Daiichi Sankyo and Merck (known as MSD outside of the United States and Canada) have entered into a global development and commercialization agreement for three of Daiichi Sankyo’s DXd antibody-drug conjugate (ADC) candidates: patritumab deruxtecan (HER3-DXd), ifinatamab deruxtecan (I-DXd) and raludotatug deruxtecan (R-DXd).
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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.
Under the terms of the agreement, Merck will pay Daiichi Sankyo upfront payments of $1.5 billion for ifinatamab deruxtecan due upon execution; $1.5 billion for patritumab deruxtecan, where $750 million is due upon execution and $750 million is due after 12 months; and $1.5 billion for raludotatug deruxtecan, where $750 million is due upon execution and $750 million is due after 24 months.
Merck also will pay Daiichi Sankyo up to an additional $5.5 billion for each DXd ADC contingent upon the achievement of certain sales milestones.
When combined with the additional refundable upfront payment of $1 billion, total potential consideration across the three programs is up to $22 billion.
Merck may opt out of the collaboration for patritumab deruxtecan and raludotatug deruxtecan and elect not to pay the two continuation payments of $750 million each that are due after 12 months and 24 months, respectively.
If Merck opts out of patritumab deruxtecan and/or raludotatug deruxtecan, the upfront payments already paid will be retained by Daiichi Sankyo and rights related to such DXd ADCs will be returned to Daiichi Sankyo.
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 be responsible for 75% of the first $2 billion of R&D expenses.
Except as outlined above with respect to R&D expenses, the companies will equally share expenses as well as profits worldwide, except for Japan where Daiichi Sankyo retains exclusive rights and Merck receives a royalty based on sales revenue. Daiichi Sankyo will generally book sales worldwide.
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 $5.5 billion, or approximately $1.70 per share, reflecting the $4 billion upfront payment and the $1.5 billion 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 $0.25 in the first 12 months following the close of the transaction. ■