Daiichi Sankyo Pharmaceutical (4568) – Busted Flush?

Like most established drug companies, Daiichi Sankyo (DSK) has a patent cliff problem born out of the boom in hypertension / diabetes / CNS treatments in the 1990s. However, with Mevalotin having been at the start of the statin (anti-cholesterol) boom and Benicar at the end of the sartan (anti-hypertension) boom, DSK’s patent fall-off has seemed to be more of a long gentle slope than a cliff-face. However, a decline is a decline and it needs to be offset. 

Key Points

• Four strategies for growth 
• Next generation drugs: there is the threat from generics; and edoxaban hasn’t been as great as expected 
• Mirogabalin has come unstuck at the Phase III level and the FDA failed to approve CL-108, for use in opioid-induced nausea… 
• …so, expanding its oncology business has taken on increased importance and led to acquisitions which so far are not showing returns 
• The ACD development system is exciting but is a long way off coming to the market 
• The attractiveness of DSK’s late stage oncology portfolio has declined and the “easy” money has been made.

Over the past 12 months, DSK has been hit first with a patent suit disaster over Effient, then with a complete response letter for CL-108, and now, a failed Phase III trial for its main late-stage pipeline asset. Despite that slew of bad news, the shares have been basically flat in both absolute terms and relative to the TPPHRM index (-1.0% and -1.2% respectively). PSA’s suspicion is that the shares should have fallen already, and the fact that they haven’t is because it is not yet the case that Lilly has lost the patent for Effient. Maybe it won’t; but this looks like a lopsided bet as far as DSK’s share price is concerned.