Daiichi Sankyo Company, Limited

Daiichi Sankyo Company, Limited

Native name	第一三共株式会社
Romanized name	Daiichi Sankyō kabushiki gaisha
Type	Public KK
Traded as	TYO: 4568 TOPIX Large 70 Component TOPIX 100 Component Nikkei 225 Component
Industry	Pharmaceutical
Predecessors	Daiichi Pharmaceutical Company Sankyo Company
Founded	Tokyo, Japan (2005 (2005)) (by merger)
Headquarters	Daiichi Sankyo Building A/B 3-5-1, Nihonbashi-honcho, Chūō-ku, Tokyo 103-8426, Japan
Key people	Sunao Manabe (Representative Director, and President) Ken Keller (President and CEO, Daiichi Sankyo, Inc.)
Products	Medical equipment Pharmaceutical products
Revenue	$ 9.015 billion USD (FY 2023) (¥ 1.28 trillion JPY) (FY 2023)
Net income	$ 769.3 million USD (FY 2023) (¥ 109.1 billion JPY) (FY 2023)
Number of employees	17,435 (2023)
Website	http://www.daiichisankyo.com
Footnotes / references

Daiichi Sankyo Company, a Tokyo-based global pharmaceutical leader, operates across various sectors of the medical industry, providing an extensive portfolio of treatments for a wide range of conditions.

In the cancer domain, they offer innovative treatments like trastuzumab deruxtecan, gefitinib, bicalutamide, and tamoxifen. They also provide drugs for pain management, neurological disorders, such as Alzheimer's, and epilepsy.

Their diabetes and heart disease portfolio includes products like teneligliptin, canagliflozin, pravastatin, and edoxaban, while their gastrointestinal and infectious disease lineups offer treatments like esomeprazole and vaccines for various conditions.

Daiichi Sankyo also contributes to the skincare and oral care sectors with products such as Transino and Breath Labo. Their range even extends to over-the-counter medicines, animal healthcare products, cosmetics, medical equipment, and food products.

In a partnership with Guardant Health, they are developing a companion diagnostic for a lung cancer treatment. Founded in 1899, Daiichi Sankyo's legacy of innovation continues to shape the global pharmaceutical landscape.

Macro Analysis

The global macroeconomic environment has a significant influence on the performance of Daiichi Sankyo and the pharmaceutical industry as a whole.

A PESTLE Analysis of the Pharmaceutical Industry shows that the future holds mixed results.

Economic

The recent inflation print shows that the annual inflation rate of the yen has dropped to 3% from 4% the previous month, settling into an acceptable range. This is a positive sign for companies like Daiichi Sankyo as it reduces the cost pressure on raw materials and other inputs for production.

However, over the last 3 years, the value of the yen has dropped in relation to the dollar, meaning costs may rise as indicated by an increase in cost of sales by 3.3% from Q4 2021 to Q4 2023. But this appears to be a negligble factor in Daiichi Sankyo's success, as the company experienced in increase in operating profit of 89% over the same period.

Sociocultural

Changing sociocultural factors such as an aging population and growing obesity rates has a positive impact on Daiichi Sankyo, as it specializes in a variety of pharmaceuticals associated with treating diseases linked to aging (e.g. Anti-hypertensives, Anti-epileptics, and drugs for: Type 2 diabetes, pain, bone erosion associated with rheumatoid arthritis, lowering cholesterol, etc.)

Technological

A growing biotechnology industry positively impacts the company, with the beginning of human trials of drugs designed by AI indicating a potential revolution in drug discovery. With this inevitably leading to significant investment and profit for companies within the pharmaceutical industry.

AstraZeneca, a partner of Daiichi Sankyo for an antibody-based tumour treatment, has signed a research collaboration and licensing deal with Quell Theraputics. This company uses genetic engineering of regulatory T-cells to treat autoimmune diseases, a new use of cell therapy outside of oncology. This, along with other examples of genetic engineering in treatment, alludes to a technological boom in the biotech industry resulting in large growth in the pharmaceutical market.

The S&P 500 gained 2.4% and the NASDAQ jumped 3.3%, indicating a positive market sentiment which could benefit the company. However, the tightening of interest rates, with the US 10-year moving from 4.06% to 3.83%, could increase the cost of borrowing for the company.

Industry Overview

Daiichi Sankyo operates in the pharmaceutical industry, which is characterized by high levels of research and development, stringent regulatory environments, and intense competition. The industry is driven by innovation, with companies constantly seeking to develop new treatments and therapies. The industry has been positively impacted by the COVID-19 pandemic, with increased focus on healthcare and accelerated vaccine development.

Competitor Comparison

Daiichi Sankyo's main competitors in the pharmaceutical industry include global giants like Eli Lilly, Johnson & Johnson, Novo Nordisk, Merck & Co., Roche Holding, Abbvie, Novartis, Astrazeneca, Pfizer, and Sanofi. These companies have a broad product portfolio and significant resources for research and development.

Company Overview and Breakdown

Daiichi Sankyo Co., Ltd. is a Japan-based company primarily engaged in the manufacture and sale of pharmaceuticals. The company is involved in the research, development, manufacture, and sale of pharmaceuticals, over-the-counter drugs, and vaccines. It also provides administrative services such as human resources and accounting services, real estate leasing, and insurance agency business.

Products

The company specializes in a diverse array of pharmaceutical goods, with drugs devoted primarily for oncological and cardiovascular treatment, with its 2 flagship products being ENHERTU® a HER2 directed antibody drug conjugate (ADC) used in the treatment of HER2 positive breast cancer, and LIXIANA® a direct factor Xa inhibitor, used to prevent blood clots and thus inhibiting risk of heart attack and stroke.

The company entered a collaboration with AstraZeneca in 2020 for a Daiichi Sankyo DXd (potent DNA topoisomerase I inhibitor) antibody drug conjugate (ADC), with $1 billion being paid upfront to Daichii Sankyo from AstraZeneca and a further $5 billion upon achievement of future regulatory and sales milestones. The company is developing a number of DXd drugs, known as the "3ADCs" in the company's R&D pipeline, however the agreement with AstraZeneca concerns only Dato-DXd drugs. Both companies will jointly develop and commercialize Dato-DXds worldwide, except with Daiichi Sankyo holding exclusive rights in Japan. This is the second global collaboration with AstraZeneca, with the first being a similar agreement for Daiichi Sanyo's ENHERTU®.

Dato-DXd

Trophoblast cell surface antigen 2 (TROP2) is highly expressed on a variety of epithelial tumours and correlates with a poor prognosis, Dato-DXd is being developed as a novel TROP2-directed ADC. Dato-DXd demonstrated potent antitumor activity against TROP2-expressing tumors via efficent payload delivery into tumors alongside acceptable safety profiles in preclinical models, suggesting Dato-DXd could be a valuable treatment.

Daiichi Sankyo has a variety of Dato-DXd products currently in different phases of clinical trials:

Phase 1:

• TROPION-PanTumor01 - solid tumours
• TROPION-PanTumor02 - NSCLC (Non-small cell lung cancer), TNBC (Triple negative breast cancer)
• TROPION-Lung02 - NSCLC
• TROPION-Lung04 - NSCLC
• PETRA (AZD5305 combo) - solid tumors

Phase 2:

• TROPION-PanTumor03 - solid tumors
• TROPION-Lung05 - NSCLC
• BEGONIA - TNBC
• ORCHARD - EGFR (Epidermal Growth Factor Receptor) mutated NSCLC
• NeoCOAST-2 - recectable* early-stage NSCLC (durvamulab combo) neoadjuvant**

*able to be removed via surgery

**treatment given as first step to shrink tumour

Phase 3:

• TROPION-Lung01 - NSCLC
• TROPION-Lung07 - non-squamous* NSCLC
• TROPION-Lung08 - NSCLC
• TROPION-Breast01 - BC (HR+, HER2 low or negative BC)
• TROPION-Breast02 - TNBC (Triple negative breast cancer)
• TROPION-Breast03 - TNBC (mono or durvalumab combo) adjuvant**

*either Adenocarcinomas or large cell (undifferentiated) carcinomas

** treatment given after main treatment to reduce chance of cancer returning by destroying any remaining cancer cells

A list of Dato-DXd drugs currently in clinical trials can be found here in blue.

T-DXd

T-DXd is an ADC that usese the HER-2 targeted antibody trastuzumab to deliver a cytotoxic payload selectively to HER2-expressing cells. In the DESTINY-Breast01 phase II clinical trial, T-DXd showed clinical activity in the third-line setting for patients with HER2-positive metastatic breast cancer, these results led to accelerated approval of T-DXd in 2019 as a third-line therapy for patients with metastatic or unresectable breast cancer who have received two or more prior HER2-targeted therapies.

An example of a highly successful T-DXd drug from the company is ENHERTU®, which is approved in over 30 countries for treatment of adult patients with unresectable or metastatic HER2 positive breast cancer.

A list of T-DXd drugs currently in clinical trials can be found here in orange.

HER3-DXd

Approximately 10% to 15% of patients with NSCLC in the US and Europe and 30% to 40$ of those in Asia have an EGFR-activating mutation. In these patients EGFR (Epidermal Growth Factor Receptor) -targeted tyrosine kinase inhibitors (TKI) result in high response rate and can provide extended disease control. However, relapse is typical with the development of resistance to EGFR TKI treatment, with the mechanisms associated with resistance being diverse, and a significant amount of which being unidentified.

Given that resistance mechanisms to EGFR TKIs are diverse and the efficacy of chemotherapy is limited, there is a need to develop novel treatment approaches for previously treated EGFR-mutated NSCLC that provide salvage therapy* across a broad spectrum of resistance-associated genomic alteration.

HER3 is expressed across a variety of malignant solid tumors and has been found in 83% of primary** NSCLC tumors. HER3 overexpression is associated with metastatic progression and decreased relapse-free survival in patients with NSCLC. EGFR-mutated NSCLC is associated with higher expression of HER3 compared to EGFR wild-type*** NSCLC.

HER3-DXd is a novel ADC, which specifically targets HER3. In a study 57 patients recieving HER3-DXd the objective response rate**** was found to be 39% and the median progression-free survival***** was 8.2 months. Responses were also observed in patients with known and unknown EGFR TKI resistance mechanisms

*treatment recieved after standard treatment has failed

** used to describe the first, or primary tumor, the one from which metastatsis (development of secondary tumors) occurs

*** non-mutated gene

**** The total number of people whose cancer has either gone away (complete response) or shrunk (partial response)

***** Time between treatment aimed at shrinking or controlling cancer, and signs that it has started to grow again

3ADC Conclusion

In conclusion, Daiichi Sankyo is developing a wide range of cancer-targetting drugs, with a primary focus on breast cancer, with Dato-DXds targetting hormone receptor positive, HER2 low or HER2 negative breast cancer, and triple negative breast cancer. T-DXds (such as ENHERTU®) targetting HER2 positive breast cancer, particularly when a patient has recieved prior anti-HER2 treatment. HER3-DXds targetting HER3 positive breast cancer, and particularly in cases where the patient has become resistant to first-line treatments (such as EGFR TKIs).

Financials

Daiichi Sankyo has shown strong financial performance with revenues increasing by 22% to 1.278 trillion yen and net income increasing by 63% to 108.95 billion yen for the fiscal year ended 31 March 2023. The company's current ratio is 2.8, indicating a strong liquidity position. The company's debt ratio is 9.7, which is relatively low, indicating a manageable level of debt.

The company's return on assets (ROA) is 4.6% and return on equity (ROE) is 7.8%, indicating efficient use of assets and equity. The company's gross margin is 71.6% and net profit margin is 8.5%, indicating strong profitability.

Cash flow statement
Cash flows from operating activities
Profit for the year

Valuation

The company's current price-to-earnings (P/E) ratio is 69.15, which is relatively high, indicating that the company's stock may be overvalued. The company's price-to-book (P/B) ratio is 5.21, which is also relatively high.

Technical Analysis

The company's stock price has shown some volatility, with a 1-year return of 11.47%. However, the stock price has declined by 6.29% year-to-date. The company's beta is 1.06, indicating that the stock is slightly more volatile than the market.

Investment Thesis

Daiichi Sankyo has shown strong financial performance with increasing revenues and net income. The company operates in a growing industry and has a strong product portfolio. However, the company's high valuation ratios indicate that the stock may be overvalued.

Catalysts

Based on the recent developments and news, the following catalysts have been identified that could impact the future stock performance of Daiichi Sankyo:

1. New Drug Approvals: Daiichi Sankyo has recently received approval for its drugs in different regions. For instance, VANFLYTA, a FLT3 inhibitor, has been approved in the U.S. and Japan specifically for patients with newly diagnosed FLT3-ITD Positive AML. This could potentially lead to increased revenues for the company, positively impacting the stock performance.
2. Progress in Research and Development: For example, their drug, Datopotamab Deruxtecan, met dual primary endpoint of progression-free survival in patients with advanced non-small cell lung cancer in the TROPION-Lung01 Phase 3 trial. Positive results from clinical trials can often lead to increased investor confidence and a rise in stock prices.
3. Expansion in China: ENHERTU, another drug by Daiichi Sankyo, has been approved in China as the first HER2 directed therapy for patients with HER2 low metastatic breast cancer. This approval allows the company to tap into the large Chinese market, potentially leading to increased sales and a positive impact on the stock.
4. COVID-19 Vaccine Development: Daiichi Sankyo has initiated a Phase 3 clinical trial of its mutant strain COVID-19 vaccine (DS-5670) in Japan. If successful, this could significantly boost the company's revenues and positively impact its stock performance.
5. Corporate Changes: There have been recent changes in the company's corporate structure, including the stock transfer of DAIICHI SANKYO ESPHA CO., LTD. and appointments of new directors and audit & supervisory board members. These changes could potentially impact the company's strategic direction and stock performance.

However, it's important to note that while these developments have the potential to positively impact the company's stock performance, they also carry risks. For example delays or failures in drug development, changes in regulatory environments, or shifts in market dynamics may negatively impact the company's stock performance.

Risk

Investing in Daiichi Sankyo involves risks such as market risk, regulatory risk, and competition risk. The company's high valuation ratios also indicate a risk of overvaluation.

Investment Thesis

In conclusion, Daiichi Sankyo presents a mixed investment opportunity. The company has strong financial performance and operates in a growing industry. However, the company's high valuation ratios indicate that the stock may be overvalued. Investors should carefully consider these factors before making an investment decision.