Keytruda: The clone wars

In today's episode, we will break down two important stories. First we will talk about the race to replicate key trudor and then we will talk about what CBAM really is. Welcome back to the Daily Brief by Zeroda where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara and today is Friday 27th February. Coming to the first story. So the best selling drug in the entire world is key truder or more scientifically Pembroly Zoom app. In 2025, a single year, it clocked sales of over $31 billion and that puts it in a club of one well ahead of global blockbuster drugs like Ozempik. That's for good reason. Key truder is the literal cure for cancer. Yet, the company behind the sensational drug, Merk & Co, sounds anxious. In 2020, the company records might be the best year in its life. From there, things will be downhill. In fact, Merk recently announced new plans for how it will cope with life after 2028. That's because its main patents, what are called its composition of matter patents, will expire in December 2028 and other protections are falling off even sooner. In the European Union, for instance, its data exclusivity will lapse midway through the year, opening room for companies to make regulatory filings to sell their drug there using Merk's clinical trial data. In short, Merk will soon hit a patent cliff. An opportunity worth hundreds of billions of dollars will soon be open to pharmaceutical companies across the world. India's pharmaceutical sector is already watching the space like a hawk and that moment will also be a boon for cancer patients across the world. Currently, a single 100 milligram vial of imported key truder can cost as much as Rs. 2.36 lakh. That translates to an annual cost of approximately Rs. 40 to 50 lakh utterly out of reach for most people. As others rush to the space, those costs will fall to a fraction of that amount, but it won't be that easy. Recreating a biologic drug like key truder is infinitely more difficult than copying a regular pill. So, fighting cancer is one of the hardest challenges the world's pharmaceutical industry has ever taken on. The emperor of maladies works nothing like an ordinary illness. It's too similar to your body for medicine to work and too clever for your body's own defenses to kick in. Key truder found a way to break that bind. Now, cancer isn't one disease. It can begin for a variety of reasons across various contexts, but once it takes hold, it can behave completely differently in different patients. There's no one molecule you can target to fight the disease. And it isn't just that cancer differs between different patients. Different cancer cells in the same patient in the same tumor are different. Even if you can create a medicine that kills most cancer cells in a tumor, some subclones with different genetics could survive. Now, this kicks off a Darwinian evolutionary process. As you attack a cancer, the cells that survive build a resistance to your methods. You could kill 99% of a tumor, but the 1% that survives shall create the next tumor which will be harder to kill. So cancer demands some things smarter than brute force. A system that can recognize cancer cells, adapt as they mutate and hunt them as they hide. Ideally, your body's immune system should be capable of performing that role. Cancer cells, because they're mutated from your cells, have abnormal proteins on their surface called neoantigens. Your immune system has T cells that can recognize those abnormal proteins and attack the cells that carry them. That is, your body has some capacity to fight cancer. But in response, cancer can learn to launch a campaign of subterfuge. Cancer cells learn to hide the neoantigens on their surface, and more insiduously, they start activating something with the ominous name, Program, Death 1 or PD1. This is a natural off switch that T cells have. It tells them to press the brakes on their job of fighting an infection. Cancer cells learn to press that switch and turn your immune response down. The harder your body fights the cancer, the stronger a response it receives. Now until keyrooter, there were broadly two ways to fight cancer. The first was chemotherapy, poisoning all rapidly dividing cells in the body. This worked, but crudely. Apart from cancer, your gut lining, hair follicles and bone marrow divide rapidly as well, and chemo would attack them all. You could only hope to kill the cancer before you killed the patient. The second was more targeted. Some drugs like a matineeb could hunt for a specific protein that some cancers depend on and block it. When it worked, it worked beautifully. For instance, a matineeb turned chronic myeloid leukemia, a type of blood cancer from a death sentence into something manageable. But many cancers don't come with that molecular target, or they evolve around the medicine, and then there's little these therapies do. In both cases, we would attack cancer cells, in one case by carpet bombing them and in the other by looking for specific targets. Keyrooter however tried something new. It didn't attack the cancer at all. It just stripped away cancer's ability to hide from the body's immune system. It essentially blocks cancer cells from reaching the program death one breaks on T cells. Without that, your body's immune system continues hunting for cancer. And it's a smarter anti-cancer system. It's adaptable and targets abnormality rather than static targets, which is why it avoids many of the defects that other therapies came with. Interestingly, Merck almost didn't develop the drug. It got the research for Keyrooter as part of an acquisition where it wanted something else entirely. Back then, it valued PD1 therapies at next to nothing. But the drug turned out to be revolutionary. Take metastatic melanoma, a skin cancer that has advanced and has spread all over one's body. Before an immunotherapy, only one in every 20 patients would survive this for five years. With Keyrooter, however, more than one in three patients would survive for seven years. Among those who completed two years with Keyrooter, more than nine in every 10 patients would survive the next five years. Most impressively, Keyrooter doesn't just work with one sort of cancer, it's more of a platform. It's a single mechanism that works against a variety of cancers. As of 2025, the FDA has approved it for 18 different types of tumors. And in fact, in 2017, it became the first approved cancer drug to be tissue agnostic. That is, it could help the body fight cancers anywhere if the cells there were deformed enough to produce enough antigens. It is this remarkable drug that Indian pharmaceutical companies might soon launch themselves at. But recreating a miracle isn't easy. Our pharmaceutical industry came up around generations for small molecule drugs. These were simple medicines like aspirin which just has 21 atoms. They had simple, defined chemical formulas. If you knew how, you could make them in a simple lab with simple chemistry. Keyrooter meanwhile is a protein. It's made of over 20,000 atoms arranged in a massive three-dimensional structure with intricate and precise folds. On its surface, there are specific points where complex sugar molecules latch on and they define how the drug works. To recreate molecules like this is a different exercise and kind than making generics for something like paracetamol. You just can't make something this complex in an ordinary chemistry lab. Instead, you put living cells to the task. You inject these cells with genetic material that can create the drug. And more often than not, cells from the ovaries of Chinese hamsters are used for this work. You grow these in giant industrial bio reactors where you must ensure precision. You are trying to coax these cells to work perfectly, manufacturing a specific enormous protein folded correctly, decorated correctly across thousands of liters of production. To get it right, you need to control every single variable you can from temperature to the nutrient feed to acidity and so on. And even then, you won't get it perfectly right. Even Merck's own keyrooter very slightly from batch to batch. That's just how living systems work. The best you can hope for is to get something highly similar to the original. But some mistakes can be fatal. In 2002, for instance, a small manufacturing change to a biologic ended up causing an epidemic of pure red cell pleasure across Europe, where those who took the drug could no longer create red blood cells. These mistakes aren't visible in any real sense until the damage is done. Now, all this complexity means that even if someone's patent over a biologic runs out, you can't just copy the drug. You're running a decade-long research project, reverse engineering and recreating a complex protein. This costs anywhere between 100 to 300 million dollars compared to the 2 to 5 million dollar cost of a standard generic. The same complexity is also visible in how regulators treat these biosimilar drugs. So a generic just has to prove it's absorbed by the body the same way as the original for approval after looking at a few dozen patients. A biosimilar developer meanwhile has a much harder task. They have to prove at a molecular level that their protein is structured the same as the original down to the sugar molecules on its surface. They have to show it can be purified without losing its shape and they also after demonstrate it doesn't trigger some sort of terrible immune reaction the original doesn't. In fact, until recently they also had to run a full set of clinical trials, although that's now being relaxed. All of this is to say for any company that's looking at key true dust, 2028 patent expiry, the race started a long time ago. To make the first wave of biosimilar launches, you need to be nearly done already. Many Indian pharmaceutical heavyweights have their eyes trained on this window. To get there though, the industry will have to evolve itself. Right now it's still geared for small molecule genetics. It lacks both the capacity and the experience to run such a project end to end. But it has to start somewhere. One answer for the industry is to partner with foreign firms that have more experience with such work. At the head of this pack is Zyda's life sciences. In late 2025 it's a cured exclusive rights to commercialize a Pembrolyzuma biosimilar developed by Germany's Formicon. One of Europe's leading biosimilar specialists. Formicon will take care of the technical side of things while Zyda's is more of a marketing partner at least for now. It'll use its commercial presence in the United States and Canada to sell the drug and Zyda's plans to file for approvals with the US FDA this year. The company has just acquired a biologic manufacturing facility in California and over time it might start manufacturing as well. Dr. Reddy's laboratories meanwhile has a more hands-on approach. In mid 2025 it entered a partnership with Iceland's Alvotech to co-develop the drug. Both companies will share costs, manufacturing and regulatory responsibilities equally. Dr. Reddy's already has its own biologics manufacturing facility in Hyderabad and this partnership now helps it build capability. But that said its regulatory filings are likely a few years away. The most ambitious Indian firm though is BioCon Biologics. It's the only Indian company attempting to build a Pembrolyzuma biosimilar on its own end-to-end at its manufacturing facilities in Bangalore and Malaysia. Last month it named Pembrolyzuma as part of a pipeline of 17 cancer medicines that it tends to commercialize. If this works, BioCon would be the first Indian company to take a biosimilar this complex to global markets without a foreign partner leading the way. And these aren't alone. Several other Indian pharmaceutical companies, Intel, Arobindo Pharma, C. Ram Institute and Moorn are at various stages of developing or licensing their own Pembrolyzuma biosimilars. The field only gets more crowded from here. Meanwhile, Moor Kuhon take the competition silently. It's spent years preparing for this moment and beyond its code patent, it's filed over a hundred additional patent applications covering manufacturing processes, specific treatment methods, formulations and more, with some protections stretching well into the 2030s. For instance, it just launched a new injectable version of Ketruda over which its rights will last for even longer. As new competitors come for its turf, Merck will try to shift patients onto new versions of its drug. The patent cliff in other words may end up looking more like a long managed slope. So here's one way of looking at what Ketruda means to India's pharmaceutical industry. This is of course a commercial opportunity. One of the largest global biosimilar market has ever produced. But equally, it's a challenge worth stepping up to. Biologics are a new frontier for the industry and Ketruda's enormous market might just be the incentive it needs to conquer it. Seeing that way, this is a test of whether the industry can evolve to handle a more challenging landscape. It won't be easy. But there are hundreds of thousands of Indian cancer patients for whom a rupees 40 lakh annual treatment is no better than a dead sentence. They at least will be rooting for the industry to prevail. We listened to a lot of con calls while researching our stories, so we started a newsletter called the Chatter. It's a curated collection of the sharpest management quotes for that week in a neat and readable format published every Friday. The link is in the description. Coming to the second story. Imagine you run a steel plant in India. You've been selling to European buyers for years and your prices are competitive. Beginning January 1st this year though, that might change significantly. Every turn of steel you now ship to Europe will be supplanted with a carbon tax calculated based on how much carbon dioxide your plant emits. This goes to the European Keti that funds its net zero goals. This is the carbon border adjustment mechanism commonly called CBAM and after much planning it finally entered what the EU calls its definitive phase starting 2026. India, the second largest producer of steel in the world, sends approximately Rs 20,000 crore worth of steel to Europe every year. CBAM has been a massive point of contention between both blocks because crucially that same steel is going to be a lot more expensive for our producers to make and sell. We have mentioned CBAM in passing multiple times before on the daily brief. In fact beyond CBAM, Europe's new carbon related rules are the root cause behind why giants like data and jingle steel are overturning their European carbon intensive plants to clean hydrogen-fueled machines. A paper from CSCP, a policy think tank, has tried to answer the most important question this raises. What should India actually do about CBAM? Their most striking finding isn't truly about the fear of exports falling, but it's more so about money. But to get there, we need to understand why CBAM exists at all. Since 2005, Europe has been running a carbon pricing system called the EU emissions trading system or EU EDS. Here, the EU sets a cap on how much carbon dioxide or CO2 all covered industries can collectively emit. Every company in a covered sector like steel, cement, power, aviation needs a permit for every ton of carbon dioxide it emits. And these permits are auctioned and traded. As of early this year, one permit cost approximately 65 Euros. The more the EU tightens the cap each year, the fewer permits there are and the more the prices of permits go up. As a result, companies are nudged to invest in cleaner production. But this poses a conundrum for the competitiveness of European steel. If a European plant has to pay 65 Euros for every ton of carbon dioxide, its steel gets more expensive to make. Meanwhile, steel from India or China lands in Europe far more cheaply. European steel makers lose business not necessarily because they're less efficient, but because their foreign competitors don't carry the same burden. Moreover, global carbon dioxide emissions don't actually fall. Volume production just shifts to countries with loser rules. Economists call this carbon leakage. For years, the EU managed this through free allowances, handing certain industries some permits at zero cost to cushion them from import competition. But of course, this subsidy blunted the carbon price signal and imports still came in with no carbon cost at all. Perhaps the most sure shot solution was to burden imports with the same carbon emissions requirement. That's what CBM aims to do. Meanwhile, free allowances are being phased out until 2034. So here's how CBM is enforced on ground. When a company imports steel into the EU now, it has to surrender CBM certificates equivalent to the carbon embedded in that steel. So in numerical terms, an EU carbon price is paid for every unit of carbon dioxide intensity in the product. The catch isn't how that carbon dioxide intensity is measured. Importance can get their emissions independently verified, paying based on their actual production. If they don't know, the EU applies default values by country of origin. For India, the default is 4.2 tons of carbon dioxide per ton of steel. And for China, it's 3.1. In a recent earnings call, data steel was quite honest with the consequences of this. The first year default rates are significantly high. For example, in case of China, it's about 3.1. In case of India, it's about 4.2. So I think we just need to see as to how it works. As Nareen mentioned, irrespective of the demand conditions, there will be an uptake in prices because, rhythmically, it has to work in that manner. And then comes the steel action plan. There are two very fundamental regulatory triggers in EU, which will push up the prices and will have an effect of pushing it towards the US prices. On top of that, unverified importers face a markup. And if you look at the markup in the CBAM, it is a 10% markup in 2026 and 20% markup in 2027. So till the verification happens, the markup keeps increasing. So technically, the prices showed increase. So let's put it this way. An unverified Indian steel plant that produces at 2.5 tons of carbon dioxide per ton of crude steel actually gets charged as if it emits 4.2 tons plus a growing markup. Clearly, verification is the more efficient choice. But what prevents more Indian firms from doing it is that they don't have in place the data systems needed for it. This is the context in which the CSCP paper becomes important. So the researchers built a detailed economic model of India and ran three scenarios. In the first, India does nothing and just pays the full CBAM charge to Europe. Second, India introduces its own domestic carbon tax at the full EU rate. In the last one, India introduces a carbon tax at half the EU rate while also paying some CBAM. The scenario where India does nothing and just pays Europe is by CSCP's account the worst for us. And CBAM tax revenue flows outside rather than staying in India, it causes currency depreciation. And this in turn raises the cost of imports and squeezes household purchasing power. Urban households get hit harder than rural ones because they earn more of their income from manufacturing sectors that CBAM directly squeezes. In the second scenario, if India introduced a full domestic carbon tax on CBAM exposed sectors, it could generate revenue worth approximately 1% of GDP by 2030. So to put that in absolute terms, in the full domestic carbon tax scenario, India could generate approximately Rs. 2,000,000 crore in carbon tax revenue in 2026 alone. At last, at even half the EU rate, CSCP assumes that revenue is closer to 0.5% of GDP. But in contrast, in the very first due nothing scenario, the EU collects only Rs. 5,500 crore from India's exports. The revenue gap between India acting and India not acting is enormous and it all stays in India if India moves first. Under CBAM, the charge and importer pays to Europe is calculated as the difference between the EU carbon price and whatever the exporters home country has already charged. If India's domestic carbon price equals the EU rate, the CBAM charge drops to 0. If it's half the EU rate, the CBAM charge halves. Last month, we covered India's landmark free trade agreement or FTA with the EU. The largest trade deal for either side. The FTA resolved long-standing disputes over textiles, auto and pharma. But on CBAM, India got virtually no exceptions or special treatment from the EU. What we received instead was a rebalancing mechanism, a provision that would only kick in if CBAM was shown to have specifically undermined the trade benefits India was promised under the FTA. It's a safeguard against future harm and not a carve-out from CBAM itself. CBAM, it seems, is not a negotiating position for the EU. Its foundational climate policy and India will have to adapt rather than negotiate around it. The most immediate lever of adaptation is improving the verification process. So Indian state producers who can demonstrate their actual carbon intensity is below the 4.2 default, have a strong financial incentive to get verified quickly. For large players like JSW or SAIL, this is relatively a solvable problem. But for smaller producers, it's a steep learning curve. Another significant lever is domestic carbon pricing. India has been developing something called the Carbon Credit Trading Scheme or CCTS. Essentially, India's own version of EU-EDS. If India has a functioning domestic carbon price, Indian exporters can offset it against their CBAM liability. The CSEP paper's argument is to start a domestic carbon price now at a lower rate, consistent with India being a developing economy and use the revenue to support affected industries and households through the transition. The EU's climate ambition, in a way, becomes a useful pressure on India's own industrial decarbonisation. Something India will have to do eventually regardless. But every year Indian exporters go unverified, the markup climbs. Every year India delays domestic carbon pricing that revenue accrues to Europe instead. India's best course of action is not to reject but to respond to CBAM in a way that keeps some value at home. Now coming to the tidbits. Indian traders cancelled 65,000 to 75,000 tons of South American soybean oil imports for April to July delivery, booking $40-60 per ton profits as prices climbed from $1,080-$1,100 to $1,014-$1,147.5. Anticipating records South American crops supply pressures ahead. Coming to the next tidbit. India's drug regulator, CDSEO, will issue immediate testing permissions upon application receipt from June 1, 2026, eliminating up-friends scrutiny delays allowing companies to begin laboratory testing while detailed technical review continues aiming to accelerate new drug approvals. Coming to the final tidbit. Ford Business Solutions Chennai Hub with 12,000+ employees has evolved from back-office operations into Ford's largest global technology centre driving AI, vehicle software and enterprise transformation with Indian engineers contributing to Ford's new common EV platform development. You can check out all the links in the description. That's all the news I have for you. Thank you so much for watching and see you in the next one. [MUSIC]