Merck and Daiichi partner on a $5.5 billion deal for cancer therapy development

The American pharmaceutical company Merck will start a joint venture with Daiichi Sankyo to develop three of its candidate cancer drugs. The first investment in this venture is said to be $5.5 billion, which will be paid by Merck to Daiichi Sankyo. This payment could eventually amount to up to $22 billion for the Japanese firm, depending on the success of the cancer treatment therapies.

This announcement has shot up the share price of Daiichi Sankyo by 12% in early trading in Tokyo on Friday, 20 October, 2023.

The revenue targeted by the Japanese pharma firm is said to be at least 900 billion yen, or $6.0 billion, from its oncology business in the fiscal year ending March 31, 2026. This will represent a five-fold increase in revenue over the three-year period.

Merck is collaborating with Daiichi Sankyo to develop three drug candidates that fall under the category of antibody drug conjugates (ADCs). These candidates are currently in various stages of clinical development, aiming to treat multiple solid cancer tumors. Unlike traditional chemotherapy, which can harm healthy cells, ADCs are designed to specifically target cancer cells, potentially minimizing damage to normal cells.

The three candidates, namely patritumab deruxtecan, ifinatamab deruxtecan, and raludotatug deruxtecan, are anticipated to generate "multi-billion dollar worldwide commercial revenue potential for each company" by the mid-2030s, as stated by both companies. They intend to jointly market and commercialize these drug candidates globally, with the exception of Japan, where Daiichi Sankyo will retain exclusive rights and manage manufacturing and supply.

Merck is set to make an initial payment of $4 billion to Daiichi Sankyo, along with an additional $1.5 billion in continuation payments over the next two years. Merck might also make extra payments of up to $16.5 billion based on future sales achievements, amounting to $5.5 billion for each product.

Daiichi Sankyo has a pipeline of six ADC candidates, including two being co-developed with AstraZeneca. However, a recent data abstract on a late-stage trial of datopotamab deruxtecan, developed in partnership with AstraZeneca, was a disappointment to some analysts.

In connection with the deal unveiled on Friday, 20 October, 2023, Merck will record a pretax charge of $5.5 billion, equivalent to approximately $1.70 per share. This charge encompasses the upfront payment and continuation payments, resulting in an impact on Merck's financial results for the fourth quarter and full-year 2023.

Merck's investment in pipeline assets and transaction-related costs will also have a negative effect on earnings per share, estimated at about 25 cents in the first year following the transaction's closure, according to the joint statement. The impact on Daiichi Sankyo's financial results will be disclosed at a later date.