Bayer and Loxo Oncology have agreed to work together on the development and commercialisation of two novel cancer therapies, in a deal potentially worth more than $1.5 billion to the latter firm.

Larotrectinib (LOXO-101) and LOXO-195 both target tropomyosin receptor kinase (TRK) fusion proteins, which are produced from certain genetic alterations occurring across a range of different tumors.

In clinical trials larotrectinib has shown “clinically meaningful and durable responses with an overall response rate of 75 percent,” according to Bayer, and its first filing is planned for the US in late 2017 or early 2018, with the EU filing sometime next year.

Emerging data in the field of TRK inhibition suggest that acquired resistance may emerge due to TRK kinase point mutations; LOXO-195 was designed to address these and induce a new response in the patient’s cancer.

“We see great potential in larotrectinib and moreover the follow-on compound LOXO-195 which has the potential to provide additional benefit for patients who might progress on an initial TRK inhibition therapy,” said Robert LaCaze, head of the Oncology Strategic Business Unit at Bayer.

“These agents have the potential to fullfil the promise of precision medicine, where tumor genetics rather than tumor site of origin define the treatment approach for patients”.

Under the terms of the deal, Loxo will bank an upfront fee of $400 million and is in line for a further $450 million in milestone payments upon larotrectinib regulatory approvals and first commercial sale events, and an extra $200 million upon LOXO-195 approvals and first sale events.

Bayer and Loxo will jointly develop the two products sharing development costs on a 50/50 basis. Bayer will lead regulatory activities outside the US, and worldwide commercial activities. In the US, where the firms will co-promote the products, commercial costs and profits will be split 50/50.

Bayer will also pay Loxo tiered double-digit percentage royalties on future net sales outside of the US, as well as global sales milestones totaling USD 500 million.