AstraZeneca has entered into a global development and commercialization collaboration agreement with Daiichi Sankyo Company, Limited (Daiichi Sankyo) for trastuzumab deruxtecan (DS-8201), a proprietary antibody-drug conjugate (ADC) and potential new targeted medicine for cancer treatment.

The collaboration is aligned with AstraZeneca’s science-led strategy in Oncology, which is based on four key scientific platforms: tumour drivers & resistance, DNA damage response, Immuno-Oncology and ADCs.

Trastuzumab deruxtecan is currently in development for the treatment of multipleHER2-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 withHER2-positive, locally-advanced or metastatic breast cancer who 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 companies will jointly develop and commercialize trastuzumab deruxtecan worldwide, except in Japan where Daiichi Sankyo will maintain exclusive rights. Daiichi Sankyo will be solely responsible for manufacturing and supply.

Using Daiichi Sankyo’s DXd proprietary ADC technology, trastuzumab deruxtecan has been designed to deliver chemotherapy selectively to cancer cells and reduce systemic exposure, in contrast to conventional chemotherapy delivery. Data from the ongoing first-time-in-human trial shows strong activity in a number of tumour types. In particular, the strength of the overall response rate and durability of response in patients previously treated with trastuzumab emtansine for HER2-positive metastatic breast cancer formed the basis for the Breakthrough Therapy Designation.1

Under the terms of the agreement, AstraZeneca will pay Daiichi Sankyo an upfront payment of $1.35bn, half of which is due upon execution, with the remainder payable 12 months later.

Contingent payments of up to $5.55bn include $3.8bn for potential successful achievement of future regulatory and other milestones, as well as $1.75bn for sales-related milestones.

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. 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. A separate announcement will be issued by the Company today on the equity placement.

For the purposes of the UK Listing Authority's Listing Rule LR 10.4.1 R (Notification of class 2 transactions), the value of gross assets acquired with the transaction is estimated to be $1.5bn and, in view of the development phase of the medicine, a pre-tax loss of $38m was attributable to trastuzumab deruxtecan during the year to 31 March 2018.

Trastuzumab deruxtecan is currently in development for the treatment of multipleHER2-expressing cancers, including breast and gastric cancer, and in patients withHER2-low expression.