Merck enters cancer drug deal with Japanese firm

Tokyo — Drugmaker Merck will pay Daiichi Sankyo $5.5bn to jointly develop three of its candidate cancer drugs, they said, in a deal that could be worth up to $22bn to the Japanese firm depending on the success of the cell-targeting therapies.

Daiichi Sankyo shares closed up 14.4% in Tokyo to post their steepest gain in more than a year.

The company is aiming for at least ¥900bn ($6bn) of revenue from its oncology business in the financial year ending March 31 2026, which would represent about a five-fold increase over a three-year period.

The deal is a “big positive and much needed for Daiichi Sankyo”, said Tina Banerjee, a healthcare analyst who publishes on the Smartkarma platform. “This raises expectations from Daiichi’s oncology drug pipeline.”

The three drug candidates to be developed with Merck belong to the class known as antibody drug conjugates (ADC) and are in various stages of clinical development for the treatment of multiple solid cancer tumours. Unlike conventional chemotherapy, which can kill healthy cells, ADCs are designed to target only cancer cells, potentially reducing damage to normal cells.

“One of the changes in the external environment is intensifying competition in ADC development,” Daiichi Sankyo CEO Sunao Manabe said at a briefing for analysts, describing the company’s decision to seek a partner.

The Merck collaboration will help “expand the reach of the three products to a wider patient population”, he said.

The drug candidates — patritumab deruxtecan, ifinatamab deruxtecan and raludotatug deruxtecan — have “multibillion-dollar worldwide commercial revenue potential for each company” by the mid-2030s, the two companies said.

The companies will jointly develop and potentially commercialise the drug candidates worldwide, except in Japan, where Daiichi Sankyo will maintain exclusive rights, they said. Daiichi Sankyo will be solely responsible for manufacturing and supply.

Merck will pay Daiichi Sankyo $4bn up front in addition to $1.5bn in continuation payments over the next two years. Merck may make additional payments of up to $16.5bn, contingent on future sales milestones, or $5.5bn for each product.

Daiichi Sankyo has six ADC candidates in its pipeline, including two being jointly developed with AstraZeneca. This week, a data abstract on a late-stage trial of datopotamab deruxtecan it is developing with AstraZeneca disappointed some analysts.

Under the deal announced on Friday, Merck will take a pretax charge of $5.5bn, or about $1.70 per share, reflecting the upfront payment and the continuation payments, resulting in a reduction in fourth-quarter and full-year 2023 results, the companies said.

Merck’s investment in the pipeline assets and costs to finance the transaction will reduce earnings per share by about 25c in the first 12 months after the close of the transaction, they said.

The impact on Daiichi Sankyo’s results would be announced in the future, according to the joint statement.

Reuters