Merck has agreed to acquire a $1bn equity stake in Seattle Genetics, a biotechnology firm developing cancer drugs, under their new oncology collaboration.

Under the oncology collaboration, Merck and Seattle Genetics will jointly develop and commercialise the latter’s antibody-drug conjugate (ACD) ladiratuzumab vedotin, and other LIV-1-targeting ADCs, by equally sharing the costs and profits on a 50-50 basis.

Ladiratuzumab vedotin is an investigational antibody-drug conjugate (ADC) that targets LIV-1 and is currently studied in phase 2 clinical trials for breast cancer and other solid tumours.

Merck will make an upfront payment of $600m along with a $1bn equity investment by acquiring five million shares of Seattle Genetics common stock at a price of $200 per share, and is also entitled to receive up to $2.6bn, in future milestone payments.

The joint development programme will evaluate ladiratuzumab vedotin as monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA to treat triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumours.

Seattle Genetics president and chief executive officer Clay Siegall said: “Collaborating with Merck on ladiratuzumab vedotin will allow us to accelerate and broaden its development program in breast cancer and other solid tumours, including in combination with Merck’s KEYTRUDA, while also positioning us to leverage our U.S. and European commercial operations.

“The strategic collaboration for TUKYSA will help us reach more patients globally and benefit from the established commercial strength of one of the world’s premier pharmaceutical companies.”

Merck will commercialise TUKYSA in Asia, Middle East and Latin America

Merck has also signed an exclusive license and co-development agreement with Seattle Genetics to speed up the commercialisation of TUKYSA in Asia, Middle East and Latin America, along with other regions, while the latter will retain the right in US, Canada and Europe.

TUKYSA is an oral, small-molecule tyrosine kinase inhibitor (TKI) of HER2, a protein that contributes to cancer cell growth, which has shown positive results in the HER2CLIMB clinical trial.

Under the terms of the second agreement, Seattle Genetics is expected to receive an upfront payment of $125m and is entitled to receive up to $65m in future milestone payments.

Also, the company is expected to receive $85m in prepaid research and development payments, in addition to tiered royalties on sales of TUKYSA in Merck’s territory.

Merck Research Laboratories president Roger M Perlmutter said: “These two strategic collaborations will enable us to further diversify Merck’s broad oncology portfolio and pipeline, and to continue our efforts to extend and improve the lives of as many patients with cancer as possible.

“We look forward to working with the team at Seattle Genetics to advance the clinical program for ladiratuzumab vedotin, which has shown compelling signals of efficacy in early studies, and to bring TUKYSA to even more patients with cancer around the world.”