TOKYO -- Daiichi Sankyo, a Japanese drugmaker that has not had a blockbuster product for nearly a decade, is surging in market value, joining the 5 trillion yen ($46 billion) club that also includes such marquee names as Nintendo and Honda Motor.
The drugmaker pulled off a major breakthrough in cancer treatment using traditional research methods largely abandoned by bigger rivals. The new drug, Enhertu, was approved by the U.S. Food and Drug Administration late last year and launched this month, spurring a market rally.
The company's decision to buck an industry trend and utilize its expertise in chemical synthesis was the key to its latest success.
President Sunao Manabe has expressed confidence in Enhertu. He targets 500 billion yen in annual earnings from Daiichi Sankyo's oncology business. "We'll aim to be No. 1 in the world," he has said.
Enhertu is an antibody-drug conjugate, a new type of treatment that combines conventional drugs and biopharmaceuticals. While such rivals as Roche and Takeda Pharmaceutical have developed similar treatments, Enhertu is particularly effective. In clinical trials, it shrank tumors in 60% or so of patients with previously treated breast cancer.
Daiichi Sankyo worked with AstraZeneca, the creator of the innovative lung cancer drug Iressa and a leading maker of oncology treatments that rings up $22 billion in annual revenue.
The two companies inked a deal last March under which AstraZeneca agreed to pay Daiichi Sankyo up to $6.9 billion and receive a share of sales from Enhertu.
They will evenly split development costs for the drug and divide sales by region. Daiichi Sankyo will claim revenue from the major markets of Japan, the U.S. and European countries, while AstraZeneca is just entitled to sales from the rest, such as China and Australia.
The deal, overwhelmingly favorable to the Japanese drugmaker, reflects the promise the drug holds for cancer treatment.
While Enhertu is currently approved only for breast cancer, industry watchers see its indications expanding to lung, colon and stomach cancer, said Shinichiro Muraoka of Morgan Stanley MUFG Securities.
The drug looks likely to become a mainstay for Daiichi Sankyo in the medium to long term. Research firm EvaluatePharma sees global sales of Enhertu in the $2 billion range in 2024, and Fumiyoshi Sakai of Credit Suisse Securities (Japan) predicts peak annual sales of $6 billion.
The breakthrough by Daiichi Sankyo, which still expects a profit decline this fiscal year, comes at a time of a change in pharmaceutical research and development.
Major drugmakers in the oncology space -- the industry's largest market, at $123 billion -- have shifted their R&D focus to biopharmaceuticals that use antibodies, dismissing traditional methods of chemically synthesizing new drugs as inefficient.
Antibody-drug conjugates require chemical "linkers" that connect the conventional and biopharmaceutical parts of the drug. A weak linker may let the two elements break apart before reaching the target cancer cells, potentially causing side effects as the chemical agent spreads through the body.
Linkers are difficult to design, eluding such big names as AbbVie and Bayer. Daiichi Sankyo's decision to maintain its expertise in chemical synthesis when rivals did not paid off with the creation of Enhertu.
Daiichi Sankyo, best known for antibacterial drugs and treatments for lifestyle diseases, is a newcomer to oncology. When it listed the field as a growth area in its medium-term business plan in 2016, other drugmakers and industry watchers expressed skepticism. Now markets are rewarding the company for defying these low expectations.