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By Marie Daghlian

Endocyte (ECYT) and Merck (MRK) have entered into an exclusive licensing deal for a late-stage investigational cancer drug potentially worth up to $1 billion for the Indiana-based company. Endocyte has granted a Merck subsidiary exclusive global development and commercialization rights to its small molecule vintafolide, currently being evaluated along with Endocyte's companion diagnostic in a late-stage trial for platinum-resistant ovarian cancer, and a mid-stage trial for non-small cell lung cancer.

"Vintafolide is a promising and innovative late-stage cancer drug candidate. In addition to pursuing the lead indication of platinum-resistant ovarian cancer, Merck plans to further evaluate its potential for treatment of multiple other cancer types," says Peter Kim, executive vice president and president Merck Research Laboratories. "This 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."

Endocyte will receive $120 million upfront, almost as much as its $136 million market cap before the deal was announced. It is also eligible for up to $880 million in milestone payments based on the successful achievement of development, regulatory, and commercialization goals for vintafolide for a total of six cancer indications. If vintafolide is approved, Endocyte will also receive an equal share of the profit in the United States, as well as a double digit percentage of royalties on sales in the rest of the world.

Endocyte has kept U.S. co-promotion rights and will be responsible for most of the funding and completion of the late-stage trial in ovarian cancer, while Merck will assume responsibility for all other development activities and costs and have all decision rights for vintafolide. Global responsibility for the companion diagnostic, etarfolatide, remains with Endocyte. It is a non-invasive imaging agent that is used to identify folate receptor positive tumor cells, which are the most responsive to Endocyte's therapeutic and make up about 40 percent of the target patient group.

"Following a rigorous selection process we believe Merck represents the ideal strategic partner to achieve the full potential of vintafolide, accelerating our development in numerous cancers," says Ron Ellis, Endocyte's president and CEO. "The agreement also positions us well to build our own commercial infrastructure for vintafolide in the U.S. and for etarfolatide worldwide."

Merck's cancer pipeline lags many of the other big pharmaceutical companies, with nothing in its late-stage pipeline and only four compounds in mid-stage development. Its investigational treatment for sarcoma, partnered with Ariad (ARIA), is expected to get a decision on marketing approval from the U.S. Food and Drug Administration by early June.

Endocyte received orphan drug status for vintafolide in the European Union in March. It plans to file a marketing authorization application there in the third quarter of 2012. Although shares doubled on the announcement to trade as high $7.60, they didn't reach the past year's high of $14.80 per share. Endocyte went public in February 2011 at $6 per share.

Disclosure: Burrill & Company, publisher of The Burrill Report, is an investor in Endocyte.

Source: Endocyte Scores With Merck Partnership