Merck & Co. Inc. is acquiring a $1 billion equity stake in Seattle Genetics Inc. (Seagen) as the companies enter a deal to develop the latter’s antibody-drug conjugate (ADC) ladiratuzumab vedotin (LV) worldwide. At the same time, the firms disclosed a pact whereby they aim to widen the global reach of Seagen’s Tukysa (tucatinib) for HER2-positive cancers in regions outside the U.S., Canada, and Europe.

LV has reached the phase II stage for breast cancer and other solid tumors. The arrangement between Whitehouse Station, N.J.-based Merck and Seagen, of Bothell, Wash., will investigate the ADC in combination with Merck’s Keytruda (pembrolizumab) in triple-negative and hormone receptor-positive breast cancer as well as other, LIV-1-expressing solid tumors. Merck is paying $600 million up front along with the $1 billion equity investment in 5 million shares of Seagen at $200 each. The stock (NASDAQ:SGEN) was trading pre-market at $164, up $14.03.

In another agreement, Seagen granted Merck an exclusive license to commercialize the small molecule tyrosine kinase inhibitor Tukysa in Asia, the Middle East and Latin America and other regions. Seagen is banking $125 million from Merck as an up-front payment and is eligible for progress-dependent milestones of up to $65 million, the companies said. Tukysa was approved in April 2020.

With LV, the pair will equally share costs and profits. Seagen could pull down $2.6 billion in milestone payments, including $850 million related to development and $1.75 billion connected to sales goals. The companies will co-commercialize in the U.S. and Europe, with Seagen responsible for marketing applications for approval in the U.S. and Canada, and for recording sales in the U.S., Canada, and Europe. Merck will be responsible for marketing applications for approval in Europe and in countries outside the U.S. and Canada, and will record sales in countries outside the U.S., Canada, and Europe.

With Tukysa, Seagen retains commercial rights and will record sales in the U.S., Canada and Europe. Merck will be responsible for marketing applications for approval in its territory, supported by the positive results from the trial called HER2Climb. Merck will also co-fund a portion of the Tukysa global development plan, which involves several ongoing and planned studies across HER2-positive cancers, including breast, colorectal, gastric and others. Seagen will continue to lead Tukysa’s global development planning and operational work, with Merck solely funding and conducting country-specific trials needed for approvals. Added to the upfront payment and potential milestone rewards, Seagen takes in $85 million in prepaid research and development payments to be applied to Merck’s global development funding obligations. Included in the deal are tiered royalties for Seagen on sales in Merck’s territory. Shares of Merck (NYSE:MRK) were trading premarket at $84.35, down 13 cents.

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