AstraZeneca in $6.9 bn deal with Daiichi Sankyo for cancer drug development

AstraZeneca Plc and Daiichi Sankyo Co Ltd signed a deal to develop and sell Daiichi’s cancer drug trastuzumab deruxtecan that could see the British drugmaker pay as much as $6.9 billion to its Japanese partner.

Under the terms of the agreement, AstraZeneca will pay Daiichi Sankyo an upfront payment of $1.35 billion, half of which is due upon execution, with the remainder payable 12 months later.
Contingent payments of up to $5.55 billion include $3.8 billion for potential successful achievement of future regulatory and other milestones, as well as $1.75 billion for sales-related milestones.
AstraZeneca will, in collaboration with Daiichi Sankyo, develop and commercialise trastuzumab deruxtecan (DS-8201), a proprietary antibody-drug conjugate (ADC) and potential new targeted medicine for cancer treatment. 
AstraZeneca will make an upfront payment of $1.35 billion to Daiichi. They will share development and commercialisation costs for the drug worldwide, with Daiichi retaining exclusive rights in Japan.
The collaboration is aligned with AstraZeneca’s oncology research strategy, which is based on four key scientific platforms - tumour drivers and resistance, DNA damage response, Immuno-Oncology and ADCs, Astra Zeneca stated in a release.
ADCs are targeted cancer medicines that deliver cytotoxic agents to cancer cells via a linker attached to a monoclonal antibody that binds to a specific target expressed on cancer cells.
Trastuzumab deruxtecan is currently in development for the treatment of multiple HER2-expressing cancers, including breast and gastric cancer, and in patients with HER2-low expression. In 2017, trastuzumab deruxtecan was granted Breakthrough Therapy Designation by the US FDA for the treatment of patients with HER2-positive, locally-advanced or metastatic breast cancer that have been treated with trastuzumab and pertuzumab and have disease progression after trastuzumab emtansine.
A first regulatory submission is scheduled for the second half of 2019 for patients in the advanced or refractory breast cancer setting. Additional development for the treatment of breast, non-small cell lung cancer (NSCLC), gastric and colorectal cancers is ongoing, the company stated.
The companies will jointly develop and commercialise trastuzumab deruxtecan worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply.
“We believe that trastuzumab deruxtecan could become a transformative new medicine for the treatment of HER2-positive breast and gastric cancers. In addition, it 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,” Pascal Soriot, chief executive officer of Astra Zeneca, said.
“Trastuzumab deruxtecan is the flagship asset in our oncology pipeline created by our relentless pursuit of science and technology, the most important strengths of our company. Through the strategic collaboration with AstraZeneca, a company with a wealth of global experience and expertise in oncology, we will combine our respective skill sets to maximise the value of trastuzumab deruxtecan and accelerate the establishment of our global oncology business, George Nakayama, representative director, chairman and chief executive officer of Daiichi Sankyo, said.
Overall, the transaction will be accounted for as an intangible asset acquisition, recognised initially at the present value of non-contingent consideration, with future milestones capitalised into the intangible asset as they are recognised. AstraZeneca and Daiichi Sankyo will share equally development and commercialisation costs as well as profits from trastuzumab deruxtecan worldwide, except for Japan.
Daiichi Sankyo will record sales in the US, certain countries in Europe and certain other markets where Daiichi Sankyo has affiliates. Further to the financial reporting announcement below, profits shared with AstraZeneca will be accounted for as Collaboration Revenue by AstraZeneca (see further below, ‘Financial reporting presentation’).
AstraZeneca is expected to record product sales in all other markets worldwide for which profits shared with Daiichi Sankyo will be accounted for as cost of goods sold.
The transaction is expected to be neutral to core earnings in 2019, with growing Core EPS accretion from 2020 and making a significant contribution in 2023. There are no closing conditions to the transaction. The collaboration agreement will become effective on 29 March 2019. 
Astra Zeneca said the transaction and funding arrangements do not impact the company’s financial guidance for 2019 as published on 14 February 2019.
The upfront payment and near-term milestones under the transaction will be funded from the proceeds of a new equity placement of approximately $3.5bn, of which more than half will be used to fund this transaction and the ongoing collaboration. Astra Zeneca said a separate announcement is being issued on the equity placement.