AstraZeneca to pay $1.35 billion upfront under deal to jointly develop Daiichi Sankyo's antibody-drug conjugate trastuzumab deruxtecan

AstraZeneca agreed to pay $1.35 billion upfront as part of a deal potentially worth up to $6.9 billion to jointly develop and commercialise Daiichi Sankyo's antibody-drug conjugate trastuzumab deruxtecan, the companies announced Friday. Along with the upfront payment, which will be paid in two equal instalments, one at closing and the remainder 12 months later, contingent payments of up to $5.55 billion include $3.8 billion linked to regulatory and other milestones, as well as $1.75 billion for sales-related goals.

Trastuzumab deruxtecan, also known as DS-8201, is currently in development for the treatment of multiple HER2-expressing cancers, including breast and gastric cancer, and in patients with HER2-low expression. Daiichi Sankyo indicated on Friday that it plans to seek FDA approval of the drug in patients with HER2 positive metastatic breast cancer previously treated with Roche's Kadcyla (ado-trastuzumab emtansine) in the first half of fiscal year 2019, moved forwards from a previous target of a filing in 2020. The application will be based on results from the Phase II DESTINY-Breast01 study.

While Daiichi Sankyo's shares rose as much as 16 percent on news of the deal, AstraZeneca's stock slipped more than 5 percent, with analysts at Jefferies noting that the terms of the deal seem "onerous." Jefferies said it agrees with AstraZeneca's rationale for strengthening its pipeline, but suggested that the value of the milestones under the agreement "likely necessitate blockbuster peak sales to deliver a return, albeit exclusivity is expected into 2030." 

AstraZeneca CEO Pascal Soriot remarked "we have great confidence that this is truly a transformative medicine for breast cancer patients," adding "the potential is very large and we see it as a mega blockbuster." UBS Securities Japan Co. analyst Atsushi Seki estimates that if approved, trastuzumab deruxtecan will generate peak annual sales of $7 billion.

Commenting further on the deal, Tokai Tokyo Research Center analyst Takashi Akahane said "my impression is the upfront payment is particularly large. It's a sign that AstraZeneca assumes the drug will become mainstream in the next generation." Soriot added that along with HER2-positive breast and gastric cancers, trastuzumab deruxtecan "has the potential to redefine breast cancer treatment as the first therapy for HER2-low expressing tumours. It also has the potential to treat other HER2-mutated or HER2-overexpressing cancers, including lung and colorectal cancers."

Under the agreement, the companies will jointly develop and commercialise trastuzumab deruxtecan worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Along with breast and gastric cancer, the drug is being developed for the treatment of non-small-cell lung and colorectal cancer. AstraZeneca and Daiichi Sankyo will equally share development and commercialisation costs, as well as profits, except for Japan.

In related news, AstraZeneca said Friday that it plans to raise around $3.5 billion through a placing of new ordinary shares, with part of the funds used to make the upfront and near-term payments due to Daiichi Sankyo under the deal. The UK drugmaker indicated that about $1 billion of approval and sales-related milestone payments will be made to Daiichi Sankyo from 2020 to 2022. AstraZeneca said that its guidance for this year of core earnings per share in the range of $3.50 to $3.70 remains unchanged, while the transaction is expected to be accretive to earnings from 2020, making "a significant contribution" in 2023.

Separately, Daiichi Sankyo announced Friday that Sunao Manabe, who currently serves as the company's president and chief operating officer, will take over from CEO George Nakayama effective June 17.

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