Merck & Co. will co-develop three of Daiichi Sankyo’s clinical-phase, DXd antibody-drug conjugate (ADC) candidates for various cancers, through a collaboration that could generate up to an eye-popping $22 billion for the Japanese pharma—including $4.5 billion to be paid upfront.

The three ADCs are designed to target and deliver a cytotoxic payload inside cancer cells that express a specific cell surface antigen, using Daiichi Sankyo’s DXd ADC technology. Each ADC consists of a monoclonal antibody attached to a number of topoisomerase I inhibitor payloads (an exatecan derivative, DXd) via tetrapeptide-based cleavable linkers.

The three ADC candidates covered by the collaboration are patritumab deruxtecan (HER3-DXd), ifinatamab deruxtecan (I-DXd), and raludotatug deruxtecan (R-DXd).

“The pioneering work by Daiichi Sankyo scientists has highlighted the far-reaching potential of ADCs to provide meaningful new options for patients with cancer,” Merck chairman and CEO Robert M. Davis said in a statement. “We look forward to forging this collaboration to deliver the next generation of precision cancer medicines, driven by our mutual compassion for patients around the world.”

Davis added that the collaboration reflected Merck’s commitment to augmenting and diversifying its oncology pipeline while building on its immuno-oncology foundation—namely the blockbuster immunotherapy Keytruda® (pembrolizumab), which in the first half of this year racked up $12.065 billion, up 20% from $10.061 billion in January-June 2022.

Patritumab deruxtecan (HER3-DXd) is being developed to treat EGFR-mutated locally advanced or metastatic non-small cell lung cancer (NSCLC) with disease progression on or after treatment with a third-generation tyrosine kinase inhibitor (TKI) and platinum-based therapies. The companies plan to submit a biologics license application (BLA) for patritumab deruxtecan to the FDA by the end of March 2024. The BLA will be based on data from the Phase II HERTHENA-Lung01 trial (NCT04619004) that was presented at the IASLC 2023 World Conference on Lung Cancer, held last month in Singapore, and simultaneously published in the Journal of Clinical Oncology.

The FDA granted its Breakthrough Therapy Designation to patritumab deruxtecan in December 2021

Ifinatamab deruxtecan (I-DXd) is under study as a monotherapy in the Phase II IDeate-01 trial (NCT05280470), in patients with previously treated extensive-stage small cell lung cancer (SCLC). Updated results from a subgroup analysis of an earlier Phase I/II trial (NCT04145622) of ifinatamab deruxtecan in SCLC were also presented at IASLC 2023.

Raludotatug deruxtecan (R-DXd) is being assessed in a first-in-human Phase I trial (NCT04707248). Updated results in patients with advanced ovarian cancer will be presented at the European Society for Medical Oncology (ESMO) Congress 2023.

Half the portfolio

Through the collaboration, Merck will partner on half of Daiichi Sankyo’s portfolio of six DXd ADCs. Daiichi Sankyo is partnering with AstraZeneca to co-develop and co-commercialize Enhertu® (fam-trastuzumab – deruxtecan-nxki), a HER2 directed ADC, and datopotamab deruxtecan (Dato-DXd), a TROP2 directed ADC. The sixth DXd ADC is DS-3939, a TA-MUC1 directed ADC that is being developed by Daiichi Sankyo alone.

“The promising results from clinical trials of patritumab deruxtecan, ifinatamab deruxtecan, and raludotatug deruxtecan continue to demonstrate the broad applicability of Daiichi Sankyo’s DXd ADC technology across multiple targets, with each of these medicines having the potential to change clinical practice as has been already seen with Enhertu®,” stated Sunao Manabe, Daiichi Sankyo representative director, executive chairperson, and CEO.

Daiichi Sankyo investors showed support for the collaboration, as its shares jumped 14% in Tokyo Stock Exchange trading Friday, from ¥3,579 ($23.88) to ¥4,095 ($27.33). However, Merck investors appeared only somewhat enthused by the deal, as the pharma giant’s shares rose only 2% on Friday, from $100.43 to $102.67.

One possible reason: None of the three ADCs appear to be as much of a potential future sales engine as Enhertu (which won FDA approval last year) despite encouraging early and mid-phase data, Jefferies equity analyst Akash Tewari observed in a research note. So far this year, Enhertu generated $104 million in sales for AstraZeneca during the first half of this year, as well as ¥31.3 billion ($208.7 million) in sales recorded by Daiichi Sankyo during its first fiscal year 2023 quarter (April–June).

Merck and Daiichi Sankyo have agreed to jointly develop and potentially commercialize the three ADC candidates worldwide except in Japan, where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply.

Under their collaboration, Merck agreed to pay Daiichi Sankyo upfront payments of:

  • $1.5 billion for ifinatamab deruxtecan due upon execution
  • $1.5 billion for patritumab deruxtecan, with half due upon execution, and the other half due after 12 months
  • $1.5 billion for raludotatug deruxtecan, with half due upon execution, and the other half due after 24 months.

$5.5B each in sales milestone

Merck also agreed to pay Daiichi Sankyo up to an additional $5.5 billion for each DXd ADC—a payment tied to achieving sales milestones. When combined with an additional refundable upfront payment of $1 billion, Merck could pay as much as $22 billion for the three programs.

However, Merck could opt out of the collaborations for patritumab deruxtecan and raludotatug deruxtecan and not pay the partial upfront payments due after 12 and 24 months, respectively. But if Merck opts out of patritumab deruxtecan and/or raludotatug deruxtecan, Daiichi Sankyo gets to keep the upfront payments made up to that point by Merck, and would regain rights related to such DXd ADCs.

As referenced above, Merck will pay an additional upfront payment of $1 billion ($500 million each for patritumab deruxtecan and ifinatamab deruxtecan), a pro-rated portion of which may be refundable in the event of early termination of development with respect to each program.

For raludotatug deruxtecan, Merck will pay 75% of the first $2 billion of R&D expenses. Other than that program, the companies will equally share expenses as well as profits worldwide except Japan, where Daiichi Sankyo retains exclusive rights and Merck will receive a royalty based on sales revenue.

Daiichi Sankyo will generally book sales worldwide. The company said it will disclose the impact of the collaboration on its results for the fiscal year ending March 31, 2024 “at an appropriate time in the future.”

Merck said it will record an aggregate pretax charge of $5.5 billion, or approximately $1.70 per share, reflecting the $4 billion upfront payment and the $1.5 billion in continuation payments. That charge will reduce both Merck’s fourth-quarter and full-year 2023 GAAP and non-GAAP results.

Merck also said the collaboration will negatively impact its earnings per share (EPS) of approximately 25 cents in the first 12 months following the close of the transaction, as it spends to acquire the ADC candidates and incurs costs to finance the transaction.

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