Daiichi Sankyo and Merck's Strategic Resilience Amid Patritumab Deruxtecan Setback: A Pipeline Pivot for Precision Oncology

The recent withdrawal of Daiichi Sankyo and Merck's Biologics License Application (BLA) for patritumab deruxtecan (HER3-DXd) in EGFR-mutated non-small cell lung cancer (NSCLC) marks a pivotal moment for the oncology field. While the setback underscores the rigorous standards of drug development, the companies' swift response—focusing on biomarker-driven strategies and advancing a robust ADC pipeline—paints a compelling narrative of resilience. For investors, this moment offers a chance to assess the true value of Daiichi's innovation engine and Merck's partnership in a fast-evolving precision oncology landscape.

The Clinical Trial Crossroads: PFS Success vs. OS Hurdles

Patritumab deruxtecan's withdrawal stems from the Phase 3 HERTHENA-Lung02 trial, which failed to meet the critical endpoint of overall survival (OS) improvement compared to chemotherapy, despite demonstrating a statistically significant progression-free survival (PFS) benefit. While the drug's safety profile remained consistent with prior trials, the lack of OS data has paused its path to U.S. approval. However, this is not a verdict on the drug's efficacy—it's a recalibration.

The Phase 2 HERTHENA-Lung01 trial had shown promising results: a 29.8% objective response rate (ORR) and 11.9-month median OS in heavily pretreated NSCLC patients. The Phase 3 trial's OS shortfall suggests that broader patient populations may not benefit uniformly, but subsets—identified through biomarker analysis—could still represent viable markets. Daiichi and Merck have already committed to dissecting the trial's data to pinpoint genetic or molecular markers predictive of response. This pivot aligns with a growing trend in oncology: precision medicine tailored to subpopulations, where ADCs like patritumab could still carve out niche, high-value indications.

Pipeline Resilience: Beyond Patritumab

The withdrawal of one indication does not diminish the companies' broader ADC pipeline, which spans 15 tumor types and includes four late-stage candidates:

1. Ifinatamab Deruxtecan (B7-H3-DXd):
2. In Phase 2/3 trials for colorectal cancer and small cell lung cancer (SCLC).

3. Shows promise in preclinical models for synergistic combinations with checkpoint inhibitors.

4. Raludotatug Deruxtecan (CDH6-DXd):

5. Phase 2 trials in ovarian cancer, a high-unmet-need area with limited treatment options post-chemotherapy.

6. Gocatamig (DLL3-T-cell engager):

7. A novel T-cell engager targeting DLL3, now being evaluated in SCLC alongside ifinatamab, creating a dual-targeted combination strategy.

8. Datopotamab Deruxtecan (DATROWAY®):

9. Recently approved for HR-positive, HER2-low breast cancer and under trial for NSCLC combinations.

These programs leverage Daiichi's proprietary DXd ADC platform, which uses topoisomerase I inhibitor payloads for targeted tumor cell destruction. The platform's track record—evidenced by ENHERTU's success in HER2-positive breast and gastric cancers—bolsters confidence in its scalability.

Strategic Leverage: Biomarkers and Partnerships

The companies' response highlights two key strengths:
1. Biomarker-Driven Precision: By refining patient selection, Daiichi and Merck can avoid the “one-size-fits-all” trap that doomed the Phase 3 trial. For instance, ongoing trials in HER2-positive gastric cancer and CLDN6-positive tumors (via DS-9606) already employ biomarker-based enrollment.
2. Strategic Partnerships: The Merck collaboration, expanded in 2024 to include gocatamig, underscores a diversification play into T-cell engagers and novel targets like DLL3. This synergy combines Daiichi's ADC expertise with Merck's oncology infrastructure, reducing per-program R&D risk.

Why Investors Should Look Beyond the Setback

The withdrawal of patritumab's BLA is a speed bump, not a roadblock. Key considerations for investors:
- Market Need Persistence: EGFR-mutated NSCLC remains a $10+ billion market, with post-TKI therapies still lacking durable OS benefits. Patritumab's PFS advantage could still secure approval in a narrower population.
- Pipeline Depth: With seven ADCs in clinical stages, Daiichi's pipeline is diversified across 15 tumor types, reducing reliance on any single asset.
- Manufacturing Resolution: The prior CRL cited third-party facility issues, not drug safety, and those concerns appear resolved.

Conclusion: A Pivot, Not a Retreat

Daiichi Sankyo and Merck's strategic pivot—from broad-label aspirations to biomarker-informed precision—positions them to capitalize on a $20 billion ADC market expected to grow at 12% annually. While the patritumab setback may have caused near-term volatility, the long-term narrative remains intact: a company with a proven ADC platform, a pipeline rich in late-stage assets, and the agility to adapt to clinical data.

For investors, this is a buy-the-dip opportunity. With Daiichi's stock down ~15% since the BLA withdrawal and Merck's oncology R&D pipeline fortified by ADC collaborations, the risk-reward calculus leans sharply toward upside. The upcoming ASCO presentation of HERTHENA-Lung02's OS data (June 1) could be a catalyst, but even without it, the broader pipeline's momentum justifies a strong buy recommendation.

Investors should consider their risk tolerance and consult with a financial advisor before making decisions based on this analysis.