India’s Nicholas Piramal has signed a drug development deal with US drugs giant Merck & Co, a link-up that could be worth over $350 million to the Mumbai-headquartered firm.

The two firms will collaborate to discover and develop new oncology drugs for two selected targets provided by Merck. Nicholas Piramal will be responsible for carrying out studies up to proof-of-concept and its New Jersey-headquartered partner, Merck will have an option to advance the most promising candidates into late-stage clinical trials. Nicholas Piramal will receive development milestone payments of up to $175 million per target, plus royalties on sales of any products resulting from the deal.

Commenting on the collaboration, Swati Piramal, director of strategic alliances and communications, described it as “a major step in bringing the cross-border synergies to drug development which should have cost, quality and time advantages and should benefit patients worldwide in reducing the burden of disease”. Merck’s Merv Turner, senior vice president of licensing and external research, added that the agreement “furthers our strategy of building global alliances that expand and advance [our] pipeline, especially in countries such as India with rapidly expanding drug discovery competencies”.

The deal comes just a few months after Nicholas Piramal decided to spin off its research operations, a process which will be completed by April 2008. The new entity will be initially funded by the Indian drugmaker but later down the line, the firm has said that it will look at alternative sources of financing like private equity or even from existing shareholders.

Merck follows Eli Lilly in partnering up with Nicholas Piramal as the Indianapolis-based firm signed a $100 million agreement in January to let the latter develop and, in certain regions, commercialise a select group of its pre-clinical drug candidates in multiple therapeutic areas.