial picture. Could you discuss your current cash position and runway?

Yes. So we have -- so just a few months ago, we raised $70 million as part of a follow-on offering. We were very happy to have a syndicate of very high-quality investors in the U.S. Our cash runway now goes to the second half of 2028, which covers obviously, the randomized Phase II trial that we have discussed. And we would be partially funded for any future randomized Phase III trial.

Okay. So I have some macro questions I'd like to get to. But before we move on, is there anything you think investors are missing in the overall story or anything you'd like to get across beyond what we've discussed so far?

We -- so we've talked about a lot of relevant topics. I still believe, though, that investors are underestimating, underappreciating this -- our novel collaborations, the new, new combinations that we have, the Incyte and Sanofi of the world. Look at the data that Incyte generated at ESMO last year. I believe that people underappreciate the potential market of first-line HCC. We're still talking about 15,000 to 20,000 patients just in the U.S. Duration of treatment could be long. Longer than what people may have in mind. So this is a big market, I believe.

And we are -- because of our therapeutic index, we feel very confident that we can be very safely combined with PD-1 VEGF. Again, a very important standard of care in the context of first-line HCC. More and more investors are now paying attention. Obviously, they pay more attention to metastatic CRC. I think an increasing number of people are appreciating this initial market. But I think that neoadjuvant CRC is something that people need to pay more attention to.

And clarity on the regulatory front is probably helping the overall CTLA-4 story.

Yes, 100%.

Okay. That's helpful. So maybe -- I think this is pertinent given that Adagene does have a footprint in China. I was just wondering if you can comment on the rise of China origin innovation. How is it changing your competitive positioning? Has it any impact on your R&D or BD playbook?

We are very proud of our Chinese lineage. You may remember that Adagene is headquartered in Suzhou, close to Shanghai in China. We are very happy to see that the pharma industry is realizing that China is not just a source of me-too molecules. They are a source of innovation. There's a lot of great molecules that are coming from there. We believe that ADG126 is one of them. So I think this is a very important trend that we will benefit down the road -- that we will benefit from.

So when you potentially start a clinical trial or developing a new drug, how do you decide where to start the trial? Is it easier, more beneficial to start in China versus the United States? Any color there?

So this is a very important question. But, so first of all, we, so we are, again, very strong Chinese lineage, but we are a global company. We run our trials across the globe. We have a very strong footprint in the U.S. We work with a lot of clinical centers in the U.S. But because of the Chinese lineage, we want to take advantage of it.

There's a number of trials that will be announced there in the very near future. We can start in China, where the pool of patients is tremendous -- really tremendous. The cost of enrolling there is also lower compared to the U.S. So starting in China and generate data there first. But at the same time, slowly expanding to centers in the U.S. and Europe, I think is potentially a great playbook.

Yes. And having experience on both sides is also beneficial, I imagine.

For sure.

Now moving on to AI. Could you talk about any implementation Adagene has taken to leverage AI internally? Or thoughts overall would be helpful.

So like a lot of people, we use AI every day these days, right? I don't think I'm sharing a secret here. But Adagene has used AI from the, from its very early days. We have actually used AI to identify novel antibodies. We were able to interrogate novel epitopes, conformational diversity. ADG126 is a perfect example.

We identified a differentiated epitope and that differentiated epitope leads to much stronger ADCC compared to, compared to ipilimumab. For example, without the necessity of Fc-engineering, the necessity to have mutations on the Fc portion. So again, ADG126 is a great example of that. You should think of AI as a way to improve R&D productivity as well.

Okay. And then last macro question. This is more policy focus. So developments at the FDA, Medicare negotiation, most favored nations, tariffs, global pricing. Any comments on that? I know there are big topics.

A lot of big topics. But I think the, if I have to pick one that is -- I'm not saying that they are not important, but I think the most important one right now is really the FDA. We're very close to randomized Phase III. We're no longer an earlier-stage company. So clarity from the FDA is probably the most important factor that we -- for us in my humble opinion.

And conversations with the FDA, would you say they're going on as predicted?

Yes, they're constructive and as predicted so far.

Okay. That's helpful. And then just to close up, is there anything I missed or anything you'd like to call out?

No, I think we touched all the key topics. Thank you very much.

Great. Great seeing you again, Mickael. Thank you very much.