Merck snaps up cancer drug from China's Kelun in $1.4bn deal

Merck & Co has quietly added another drug to its immuno-oncology pipeline via an agreement with China's Sichuan Kelun Pharmaceutical, and is keeping the details close to its chest.

The US pharma group is paying $47 million in upfront payments to license rights to the undisclosed drug outside China, Hong Kong, Macao, and Taiwan, with another $1.36 billion in potential milestone payments plus royalties on sales.

A total of $17 million of the upfront payment has already been paid by Merck as part of an earlier collaboration on the drug. Kelun Pharma said that the deal would accelerate its entry into international markets.

Kelun Pharma – which has a subsidiary in the US known as Klus Pharma – is developing a wide range of small molecules, monoclonal antibodies, bispecific antibodies and ADC candidates in the pipeline targeting both oncology and non-oncology indications.

While the two partners are being coy on the alliance, there has been speculation that the deal could be focused on Kelun Pharma's TROP2-targeting antibody-drug conjugate (ADC) SKB264, or perhaps its HER2-targeting ADC A166.

Both drugs have reached the phase 2 development stage in China and are also in early-stage testing in the US, but fingers are being pointed at SKB264, as TROP2 is a validated target and the drug could serve as a companion to Merck's immuno-oncology blockbuster Keytruda (pembrolizumab).

Merck is already pairing Keytruda with AstraZeneca and Daiichi Sankyo's TROP2-directed ADC datopotamab deruxtecan in phase 3 trials to see if the combination can perform better than Keytruda alone in previously-untreated non-small cell lung cancer (NSCLC) patients.

On Merck's recent first-quarter results call, the company's president Rob Davis reiterated the company's desire to build its pipeline through external partnerships.

Valuations for assets remain high – particularly in the US – and that has placed something of a brake on business development deals, which Merck has been eyeing to reduce its reliance on Keytruda in future.

Davis said the company is "not seeing a fundamental shift in seller expectations as of this point." He suggested that with a challenging environment for biotechs seeking to raise money through public listings, there may be some movement as they face financial constraints.