According to reports, pharmaceutical company Merck will pay Daiichi Sankyo $5.5 billion to collaborate on developing three of its candidate cancer medications. Depending on the outcome of the cell-targeting therapies, the transaction may be worth up to $22 billion to the Japanese company.

At the closing of trade in Tokyo, the statement drove shares of Daiichi Sankyo (4568.T) up 14.4%, the largest rise in more than a year.

In the fiscal year that ends on March 31, 2026, the Japanese corporation plans to generate at least 900 billion yen ($6.0 billion) in revenue from its oncology division, which would be a roughly five-fold increase over the previous three years.

According to Tina Banerjee, a healthcare expert who blogs on the Smartkarma website, the purchase is “big positive and much needed for Daiichi Sankyo.” “This raises expectations from Daiichi’s oncology drug pipeline.”

Merck will work on the three therapeutic candidates in various stages of clinical development to treat various solid malignant tumors. They are members of the class of medications known as antibody-drug conjugates (ADC). ADCs are made to target just cancer cells, as opposed to traditional chemotherapy, which can also harm healthy cells. This might reduce harm to normal cells.

The three contenders, patritumab deruxtecan, ifinatamab deruxtecan, and raludotatug deruxtecan, are expected to generate “multi-billion dollar worldwide commercial revenue potential for each company” by the middle of the 2030s, according to the two companies.

Except for Japan, where Daiichi Sankyo will hold exclusive rights, the firms said they will jointly develop and possibly market the medication candidates there. Daiichi Sankyo will be completely in charge of production and delivery.

Merck will provide Daiichi Sankyo with an upfront payment of $4 billion and further payments totaling $1.5 billion over the following two years. Depending on future sales milestones, Merck may make further payments totaling up to $16.5 billion, or $5.5 billion for each product.

Six ADC candidates are currently being developed by Daiichi Sankyo, two of which are being worked on in tandem with AstraZeneca (AZN.L). A data abstract on a late-stage study of datopotamab deruxtecan that it is developing with AstraZeneca this week shocked some investors.

According to the agreement announced on Friday, Merck will incur a pretax charge of $5.5 billion, or around $1.70 per share, to represent the upfront payment and the continuation payments. As a result, the firms stated that profits for the fourth quarter and the entire 2023 fiscal year would be lower.

According to the analysts, Merck’s investment in the pipeline assets and financing costs will cause profits per share to decline by about 25 cents in the first year following the completion of the purchase. According to the joint statement, the effect on Daiichi Sankyo’s performance will be disclosed in the future.