Cancer Drug Deal Carries High Price -- WSJ

By Denise Roland and Carlo Martuscelli

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 30, 2019).

AstraZeneca PLC has agreed to pay Japan's Daiichi-Sankyo Co. up to $6.9 billion for shared rights to a new cancer drug, as the British drugmaker expands further in the oncology market.

The Japanese drugmaker, which will retain exclusive rights to the treatment in its home country, will get $1.35 billion upfront, with further payments dependent on the drug's development and sales performance. In return, AstraZeneca said it will receive half the profit from future sales outside Japan.

The drug, DS-8201, targets a range of cancers, including breast, gastric and lung, that produce a protein known as HER2. The treatment, which combines a near-replica of Roche Holding AG's Herceptin breast-cancer drug with another drug, has shown promise in testing on certain difficult-to-treat cancers.

The therapy is designed to leave healthy tissue alone -- in contrast with traditional chemotherapy that cannot differentiate between tumor and normal cells.

Daiichi-Sankyo plans to start submitting DS-8201 for regulatory review later this year. Analysts say they expect the drug to notch annual sales of more than $3 billion at its peak.

AstraZeneca has been betting big on cancer treatments as part of its efforts to return to growth after a string of patent expirations. The Cambridge, England-based company last year recorded its strongest sales growth in a decade as those efforts started to pay off.

However, developing new cancer drugs is an increasingly competitive area as the world's biggest pharmaceuticals companies seek to commercialize scientific advances. Rivals such as Pfizer Inc. and GlaxoSmithKline PLC are also focusing more on oncology.

To help fund its deal with Daiichi-Sankyo, AstraZeneca said it would raise $3.5 billion by selling new shares. More than half of that sum will go toward the deal and the continuing collaboration with the Japanese drugmaker. AstraZeneca expects its rights to DS-8201 to boost core earnings from 2020.

Chief Financial Officer Marc Dunoyer said the company decided to raise equity to preserve its investment-grade credit rating.

AstraZeneca shares fell 5.6% on Friday.

Jefferies analyst Peter Welford said the deal made strategic sense but represented a significant financial outlay.

The deal is the first big move under José Baselga, a prominent cancer doctor who now leads AstraZeneca's oncology research and development. Dr. Baselga, who joined the company at the start of the year, was among the doctors who ran clinical trials for DS-8201.

Write to Denise Roland at Denise.Roland@wsj.com

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March 30, 2019 02:47 ET (06:47 GMT)

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