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Merck, Daiichi Sankyo Ink Deal to Develop Three Antibody-Drug Conjugates

NEW YORK – Daiichi Sankyo and Merck on Thursday announced plans to jointly develop and commercialize three antibody-drug conjugates: patritumab deruxtecan, ifinatamab deruxtecan, and raludotatug deruxtecan.

Under a 2019 deal with AstraZeneca, Daiichi Sankyo jointly develops and markets the ADC Enhertu (trastuzumab deruxtecan) in HER2-expressing breast and gastric cancer and HER2-mutated non-small cell lung cancer. Like Enhertu, Daiichi Sankyo designed all three drugs included in this deal with Merck using its proprietary DXd ADC technology. The monoclonal antibody portion of the ADCs home in on and attached to a cell surface antigen on cancer cells and release a cytotoxic topoisomerase I inhibitor payload into the cells.

Under the terms of the deal, for which the total financial consideration is $22 billion, Daiichi Sankyo will maintain exclusive rights to the three investigational ADCs in Japan but will share global development and commercialization rights with Merck in all other regions.

Merck will pay Daiichi Sankyo $1.5 billion for patritumab deruxtecan, half upon execution and half after a year. This drug is the furthest along in development and the companies are planning to submit a biologics license application to the US Food and Drug Administraiton in March 2024, seeking approval in metastatic EGFR-mutated NSCLC based on data from the HERTHENA-Lung01 trial.

Merck will pay $1.5 billion for ifinatamab deruxtecan upon execution and $1.5 billion for raludotatug deruxtecan, half upon execution and half after two years. Ifinatamab deruxtecan is undergoing evaluation in the Phase II IDeate-01 trial in extensive-stage small cell lung cancer, and raludotatug deruxtecan is under evaluation in a first-in-human trial in advanced renal cell and ovarian cancer.

Daiichi Sankyo is eligible to receive an additional $5.5 billion for each ADC if it achieves certain sales milestones.

Merck can opt out of the collaboration for patritumab deruxtecan and raludotatug deruxtecan and elect not to pay the additional $750 million due after 12 months and 24 months, respectively. If that happens, Daiichi Sankyo can keep the upfront payments and Merck will have to return the rights to the drugs. Merck will also pay an additional $1 billion upfront for patritumab deruxtecan and ifinatamab deruxtecan, but if any portion of the agreement is terminated early, then Daiichi Sankyo will have to return a prorated portion of this payment.

Daiichi Sankyo will still manufacture and supply the drugs in the collaboration. In terms of R&D costs, Merck will take on 75 percent of the cost of the first $2 billion it takes to develop raludotatug deruxtecan. The companies will otherwise split expenses and profits for the drugs worldwide, except in Japan, where Daiichi Sankyo retains exclusive rights and Merck will receive a royalty based on drug sales.

The companies believe these three ADC programs have the potential to bring in billions of dollars in worldwide sales by the mid-2030s. Daiichi Sankyo will determine and share how this deal will impact its fiscal year financial performance at a future date. In conjunction with this transaction, Merck said it will record an aggregate pretax charge of $5.5 billion, or approximately $1.70 per share, and it expects this transaction to reduce both Q4 and full-year 2023 GAAP and non-GAAP results. The costs associated with the transaction will also negatively impact Merck's EPS by around $0.25 in the first year after the deal closes.

On Friday morning, Daiichi Sankyo's stock was trading at $28.14 on the Nasdaq, up around 19 percent.