Daiichi Sankyo: Out-Licensing Deal With Merck Reinforces Our View of Daiichi's ADC Platform

On Oct. 19, narrow-moat Daiichi Sankyo announced an out-licensing deal with Merck for three of Daiichi’s antibody-drug conjugate candidates. The total up-front payments are $5.5 billion, up to $16.5 billion of potential milestones, and a 50/50 split of profits and costs excluding Japan where Daiichi retains rights. This massive deal reinforces our positive view of Daiichi’s ADC platform beyond Enhertu. We reiterate our fair value estimate of JPY 5,100 per share and continue to view shares as modestly undervalued.