Merck, Daiichi Sankyo announce development and commercialization collaboration

Daiichi Sankyo (DSNKY) and Merck (MRK) have entered into a global development and commercialization agreement for three of Daiichi Sankyo’s DXd antibody-drug conjugate candidates: patritumab deruxtecan, ifinatamab deruxtecan and raludotatug deruxtecan. The companies will jointly develop and potentially commercialize these ADC candidates worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply. All three potentially first-in-class DXd ADCs are in various stages of clinical development for the treatment of multiple solid tumors both as monotherapy and/or in combination with other treatments. Patritumab deruxtecan was granted Breakthrough Therapy Designation by the U.S. Food and Drug Administration in December 2021 for the treatment of patients with EGFR-mutated locally advanced or metastatic non-small cell lung cancer with disease progression on or after treatment with a third-generation tyrosine kinase inhibitor and platinum-based therapies. Ifinatamab deruxtecan is currently being evaluated as monotherapy in IDeate-01, a Phase 2 clinical trial in patients with previously treated extensive-stage small cell lung cancer. Under the terms of the agreement, Merck will pay Daiichi Sankyo upfront payments of $1.5B for ifinatamab deruxtecan due upon execution; $1.5B for patritumab deruxtecan, where $750M is due upon execution and $750M is due after 12 months; and $1.5B for raludotatug deruxtecan, where $750M is due upon execution and $750M is due after 24 months. Merck also will pay Daiichi Sankyo up to an additional $5.5B for each DXd ADC contingent upon the achievement of certain sales milestones. When combined with the additional refundable upfront payment of $1B total potential consideration across the three programs is up to $22B. Merck may opt out of the collaboration for patritumab deruxtecan and raludotatug deruxtecan and elect not to pay the two continuation payments of $750M each that are due after 12 months and 24 months, respectively. Merck will pay an additional upfront payment of $1B, a pro-rated portion of which may be refundable in the event of early termination of development with respect to each program. In aggregate, the three programs have multi-billion dollar worldwide commercial revenue potential for each company approaching the mid-2030s. In conjunction with this transaction, Merck will record an aggregate pretax charge of $5.5B, or approximately $1.70 per share, reflecting the $4B upfront payment and the $1.5B in continuation payments. The impact of this charge will result in a reduction in both fourth-quarter and full-year 2023 GAAP and non-GAAP results. In addition, Merck will invest in the pipeline assets and incur costs to finance the transaction, resulting in a negative impact to EPS of approximately 25c in the first 12 months following the close of the transaction.