Merck has been actively looking for drugs that can expand its scope in cancer and offer potential to be combined with its immunotherapy juggernaut, Keytruda. The pharmaceutical giant is paying $4 billion up front to share in development of three Daiichi Sankyo molecules that fit the bill, all of them belonging to one of the hottest areas of cancer drug research.
The three drugs are all antibody drug conjugates (ADCs) developed from the same Daiichi Sankyo technology that yielded the blockbuster product Enhertu, partnered with AstraZeneca. That progress has validated the Japanese drugmaker’s ADC platform, boosting the asking price for the molecules it produces. If milestones are met, Merck could end up paying Daiichi Sankyo up to $22 billion.
An ADC is type of targeted cancer therapy. The targeting ability comes from an antibody that seeks out tumors expressing a particular protein on the cancer cell’s surface. An ADC’s tumor-killing ability comes from a drug payload chemically linked to the targeting antibody.
The most advanced of the ADCs covered by the deal announced Friday is patritumab deruxtecan, which targets the cancer protein HER3. Daiichi Sankyo has tested this ADC in patients with advanced cases of non-small cell lung cancer. An application seeking FDA approval is planned for the first quarter of 2024.
Ifinatamab deruxtecan, which targets the cancer protein B7-H3, is currently in Phase 2 testing as a monotherapy for previously treated extensive-stage small cell lung cancer. The third partnered asset is raludotatug deruxtecan, a CDH6-targeting ADC currently in Phase 1 testing in patients with advanced ovarian cancer. Daiichi Sankyo is expected to present updated results at the European Society for Medical Oncology meeting now underway in Madrid.
In the announcement of the deal, Merck describes the three Daiichi Sankyo ADCs as having “multi-billion dollar worldwide commercial revenue potential” for both companies approaching the middle of the 2030s. That timeline is key for Merck, whose Keytruda—a drug that by itself accounted for $20.9 billion in revenue last year—will lose patent protection in the later part of the 2020s. The agreement calls for Merck and Daiichi Sankyo to share in the profits of the partnered drugs worldwide, except for Japan where Daiichi Sankyo retains rights and Merck will receive a royalty based on sales. R&D expenses will be shared, but Merck is responsible for 75% of the first $2 billion of these costs.
The financial details make for a complex deal. There are separate payments for each of the partnered assets, but with the exception of ifinatamab deruxtecan, for which $1.5 billion is due when the transaction closes, not all of the payments will come at once. For patritumab deruxtecan, Merck will pay $750 million when the deal closes and another $750 million after 12 months. For raludotatug deruxtecan, Merck pays $750 million upon deal close and the additional $750 million after 24 months.
In total, that’s $3 billion for the three molecules when the deal closes. Merck is paying an additional $1 billion up front—$500 million each for patritumab deruxtecan and ifinatamab deruxtecan. A pro-rated portion of the payments may be refunded if development of these programs is terminated. The agreement allows Merck to opt out of collaborating on patritumab deruxtecan and raludotatug deruxtecan and elect not to pay the additional $750 million for each molecule. If that happens, Daiichi Sankyo gets to keep the money Merck already paid and all rights will revert to the Japanese drugmaker.
Striking Out With Seagen, But Still Seeking ADC Opportunities
Merck has previously demonstrated interest in ADCs. In 2020, Merck began an alliance with Seagen in a deal that gave the pharma giant some rights to the commercialized small molecule cancer drug Tukysa and a share in the development of a clinical-stage ADC, ladiratuzumab vedotin. At the time, clinical research for ladiratuzumab vedotin included a Phase 2 study combining that ADC with Merck’s Keytruda as a treatment for triple-negative breast cancer.
The Merck/Seagen partnership included a $1 billion equity investment from the pharma giant. Later, Merck was also reportedly in the running to acquire Seagen. But Pfizer won that bidding war, striking a deal earlier this year to buy the ADC specialist for $43 billion. Seagen has since “deprioritized” the development of ladiratuzumab vedotin.
The Merck pipeline also includes zilovertamab vedotin, an ADC that addresses a target called ROR1. Merck gained this asset from its $2.8 billion VelosBio acquisition in 2020. Merck’s ADC ambitions also led it to Kelun-Biotech. Late last year, Merck paid $175 million up front to license seven of that biotech’s preclinical ADCs for cancer. Milestones could bring Kelun-Biotech up to $9.3 billion more. That transaction followed a previous deal in which Merck licensed rights to Kelun-Biotech’s TROP2-targeting ADC, which is in late-stage clinical development.
The Daiichi Sankyo drugs diversify Merck’s cancer drug pipeline, adding more assets to potentially combine with Keytruda, Leerink Partners Daina Graybosch wrote in a Friday research note. She added that the deal is also in line with Merck’s stated strategy of using ADCs as a replacement for chemotherapy as a backbone of cancer treatment. That said, Graybosch noted that ADCs carrying the deruxtecan drug payload have yet to demonstrate synergies with immunotherapies, which may limit its combination potential. By contrast, the Seagen/Astellas Pharma-partnered ADC Padcev, which employs vedotin as its drug payload, pairs well with Keytruda.
“Another risk is that other than CDH6, these targets are competitive, and Merck will have to contend with a large number of topo1 inhibitor ADC programs in overlapping indications, including against Daiichi’s other large pharma partner, AstraZeneca,” Graybosch said.
The “topo1” Graybosch refers to is a topoisomerase 1 inhibitor, the type of drugs Daiichi Sankyo uses as drug payloads for its ADCs. This payload is part of the HER2-targeting Enhertu and datopotamab deruxtecan, which targets the cancer protein TROP2. Both are partnered with AstraZeneca. TROP2 is also addressed by the Gilead Sciences drug Trodelvy, an ADC that has approvals in breast cancers.
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