Daiichi Sankyo Earnings: Results and Guidance in Line; Next Six Months Has Three Pivotal Data Readouts

Narrow-moat Daiichi Sankyo’s 4568 fiscal 2022 earnings and fiscal 2023 guidance were in line with our expectations. We reiterate our fair value estimate of JPY 5,200 per share and view it as modestly undervalued.

Fiscal 2022 revenue was JPY 1.3 trillion, or 22% year-on-year growth, and core operating profit was JPY 122.6 billion, or 9.6% of revenue. This is in line with our operating profit forecast of JPY 127 billion, with variances coming from the slightly higher cost of sales and R&D expenses in the fourth quarter.

Guidance for fiscal 2023 is JPY 1.45 trillion for revenue, or 13% year-on-year growth, and JPY 140 billion for core operating profit, or 9.7% of revenue. Revenue guidance for fiscal 2025 increased to JPY 2 trillion from JPY 1.6 trillion, driven by higher expectations for its oncology antibody drug conjugates, but the core operating profit margin, excluding R&D expenses, is unchanged at 40%. The absolute level of operating expenses will rise with revenue due to the profit-sharing arrangement with AstraZeneca for Enhertu and Dato-DXd sales as well as increased spending on sales infrastructure for its own territories. Guidance for R&D expenses and capital expenditure over the next few years also increased due to accelerated timelines for clinical trials and manufacturing facilities for its ADCs.

Key data readouts in the next six months include Tropion-Breast01, Tropion-Lung01, and Destiny-Breast06, which are all pivotal phase 3 trials. The timeline for the latter two is unchanged from previous presentations, but the potential for Tropion-Breast01 to read out in first-half fiscal 2023 is new for us. The results can potentially have a significant impact on commercial expectations for these drugs as the two Tropion trials will help inform views on Dato-DXd’s applicability in lung cancer and breast cancer, and success in the Destiny trial will allow Enhertu to move to an earlier line of treatment for HR negative, HER2 low-breast-cancer patients.