AstraZeneca Bets $6.9 Billion in Japan Cancer Therapy Deal

(Bloomberg) -- AstraZeneca Plc forged its biggest deal in more than a decade, agreeing to pay as much as $6.9 billion to buy into a promising Japanese cancer treatment as part of its push to become a global oncology powerhouse.

AstraZeneca will pay the Japanese drugmaker Daiichi Sankyo Co. $1.35 billion upfront to jointly develop and commercialize the cancer therapy trastuzumab deruxtecan, with as much as $5.6 billion in additional payments subject to sales milestones and other contingencies, the companies said late Thursday. They will also equally split development and commercialization costs.

The deal fuels a race among big drug companies to develop effective -- and lucrative -- new cancer treatments. With research breakthroughs like gene-editing and T-cell manipulation extending patients' lives in unprecedented ways, the global market for cancer treatments has exploded to $133 billion annually and become the fiercest battleground in pharmaceuticals. AstraZeneca's British rival GlaxoSmithKline Plc last month agreed to pay Germany's Merck KGaA as much as $4.2 billion for access to a promising immune-oncology therapy.

Cambridge, England-based AstraZeneca said it will fund the transaction partly through a share sale of as much as $3.5 billion. The stock fell as much as 5.2 percent Friday in London, the most since October. Through Thursday, they had risen about 31 percent over the past year, more than double the increase at Glaxo.

Bloomberg News reported earlier that AstraZeneca was considering a share sale as it seeks to strengthen drug investments and its balance sheet. Pharmaceutical companies often team up with partners on expensive new drug investments to share both the risk and financial commitment.

Daiichi Sankyo, Japan's third-biggest pharmaceutical company, surged 16 percent -- the stock's daily limit -- to an all-time high in early Tokyo trading Friday.

The deal is AstraZeneca's boldest bet yet under Chief Executive Officer Pascal Soriot, whose mission is to make the company a force in cancer treatment that can contend with the likes of Merck & Co. Daiichi's treatment is one of the few in late-stage testing that could be a game changer in the oncology landscape.

Read more: Daiichi Sankyo switches CEO after AstraZeneca drug deal

Projected to rake in $7 billion annually at its peak, Daiichi's treatment has been seen to double survival time for advanced breast cancer patients to 20 months from 10, said UBS Securities Japan Co. analyst Atsushi Seki.

“There's always an element of risk in anything we do in this industry, but we have great confidence that this is truly a transformative medicine for breast cancer patients,'' Soriot said in an interview with Bloomberg TV. “The potential is very large and we see it as a mega blockbuster.''

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The therapy combines a drug with a new delivery mechanism that applies chemotherapy selectively to cancer cells, thus minimizing systemic exposure to the patient. Daiichi has already spent over a decade developing the therapy before looking for a global partner, said company executives.

AstraZeneca said the transaction won't impact earnings this year but will make a “significant contribution” by 2023. Daiichi said the partnership will add to shareholder value over the medium to long term.

If the full potential payment of $6.9 billion is released to the Japanese drugmaker, it would be AstraZeneca's biggest deal in 12 years, since it paid about $15 billion in 2007 for biologics maker Medimmune LLC. For Daiichi, the tie-up is its biggest licensing deal ever, said global business development head Stuart Mackey.

While the two companies will split up the globe in booking sales -- Daiichi will take Japan, the U.S. and parts of Europe while AstraZeneca gets China, Australia, Canada and Russia -- global profits will be equally shared, they said.

The goal now is to get the treatment to patients. Daiichi is planning to submit its application to the U.S. Food and Drug Administration by October this year, and expects the regulator to reply in about 10 months, said its global head of oncology research and development Antoine Yver.

This is not the first time the two companies have been linked. Local media in Japan reported in 2017 that AstraZeneca had made an unsuccessful takeover bid for Daiichi a year earlier, as it sought access to the company's cancer portfolio. Daiichi denied the reports. In 2015, the two announced a commercialization agreement in the U.S. for Movantik, an oral medication for treating opioid-induced constipation in adults with chronic pain.

--With assistance from Ruth David, Aaron Kirchfeld and James Paton.

To contact the reporter on this story: Lisa Du in Tokyo at ldu31@bloomberg.net

To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Eric Pfanner, Thomas Mulier