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Merck (MRK) Inks Deal With Daiichi to Develop Cancer Drugs

Merck MRK entered into an agreement with Daiichi Sankyo to co-develop and co-commercialize three investigational cancer therapies for a total potential consideration of up to $22 billion.

The deal involves Daiichi’s three DXd antibody-drug conjugate (“ADC”) candidates — patritumab deruxtecan, ifinatamab deruxtecan and raludotatug deruxtecan. All three candidates are being evaluated in different stages of clinical development across multiple solid tumor indications, both as monotherapy and/or in combination with other treatments.

Per the terms of the agreement, Merck will pay $4 billion upfront to Daiichi Sankyo and $1.5 billion in continuation payments over the next two years. In addition, Daiichi will also be eligible to receive potential milestone payments of up to $16.5 billion.

Daiichi will be solely responsible for manufacturing and supply. It will also generally book sales worldwide.

Though Daiichi and Merck will equally share expenses and profits on the development and potential commercialization of the three ADC candidates worldwide (excluding Japan), Daiichi will be solely responsible for manufacturing and supply. It will also generally book sales worldwide.

Daiichi will continue to hold exclusive rights in Japan, with Merck eligible for royalties on future sales.

Per Merck, the deal holds multi-billion dollar worldwide commercial revenue potential for each company approaching the mid-2030s.

About the accounting for this transaction, Merck stated that it would record an aggregate pretax charge of $5.5 billion, or approximately $1.70 per share, leading to a decline in both fourth-quarter and full-year 2023 earnings results. Merck also expects a negative impact of 25 cents on the EPS in the first 12 months following the close of the transaction.

Merck’s shares have lost 9.5% year to date against the industry’s 6.9% growth.

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Out of all three ADC candidates, patritumab deruxtecan is the most advanced one. The candidate is being evaluated in the ongoing phase II HERTHENA-Lung01 study in patients with EGFR-mutated locally advanced or metastatic non-small cell lung cancer (“NSCLC”). The agency also granted the candidate breakthrough therapy designation in December 2021 in this indication.

Last month, Daiichi reported results from the HERTHENA-Lung01 study, which showed that treatment with patritumab deruxtecan exhibited clinically meaningful and durable responses in study participants. Based on these results, the companies plan to file a biologics license application with the FDA before March 2023-end.

Ifinatamab deruxtecan is currently being evaluated as monotherapy in the mid-stage IDeate-01 study as a potential treatment for patients with previously treated extensive-stage small cell lung cancer (“SCLC”). The third candidate, raludotatug deruxtecan, is being evaluated in a first-in-human phase I clinical study in patients with advanced renal cell carcinoma and ovarian tumors.

Merck’s oncology portfolio highly depends on Keytruda, its blockbuster anti-PD-1 therapy, which accounted for over 40% of the company’s revenues in the first half of 2023. With concerns over Keytruda’s potential loss of exclusivity post-2028, the successful development and potential commercialization of these three candidates will enable Merck to narrow down its dependence on anti-PD-1 therapy.

Merck & Co., Inc. Price


Merck & Co., Inc. Price
Merck & Co., Inc. Price

Merck & Co., Inc. price | Merck & Co., Inc. Quote


Zacks Rank & Stocks to Consider

Merck currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the overall healthcare sector include Apellis Pharmaceuticals APLS, Biohaven BHVN and Cytokinetics CYTK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, the estimate for Apellis Pharmaceuticals’ 2023 earnings per share narrowed from $4.96 to $4.36. During the same period, the loss estimates per share for 2024 have improved from $3.48 to $2.35. Year to date, shares of Apellis havelost 10.7%.

Apellis’ earnings beat estimates in two of the trailing four quarters while meeting the mark on two other occasions, witnessing an average earnings surprise of 1.36%. APLS’s earnings beat estimates by 24.44% in the last reported quarter.

In the past 60 days, estimates for Biohaven’s 2023 and 2024 loss per share have narrowed from $5.02 to $4.93 and $4.82 to $4.79, respectively. Year to date, Biohaven’s stock has surged 94.1%.

Biohaven’s earnings surpassed estimates in two of the last four quarters while missing the mark on two other occasions, witnessing a negative earnings surprise of 29.37% on average. BHVN’s earnings missed estimates by 6.45% in the last reported quarter.

In the past 60 days, estimates for Cytokinetics’ 2024 loss per share have narrowed from $3.81 to $3.76. Year to date, shares of Cytokinetics have dipped 28.4%.

Cytokinetics’ earnings missed estimates in each of the trailing four quarters, witnessing a negative surprise of 11.66%, on average. In the last reported quarter, CYTL’s earnings missed estimates by 8.94%.

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