Merck & Co is expanding its presence in the oncology arena and will co-develop and commercialise Ariad Pharmaceuticals’ late-stage cancer agent in a deal that could be worth over $1 billion.

The firms have entered into a global collaboration for AP23573, ARIAD's novel mTOR (mammalian target of rapamycin) inhibitor which is expected to go into Phase III trials this quarter for the treatment of metastatic sarcomas. Under the terms of the deal, Ariad will receive an initial payment of $75 million and up to $452 million more in milestones based on the successful development of AP23573 in multiple cancer indications. This figure includes $13.5 million for the initiation of the Phase III metastatic sarcomas trial and $114.5 million for the initiation of other Phase II and Phase III studies.

The financial package also includes up to $200 million based on “achievement of significant sales thresholds”, at least $200 million in estimated contributions by Merck to global development and up to $200 million in interest-bearing repayable development-cost advances from the New Jersey-based drugs giant to cover a portion of Ariad's expenses. The latter will have primary responsibility for development of AP23573 in the metastatic sarcoma indication and the two firms will work together in the USA for all other cancer indications being pursued. Abroad, Merck will have responsibility for development and will book any sales, paying Ariad double-digit royalties.

Ariad chief executive Harvey Berger said that “we implemented a rigorous partnering process that generated substantial interest from multiple companies and ultimately enabled us to select Merck as our partner of choice”, while the firm’s chief commercial officer Richard Pascoe noted that “the structure of this partnership allows the partners to pursue the clinical development of AP23573 in multiple indications concurrently throughout the world”.

The deal reveals Merck's determination to grow its oncology franchise and comes on the back of the success of its cervical vaccine Gardasil and the approval granted by the US Food and Drug Administration last October for Zolinza (vorinostat), a new drug to treat cutaneous T cell lymphoma.

Ariad backed by court in legal battle with Lilly

News of the Merck link-up comes just after Ariad had announced that a US federal court ruled in favour of the firm and its co-complainants (which include the Massachusetts Institute of Technology) in a patent infringement case against Eli Lilly, saying that it was valid and enforceable.

Ariad has an exclusive licence to patents related to certain NF-(kappa)B treatment ‘methods’ and this latest ruling confirms a ruling in May last year that these patents are infringed by Lilly's osteoporosis drug Evista (raloxifene) and Xigris (drotrecogin alfa) for sepsis.

Ariad has been awarded $65.2 million in back royalties in the case, and will be entitled to additional payments on future sales of the two products to 2019. Lilly has yet to respond but when the original ruling was made last May, general counsel Robert Armitage said: “The Ariad position is equivalent to discovering that gravity is the force that makes water run downhill and then demanding the owners of all the existing hydroelectric plants begin to pay patent royalties on their use of gravity”.