Penalty For Daiichi As It Falls Short In Japan Flu Vaccine Project
Executive Summary
Japanese firm fails to meet production capacity target under Japan national flu vaccine supply plan, triggering a financial penalty and the return of government grant money.
Daiichi Sankyo Co. Ltd. will have to pay what it terms a “delinquency charge” after failing to meet its obligations under a national H5N1 flu vaccine supply project in Japan, although the broader financial impact this fiscal year is expected to be limited.
In a project overseen and financially supported by the country’s Ministry of Health, Labour and Welfare as part of a second phase scheme to build national production capacity for cell cultured flu vaccines, the company was selected as the major contractor in August 2011.
Its now dissolved Kitasato Daiichi Sankyo Vaccine subsidiary was then awarded around JPY30bn ($272m) in grants to support the construction of new production facilities, with the aim of building capacity to supply doses sufficient for 40 million people within six months of any major outbreak.
The cell culturing method has the advantage of a much shorter lead time than the one to two years required for embryonated egg cultured vaccines, enabling a faster response and rapid production of vaccines targeting any precise strain of H5N1.
However, Kitasato Daiichi Sankyo Vaccine first warned in April 2014 that it would miss the 40 million target, pointing to findings that higher than expected doses of the vaccine would be required, effectively upping the required production output and prompting steps to improve yield.
Despite an extension of the deadline to this March, Daiichi said it “has been unable to fulfill its obligation to build a scheme to vaccines for 40 million people” on time. The program has so far only been able to build capacity sufficient for 23 million people, but the company and its Daiichi Sankyo Biotech operation will continue work toward meeting the capacity goal, although no new timing was given.
The Kitasato operation was dissolved from this April and its activities transferred to Daiichi Sankyo and the Biotech arm. The company has taken a number of steps over the past few years that signal a strategic shift away from vaccines, as it looks to focus effort and resources on building up its oncology R&D and portfolio.
In addition to the undisclosed penalty, Daiichi will return an unspecified amount of the original government grant, although the company said it expects only a minor financial impact in the current fiscal year, given that it “believes that assumed delinquency charges have been recorded in previous fiscal years.”
Olmesartan Cliff Hits Growth
Daiichi Sankyo reported a 3% fall in group revenues to JPY929.7bn ($8.44bn) for the fiscal year ended 31 March, hit mainly by the genericization of its olmesartan antihypertensive products. North American sales of these plunged by half in the period to $97m, and also fell in Europe, while the regular price in Japan in April 2018 also hit sales of some products at home.
The novel oral Factor Xa inhibitor anticoagulant Lixiana (edoxaban) continued to grow strongly in Japan, however.
Operating profit was 10% higher at JPY83.7bn, helped by lower R&D and general expenses, while profit attributable to owners surged 55% to JPY33.1bn following an upfront component of the huge deal signed before year-end in March with AstraZeneca PLC, for Daiichi’s lead oncology antibody-drug conjugate trastuzumab deruxtecan. (Also see "Boost For Daiichi's Oncology Ambitions As AZ Agrees Huge $6.9bn Deal For Lead ADC Asset" - Scrip, 28 Mar, 2019.)
The Japanese firm expects total revenues to rise by only around 1% this fiscal year, to JPY940bn, although operating profit should rise by 20% to JPY100bn on property divestments and cost savings, while profit attributable to owners should slide by 23% to JPY72bn on the unfavorable comparison with last year.
The company late last October made major cuts to its mid-term business targets as it invests more in oncology R&D as part of the strategic pivot to this sector. (Also see "Daiichi Sankyo Hauls Back Mid-Term Profit Outlook As It Builds Oncology" - Scrip, 2 Nov, 2018.)