By the end of the week, drugmaker AstraZeneca agreed to collaborate with Japanese drugmaker Daiichi Sankyo to help stabilize its oncology sector. Instead of a full takeover, however, AstraZeneca is paying $6.9 billion to share the rights for Daiichi Sankyo’s new cancer drug, which for now is called DS-8201.
To do this, then, AstraZeneca intends to raise as much as $3.5 billion, via share placing, to fund this transaction. They also hope this helps to pay down their debt.
AstraZeneca chief executive officer Pascal Soriot comments, “We believe that trastuzumab deruxtecan could become a transformative new medicine for the treatment of HER2-positive breast and gastric cancers. In addition, it has the potential to redefine breast cancer treatment as the first therapy for HER2-low expressing tumors. It also has the potential to treat other HER2-mutated or HER2-overexpressing cancers, including lung and colorectal cancers. We are proud to be working with Daiichi Sankyo, a long-term collaborator of AstraZeneca in other disease areas.”
So far, analysts appear to view this move as a logical strategy but are a little concerned that investors will be disappointed with the equity raised. UBS equity research analyst Michael Leuchten shared this sentiment in a recent research note. He agrees, first of all, that this is a “strategically sensible licensing deal, but money looks tight.”
He goes on to say, “The deal is structured well, in our view, reflecting the different levels of risk well. However, it seems Astra doesn’t have the money and needs to place $3.5 billion in equity which seems expensive relative to debt.”
The concern is warranted but that is mostly because pharmaceutical companies all over the world have been on the move to replace older drugs, and paying some pretty big premiums to get access to new specialty treatments. As such, AstraZeneca is just one of many companies in the process of making this shift. Indeed, they are shifting away from a primary care focus and towards oncology.
That in mind, AstraZeneca expects that this transaction will actually result in a neutral financial impact for this year. However, it will grow core earnings, per share, starting in 2020 with more significant contributions by 2023. Essentially, then, they are playing a moderately long game by opting for a partnership instead of an acquisition.