Daiichi Sankyo Secures $22 Billion Deal, Merges Two Subsidiaries, Cementing Its Position as ADC Leader

Recently, Daiichi Sankyo announced at its board of directors meeting that the company plans to acquire its manufacturing subsidiaries, Daiichi Sankyo proarma and Daiichi Sankyo Chemical Pharma. The merger will take effect on April 1, 2025.

As both companies are wholly owned subsidiaries of Daiichi Sankyo, this merger will not involve the issuance of new shares or any cash distribution. In a press release, Daiichi Sankyo stated that the merger aims to “further deepen the alignment between manufacturing functions and pharmaceutical technology development capabilities” to ensure a stable supply for its growing production volume in the ADC field.

According to GlobalData analysts, Daiichi Sankyo is projected to dominate the ADC field by 2029, with its market sales reaching $10 billion. This forecast positions Daiichi Sankyo as a clear market leader, followed by Seagen and Roche in second and third place, respectively, with ADC sales expected to reach $5.8 billion and $3.6 billion.

It is evident that Daiichi Sankyo is aggressively accelerating its push toward the throne of the leading ADC player.

However, compared with Daiichi Sankyo’s recent blockbuster deals and impressive financial performance, this acquisition appears less eye-catching.

On October 19, Merck & Co. and Daiichi Sankyo reached a global development and commercialization agreement for three of Daiichi Sankyo’s DXd ADC candidate drugs. Under the terms of the agreement, Merck will pay an upfront fee of $4.5 billion, a refundable upfront payment of $1 billion related to R&D expenses, and commercial milestone payments of up to $16.5 billion, bringing the total potential value of the deal to $22 billion. Following the announcement, Daiichi Sankyo’s stock price surged by 18%, hitting a record high.

On October 31, Daiichi Sankyo announced its financial results for the first half of fiscal year 2023 (April–September), reporting total revenue of JPY 726.344 billion, a year-on-year increase of 19.5%. Data showed that during the April–September period, the company’s star product, Enhertu, generated total revenue of JPY 183 billion (USD 1.212 billion), representing an 81.2% year-on-year growth. This figure includes JPY 173.4 billion in global sales and JPY 9.6 billion in upfront and milestone payments. Daiichi Sankyo and AstraZeneca are jointly responsible for the development and commercialization of Enhertu in markets outside Japan, while Daiichi Sankyo holds exclusive marketing rights in Japan.

Behind the string of good news, people have witnessed Daiichi Sankyo’s formidable strength in the field of innovative ADC drugs. However, most people are unaware that Daiichi Sankyo experienced the intense competition and wave of bankruptcies in Japan’s pharmaceutical industry before achieving its current brilliant resurgence.

Since the 1970s, Japan’s aging population has become increasingly severe, leading to mounting pressure on its healthcare system. In response, Japan implemented comprehensive healthcare reforms and launched centralized drug procurement, which also created opportunities for foreign pharmaceutical companies to enter the Japanese market. These domestic challenges and external competitive pressures triggered intense internal competition and a major reshuffling among Japan’s local pharmaceutical enterprises.

Daiichi Sankyo was born in the difficult environment at that time.

In 2005, two established pharmaceutical companies, Daiichi Pharmaceutical Co., Ltd. and Sankyo Company, Limited, merged to establish Daiichi Sankyo, becoming Japan’s second-largest pharmaceutical company at the time, trailing only Takeda Pharmaceutical. Following the merger, Daiichi Sankyo integrated the advantageous resources of both companies and embarked on its global expansion strategy.

Takashi Shoda, then Chairman of Daiichi Sankyo, once stated, “India will become a trump card for Japanese pharmaceutical companies going global.”

Ranbaxy, an Indian pharmaceutical giant with nearly 50 years of development history, was clearly an excellent ally at the time, and both parties reached a pleasant cooperation.

However, just one month after the deal was closed, the FDA announced a ban on the import of more than 30 generic drugs from Ranbaxy, citing serious violations of manufacturing standards at two of its facilities in India. The continuous stream of negative publicity further compelled Daiichi Sankyo to recognize Ranbaxy as a problematic partner. It was not until 2014, when India’s Sun Pharmaceutical acquired Daiichi Sankyo’s stake in Ranbaxy for $3.2 billion, that this ill-fated partnership was finally severed.

Daiichi Sankyo’s original five-year plan for 2013–2017 was abruptly derailed by the Ranbaxy incident. However, rather than succumbing to this setback, Daiichi Sankyo chose to rise from the ashes and reinvent itself.

Daiichi Sankyo first divested its then somewhat inefficient and costly overseas operations, before turning its attention to its ADC pipeline, which was still in the early stages of industrialization at the time.As early as 2010, Daiichi Sankyo initiated the DS-8201 pipeline, which is now the ADC “blockbuster drug” fam-trastuzumab deruxtecan-nxki for injection (Enhertu, also known as T-DXd).

However, due to unfavorable timing, the ADC drugs Mylotarg and Kadcyla were successfully launched in succession over the next few years, and Daiichi Sankyo seemed on the verge of missing its first-mover advantage in this blue ocean market.

Nevertheless, luck can sometimes be a form of strength. Mylotarg was voluntarily withdrawn from the market shortly after its launch due to safety concerns. Among all HER2-targeted antibody-drug conjugate (ADC) therapies, Daiichi Sankyo is a leading player with relatively few competitors.

After careful consideration, Daiichi Sankyo decided to reposition Enhertu as a strategic priority and consolidate all company resources to implement vertical management.

This decision led to the emergence of Enhertu, which later became the “blockbuster drug” in the ADC field. Developed by Daiichi Sankyo using its proprietary DXd ADC technology platform, Enhertu achieved breakthrough innovations in multiple aspects, including the linker, payload, and drug-to-antibody ratio, challenging many conventional industry perceptions.

In 2019, AstraZeneca invested $6.9 billion to sign an agreement with Daiichi Sankyo for the global co-development and commercial promotion of Enhertu. A year later, AstraZeneca struck another deal with Daiichi Sankyo, investing $6 billion to collaborate on another ADC, DS-1062.

In less than 20 years, Daiichi Sankyo carved out its own path to rebirth from the fierce competition within Japan’s pharmaceutical reforms; in under a decade, it once again demonstrated its strength to the world by turning around a lackluster acquisition. Its pace of innovation and development can only be described as “rapidly accelerating.”

Not only has Daiichi Sankyo, the leading ADC company, experienced rapid growth, but transaction volumes across the entire ADC sector have also repeatedly hit record highs in recent years.

According to data from Lepu Biopharma’s prospectus, the global market size for antibody-drug conjugate (ADC) therapies is projected to reach USD 10.4 billion in 2024 and USD 20.7 billion in 2030, as outlined in the industry overview. The compound annual growth rate (CAGR) from 2019 to 2024 is 30.6%, and the CAGR from 2024 to 2030 is 12.0%, indicating robust market growth.

In the face of the vast blue ocean that is ADCs, numerous pioneers have already emerged in overseas markets. Do domestic newcomers still have a chance?

The Chinese ADC market did not emerge until 2020. Although it started late, it has coincided with the golden age of ADC drug development, attracting significant investment from innovative pharmaceutical companies worldwide. Overseas enterprises are increasingly betting on the Chinese pharmaceutical market, creating a favorable environment for domestic biotech firms to expand their pipelines globally.

On the other hand, ADCs differ significantly from new drug development in the fiercely competitive field of tumor immunotherapies such as PD-1 inhibitors.

ADC drug development demands higher technical standards and involves more complex molecular design. In addition to the antibody, an ADC comprises a cytotoxic payload, a linker, and the conjugation chemistry linking the payload to the antibody. ADCs composed of different targets, cytotoxins, and linkers exhibit distinct characteristics and biological activities. Specifically, ADCs targeting the same antigen but conjugated with different toxins may differ in tumor indications, patient subpopulations, and therapeutic efficacy. Therefore, differentiation among ADC drugs depends not only on the target antigen but also on the cytotoxic payload.

On the other hand, the premise of involution is that many products in this sector have already been successfully launched, or that the technological barriers in this sector have been broken.

From the perspective of product differentiation, antibody-drug conjugates (ADCs) encompass multiple dimensions—including targets, antibodies, small-molecule toxins, linkers, and conjugation methods—which vary significantly, thereby facilitating differentiated development. In terms of technical barriers, it is evident that numerous unresolved technical challenges remain in the current ADC landscape. Only a small fraction of ADC candidates under development ultimately achieve successful regulatory approval and market launch, indicating that the field is still far from reaching a state of hyper-competition.

Indeed, ADCs have entered a new phase of development globally, but this stage is not as mature as we might imagine. Although relevant products have been successively approved in recent years, ADC technology has not yet reached maturity.

For now, we cannot yet easily achieve precise, target-specific drug delivery. This leaves ample room for growth for a large number of emerging ADC companies.