Merck & Co has acquired the rights to Endocyte's investigational cancer treatment vintafolide in a deal that could be worth $1 billion.

Under the terms of the agreement, Merck is paying a $120 million upfront fee and milestones of up to $880 million based on how successful vintafolide (also known as EC145) proves to be for a total of six cancer indications. The drug is currently is being evaluated in a Phase III trial for platinum-resistant ovarian cancer, and is in Phase II for non-small cell lung cancer; both studies are also using Endocyte's companion diagnostic agent etarfolatide (EC20).

In addition, if vintafolide receives regulatory approval, Endocyte will receive an equal share of profits in the USA as well as a double-digit royalty in the rest of the world. It has also retained the right to co-promote in the USA and will be responsible "for the majority of funding and completion" of the ovarian cancer trial. Merck will be responsible for all other development activities and costs for vintafolide.

Peter Kim, head of Merck Research Laboratories, said the agreement "underscores our strategy of building a portfolio of oncology therapeutics that employ a companion diagnostic to facilitate selection of those patients most likely to respond to treatment". Last month, the European Union granted orphan drug status to vintafolide, and at the time Endocyte said it planned to file for marketing approval in the third quarter of 2012.__

The pact has gone down well with analysts and Simos Simeonidis at Cowen & Co said "we like this deal on many levels". First of all, it provides validation for vintafolide, "at a time when there's lingering doubt about its chances for US approval", he said, noting that $120 million upfront "is a healthy number and provides the company with probably a couple more years of cash, and the ability to invest in their earlier-stage pipeline".

Endocyte gets 'great terms'

Mr Simeonidis and Cowen colleague Yatin Suneja said that "overall, we think Endocyte got great terms, this deal makes good strategic sense, and despite its problems (like most big pharma), we like Merck as a partner, since it has the bandwidth and know-how to make the most of this compound". They add that the EC145/EC20 combo "has the potential to be used in a number of cancers, so a small biotech would be foolish to try to do this all on its own".

The analysts conclude by saying that this transaction "definitely cracks the door open for an eventual acquisition by Merck, if they like what they see in the next couple of years".